Capital Asset

What are capital assets?

Capital assets are pieces of property owned by a company that can generate revenue throughout the year. 

In most cases, a capital asset must have a shelf life of longer than one year to be considered valuable. The company must also buy the asset with the intention of keeping it, rather than buying to sell straight away – that would be considered inventory.

Some capital assets may be purchased for long-term usage, while others may only be needed for a fixed amount of time as part of a project. Capital project management software is used to keep track of operations and costs, including maintaining the capital assets.

Types of capital assets

All capital assets are broken into one of two categories, tangible and intangible assets, or those that can be physically touched and those that can’t.

• Tangible assets. Buildings, land, vehicles, and machinery are all considered to be tangible assets. On a balance sheet, they’re typically listed under the property, plant, and equipment (PP&E) category. These assets can be sold if the company needs money quickly or if a bigger or more advanced asset needs to be purchased.
• Intangible assets. Non-physical goods like stocks, bonds, trademarks, copyrights, and patents can also hold monetary value, but they aren’t items that can be physically seen or touched. The value of intangible assets can be more difficult to quantify than tangible assets so they must be routinely evaluated to ensure that they’re still worth their expected value in case they need to be sold or included as part of a business acquisition valuation.

Basic elements of capital assets

What a capital asset looks like will depend on its type and the needs of the business. For the most common types of capital assets, some examples include:

• Property. Buildings and land are the majority of this kind of capital asset. Examples are a retail storefront, a warehouse or factory, or land slated for future expansion.
• Vehicles. Any of the company’s cars or trucks are in this category. For larger corporations, some employees may use company cars, which are also considered vehicle capital assets.
• Machinery. The machinery required to operate a business depends on the industry. For instance, a hair salon has hair dryers and styling tools, along with commercial plumbing systems to serve customers and launder towels and gowns. A construction company has their own tools and heavy equipment like industrial-sized saws and cranes.
• Technology. Computers, smartphones, printers, or any other technological products that a business owns are technology capital assets. These can depreciate in value over time and may need more frequent upgrades than other assets as new technology develops and the needs of the business change.
• Intellectual property. Patents and trademarks the business uses to protect their inventions are always considered a valuable capital asset. Due to their intangible nature, they’re often harder for businesses to calculate.

Benefits of capital assets

The biggest benefit to owning capital assets is financial, but there are other advantages to a varied asset list, such as:

• Tax savings. As many capital assets depreciate in value over time, this can be taken into account when evaluating expenses for the year. Some assets must be listed as a depreciating asset and counted toward multiple tax years, while others may be written off in a single year to lower a business’s taxable income.
• Potential for growth. Whereas some assets lower in value, others may gain value over the time that the business owns them. Property and intangible assets like investments in stocks and bonds can become lucrative assets when held for several years. For instance, a business may buy a piece of land for a low price and sell it ten years later at a significant profit.
• Daily use functionality. Most tangible assets are property or equipment that the business needs for its everyday operations. Investing in the newest technology or reliable vehicles, for example, helps the business run more efficiently, which can ultimately lead to business growth and increased revenue.

Best practices for capital assets

Whether adding to their already existing assets or looking for more effective ways to manage them, businesses should always:

• Regularly review the asset inventory. Keeping accurate records is essential for staying on top of asset value and ensuring that nothing is lost or losing value at a rapid rate that could impact the business’s finances. At minimum, the location of the asset, its status or condition, relevant expiration dates, and current value should be listed in the inventory database.
• Track asset life cycles. It’s important that businesses monitor all assets from acquisition to sale or disposal. Every asset changes over the course of its lifetime due to wear and tear or market valuations. Organizations can’t set depreciation dates unless they continually track assets.
• Use a centralized management system. Particularly in large companies or those with numerous capital assets, having asset information managed in a single system makes it easier to routinely review value. A centralized system also makes adding or removing assets more straightforward.

Assess and track your business’s resources more accurately with resource management software.