What Are Capital Assets And Non-Capital Assets In A Business
What Are Capital Assets
Capital assets are those assets that generate value for a business in the long run. Capital assets for a business that involves production are buildings, computers, machines, vehicles, and other PPE items.
A capital asset is something that a business acquires for more than one year and it is not intended to sale in the normal part of the business operations. They are also called long-term or fixed assets.
If a company acquires a van to support business transportation then it is included as a capital asset while on the other hand if a company buys a van for the purpose of selling then it is included as an inventory in the balance sheet.
Characteristics Of Capital Assets
- The useful life of a capital asset is more than one year
- The cost of the asset is more than the capitalization limit
- It is not acquired for selling or it is not sold in the normal part of the business
- It takes time to convert into cash.
Examples Of Capital Assets
The following are the most popular examples of capital assets in a business.
- Building
- Computer
- Vehicles
- Land
- Machine
- Equipment
- Furniture
- Power Plant
- Production Facilities
- Land Improvement
- Building Improvement
- Business Infrastructure, etc.
What Are Non-Capital Assets
Non-Capital assets are assets that can easily be liquidated within a short time to support day-to-day business operations. These assets are short-term assets that have a very short life typically one year or less.
Examples Of Non-Capital Assets
The following are the most popular examples of non-capital assets in a business.
- Cash and Cash Equivalents
- Prepaid Insurance
- Prepaid Expense
- Inventories
- Short Term Investments
- Supplies
- Raw Material
- Work In Progress
- Finished Goods
- Bank Deposits
- Temporary Investments
- Stocks Held For Selling
- Accrued Income
- Current Portion Of Deferred Tax
Difference Between Capital And Non-Capital Assets
As we know that capital and non-capital assets both are different the main difference between both them is their use and purpose in a business. Other differences are the followings:
| Capital Assets | Non Capital Assets |
|---|---|
| They contribute to the business operations | They also contribute to small parts of the business |
| Have limitations on liquidation | Have no limitation on liquidation |
| Acquire for a long period | Acquire for a short period |
| They are depreciated | They are not depreciated |
| It significantly impacts the balance sheet | Normally, it impacts the balance sheet but not as a capital asset |
FAQs
Is a laptop a capital asset?
If a company uses the laptop for regular business operations then it is included in the balance sheet as a fixed asset.
What are the 5 types of capital assets?
- Land
- Trademark
- Machine
- Vehicle
- House
Is cash a capital asset?
Cash is generally considered a non-capital asset.
Is the real property a capital asset?
Real property can be a capital asset but if a business acquires real properties with the vision of selling then it is included in the inventory which does not meet the criteria of capital assets.
Is the rental property a capital asset?
Rental property is not a capital asset.
Is cryptocurrency a capital asset?
Cryptocurrency is considered a capital asset and one must have to pay the capital gain tax when selling at a higher price.
How are capital assets taxed?
Capital gain tax will be paid on the profit once the asset is sold that is acquired by a company for more than one year.
Is land always a capital asset?
When someone acquires land for the purpose of investment it is considered a capital asset but if someone acquires land with the vision of selling then it is classified as an inventory.
Can books be a capital asset?
Books are the capital asset for a library and for a stationery shop, it is classified as an inventory.