Capital Assets Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Capital Assets, written in plain English, along with examples of how it is used.
What is Capital Assets?
(n) Capital assets are the assets owned and acquired by a business entity to draw benefits from such assets indirectly for longer periods. Eg. Plant and machinery, land and building
History and Meaning of Capital Assets
Capital assets are long-term assets essential to the operation of a business, as they provide a means of generating revenue for the company over an extended period. Examples of capital assets would be machinery, buildings, land, patents, trademarks and other intellectual property, software, and vehicles. Companies must record these assets on their balance sheets at the original cost, and they are depreciated over their useful life.
Examples of Capital Assets
- If a company invests in new machinery with a ten-year lifespan, it is classified as a capital asset.
- A restaurant purchasing land to build its new location would record it as a capital asset.
- A hotel company would record the purchase of a new hotel property as a capital asset.
- A software company that acquires a patent to protect their software system would list the patent as a capital asset.
- An automobile dealer that purchases a fleet of vehicles for rental purposes would categorize them as capital assets.
Legal Terms Similar to Capital Assets
- Fixed Assets: Assets with a life greater than one year and cannot be quickly converted to cash.
- Depreciation: The accounting method to record the cost of a long-term asset over its useful life.
- Intangible Assets: Non-physical assets that have no fixed value but provide future benefits for a business such as patents, trademarks, and goodwill.