Capital Asset

The term capital asset is used to define an asset that is not exchanged for cash during the regular course of operation of a business and is generally hold for its contribution in generating profits for the company. It is also expected that the benefits earned from a fixed asset will continue for more than a year. Assets owned by individuals for investment or personal purposes can be termed as capital asset. Generally, land, major equipment and buildings fall under capital assets. Even copyrights, trademarks, vehicles, patents and construction works can be counted as this type of asset. You cannot easily turn these assets into cash and are recorded on the balance sheet in terms of their original cost. But, as time passes, the asset will become worthless and then the company will increase the amount of depreciation so that the net book value of the equipment also indicates its reduced price.

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Edited and Updated 31st May 2014

 

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