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What is a Capital Asset?

A capital asset is property that is expected to generate value over a long period of time. It is expected to be used for at least one year, and is not expected to be sold to a firm’s customers in the normal course of business. Capital assets form the productive base of an organization. In asset-intensive industries, companies tend to invest a large part of their funds in capital assets.

What are the Characteristics of a Capital Asset?

According to the major accounting frameworks, a capital asset has the following characteristics:

• It has an expected useful life of more than one year

• Its acquisition cost exceeds a company-designated minimum amount, known as the capitalization limit

• It is not expected to be sold as a normal part of business operations, as would be the case for inventory

• It tends not to be easily convertible into cash

Capital assets are defined differently when viewed from a tax perspective. For tax purposes, a capital asset is all property held by a taxpayer, with the exceptions of inventory and accounts receivable.

Examples of Capital Assets

Several examples of capital assets are as follows:

• Buildings

• Computer equipment

• Computer software

• Copyrights

• Furniture and fixtures

• Land

• Land improvements

• Machinery and equipment

• Patents

• Trademarks

• Vehicles

Terms Similar to Capital Asset

A capital asset is also known as a fixed asset or as property, plant and equipment.

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Fixed Asset Accounting

How to Audit Fixed Assets

FAQs

How are Capital Assets Different from Inventory?

Capital assets are long-term assets used in the production of goods or services and are not intended for sale in the ordinary course of business. In contrast, inventory consists of goods held for resale or for use in producing goods for sale. While capital assets are depreciated over time, inventory is expensed as cost of goods sold when sold.

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Examples of Fixed Assets

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