Capital asset definition
/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
Examples of capital assets are buildings, computer equipment, computer software, land, land improvements, furniture and fixtures, machinery, and vehicles.
Terms Similar to Capital Asset
A capital asset is also known as a fixed asset or as property, plant and equipment.