Capital assets are properties that are expected to generate value for a business over a long period of time. They’re the productive base of a given organization, and they have several distinct characteristics and potential for growing or benefitting the business. Here are some of the common types of capital assets out there.
A capital asset, for one, has an anticipated useful life of over a year. The acquisition cost goes beyond a company-designated minimum amount, which is called capitalization limit. It’s not expected to be sold as a normal part of operations, as is the case for inventory. In addition, it tends not to be easily convertible to cash. From a tax perspective, a capital asset is classified as all property held by a taxpayer, except inventory and accounts receivable.
Buildings, machinery, computer hardware and equipment, and vehicles – these are all capital assets. But there are other kinds, including aircraft, art, construction equipment, and fixtures. There are also copyrights, customer lists, licenses, land improvements, patents, research and development, securities, and trademarks. Capital assets also involve factories, land, natural resources, network equipment, processing facilities, satellites, roads, and tools and dies.
In summary, a capital asset is a long-lasting item that can be reasonably expected to contribute to a business’s future profits. Many companies create written policies around these capital assets dictating which of them must be capitalized as well as the minimum threshold of purchase price.
Ryan Jacob heads CAE (Capital Asset Exchange & Trading), which is a company that facilitates a marketplace for entities who wish to buy or sell secondary capital equipment in the semiconductor industry. Learn more on this page.