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Capital Asset Definition

A capital asset, whether owned by a company or individual, is a long-term asset utilized to generate income, appreciate in value, or facilitate ongoing business operations. Typically lasting over a year and not intended for sale in regular operations, examples encompass property, plants, equipment, vehicles, machinery, and investment securities.

What is a Capital Asset?

A capital asset is essentially property anticipated to provide value for an extended period. These assets are core to an organization's productive base and are usually expected to be utilized for over a year without being sold as part of regular business operations. Companies, especially in asset-intensive sectors, allocate significant resources to acquire capital assets.

What are the Characteristics of a Capital Asset?

Key characteristics that define a capital asset under major accounting frameworks include:

  • An expected useful life beyond one year.
  • Acquisition cost above the capitalization limit set by the company.
  • A distinction from inventory, as it’s not meant to be sold in normal business operations.
  • Limited liquidity, indicating it’s not easily convertible into cash.

It's worth noting that the tax perspective on what constitutes a capital asset differs, often including all property held by a taxpayer except for inventory and accounts receivable.

Examples of Capital Assets

Capital assets can range widely, including buildings, computer equipment and software, land and land improvements, furniture, machinery, and vehicles.

Terms Similar to Capital Asset

Other common terms for capital assets include fixed assets or property, plant, and equipment (PP&E).

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