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
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.