What it means
In law, property is generally split into two groups. Real property is land and whatever is permanently attached to it, such as a building, while personal property is everything else.
Personal property can be tangible, meaning you can touch it, or intangible, meaning it is a right or a claim, such as a share certificate or a trademark. For a business, personal property is usually most of what appears on the balance sheet outside of buildings.
Machinery, computers, vehicles, office furniture and inventory are all personal property, and so are brand rights and software. Each of these is recorded as an asset, and tangible equipment is normally depreciated (its cost spread across the years it is used).
Transferring ownership is typically simpler than for land. A sale of equipment can be completed with a bill of sale and delivery, whereas land requires a formal deed and a land registry entry.
That ease also means that personal property is the usual collateral for business loans, where the lender takes a security interest in the equipment or stock. Tax and insurance rules vary widely by place.
Some local authorities charge an annual tax on business personal property, while others do not, and an insurance policy for a building will not necessarily cover its contents. A business should therefore keep a register of its movable assets, with values and locations, so it can insure them correctly and answer tax queries.
A common source of confusion is the fixture, which is an item attached to a building in a way that makes it part of the real property. A free-standing printer is personal property, but a built-in industrial oven bolted to the floor may be treated as a fixture.
This can affect who owns the item when a lease ends or a building is sold. Valuation is the practical challenge.
Equipment is recorded at cost less depreciation in the accounts, but its insurance value should be the cost of replacing it today, and its sale value may differ from both. Keeping all three figures in the asset register avoids unpleasant surprises when something is lost, stolen or sold.
In practice
Real-world examples.
Example
A landscaping company owns mowers, trucks and trimming tools. When it applies for a loan, the bank takes these items as collateral, and the finance manager provides a list showing each asset and its estimated value.
Example
A cafe owner closes her business and sells the espresso machine, tables and chairs to a new owner. The sale is documented by a simple bill of sale, while the lease on the premises is dealt with separately because it concerns real property.
Example
An investor holds shares in a listed company and a patent licence. Neither can be touched, yet both are personal property, and each can be sold, gifted or left in a will.
Formula
Calculation
Net book value of personal property = original cost - accumulated depreciation
Annual straight-line depreciation = (cost - residual value) / useful life in years
Suppose a company buys a delivery van for $45,000 that it expects to use for 5 years and then sell for $5,000. Annual depreciation is (45,000 - 5,000) / 5 = 40,000 / 5 = $8,000. After 3 years, accumulated depreciation is 3 x 8,000 = $24,000, so the net book value is 45,000 - 24,000 = $21,000.Case study
Seen in the real world.
Maplewood Print Works is an illustrative, fictional printing firm that moved to a new building. The owner assumed that the building insurance would cover everything on the premises, but the insurer pointed out that the presses, paper stock and computers were business personal property and needed their own policy.
The finance manager catalogued every movable asset, recording cost, purchase date, location and replacement value. The register showed total replacement cost of $1,200,000 against the $700,000 of cover the owner had assumed.
The firm increased its cover, and the register also helped it answer a local tax return for business equipment. The illustrative lesson is that a simple asset list prevents both underinsurance and filing errors.
Watch out
Common mistakes.
- Assuming that building insurance automatically covers the contents, equipment and stock inside it.
- Treating every item in a building as personal property, when fixtures attached to the structure may count as part of the real property.
- Forgetting that intangible items such as shares, patents and software are also personal property and need to be recorded and protected.
Questions
People also ask.
Is a car personal property?
Yes, a vehicle is tangible personal property, although registration and title rules often make its transfer more formal than for smaller items.
Is cash personal property?
Yes, money and bank balances are generally treated as personal property, though they are usually reported separately as cash or financial assets.
Can personal property be used as security for a loan?
Yes, lenders commonly take a security interest in equipment, receivables or inventory, and register it so that other creditors know about the claim.
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