A capital asset is property that is expected to generate value over a long period of time. Capital assets form the productive base of an organization. Examples of capital assets are buildings, computer equipment, machinery, and vehicles. In asset-intensive industries, companies tend to invest a large part of their funds in capital assets. 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.
A capital asset is also known as a fixed asset or as property, plant and equipment.