A capital asset is defined as property of any kind held by an assessee. It need not be connected to the assesse’s business or profession. The term encompasses all kinds of property, movable or immovable,
tangible or
intangible, fixed or circulating. Land and building, plant and machinery, motorcar, furniture,
jewellery, route permits,
goodwill, tenancy rights,
patents,
trademarks,
shares,
debentures,
securities, units,
mutual funds,
zero-coupon bonds etc. are all considered capital assets.[1][2]
Any stocks in trade, consumable stores, or raw materials held for the purpose of business or profession have been excluded from the definition of capital assets.
Any movable property (excluding jewellery made out of gold, silver, precious stones, and drawing, paintings, sculptures, archeological collections, etc.) used for personal use by the assessee or any member (dependent) of assessee's family is not treated as capital assets. For example, wearing apparel, furniture, car or scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc. is the examples of personal effects. (But see IRS publication 544 chapter 2.)
Agricultural land situated in rural area.
6.5% gold bonds or 7% gold bonds 1980, national defense gold bond 1980, issued by the central government.
Special bearer bonds, 1991
Gold deposit bonds issued under gold deposit scheme, 1999.
Security deposits issued under gold monetisation scheme 2015
Specific common definitions
In
financial economics, a distinction is made between
capital and other assets. Capital refers to any
asset used to make money as opposed to other assets used purely for personal enjoyment or consumption. The goal of the distinction is to ensure personal taste does not play a role in valuation of capital. However, differences of opinion still are possible based on how much money the asset will produce. With the further assumption that people agree on the probability distribution of future cash flows, it is possible to have an objective
capital asset pricing model. Even without the assumption of an agreement, it is possible to set rational limits on capital asset value.[3][4]
For United States Federal government accounting, capital assets have been defined including land (including parklands), structures, equipment (including motor and aircraft fleets), and
intellectual property (including software), that have an estimated useful life (also known as
service life) of two years or more. Capital assets exclude items acquired for resale in the ordinary course of operations or held for the purpose of physical consumption such as operating materials and supplies.[5]
The cost of a capital asset is its full
life-cycle cost, including all
direct and
indirect costs associated with the
planning,
engineering, procurement including
construction (purchase price and all other costs incurred to bring it to a form and location suitable for its intended use), operations and maintenance (including service contracts), and disposal.[5]
Capital assets may be acquired in different ways: through purchase, construction, or manufacture; through a lease-purchase or other
capital lease, regardless of whether the title has passed to the Federal Government; through an
operating lease for an asset with an estimated useful life of two years or more; or through an exchange. Capital assets include the
environmental remediation of land to make it useful, leasehold improvements and land rights; assets owned by the Federal Government but located in a foreign country or held by others (such as Federal contractors, State and local governments, or colleges and universities); and assets whose ownership is shared by the Federal Government with other entities.[5]
Capital assets include not only the assets as initially acquired but also additions, improvements, modifications, replacements, rearrangements and reinstallations, and major improvements (but not ordinary repairs and maintenance).[5]
For State or Local governmental accounting in the United States with reference to
public capital or
infrastructure a capital asset is defined as any asset used in operations with an initial useful life extending beyond one reporting period.[6] Generally, government managers have a "stewardship" duty to maintain capital assets under their control. See
International Public Sector Accounting Standards for details. See
Triple bottom line for widely used public sector accounting methods in which
natural capital and
social capital are characterized not as
intangibles or
externalities but as actual capital assets.
In some income tax systems (for example, in the United States), gains and losses from capital assets
are treated differently than other income. Sale of non-capital assets, such as inventory or stock of goods held for sale, generally is taxed in the same manner as other income. Capital assets generally include those assets outside the daily scope of business operations, such as investment or personal assets. The United States system defines a capital asset by exclusion.[7] Capital assets include all assets except inventory of supplies or property held for sale (including subdivided real estate),
depreciable property used in a business, accounts or
notes receivable, certain commodities derivatives and hedging items, and certain copyrights and similar property held by the creator of the property. The United Kingdom has an even broader definition.[8]
US tax definition versus broader economic definition
A well-known
financial accounting textbook[9] advises that the term be avoided except in
tax accounting because it is used in so many different senses, not all of them well-defined. For example it is often used as a synonym for
fixed assets[10] or for investments in
securities.[9]
However this advice is questionable beyond the US private context. Several public sector standards in global use, notably
triple bottom line accounting as defined by
ICLEI for world cities, require that employees or the environment or something else be treated as a capital asset. In this context it means something managers have a responsibility to maintain, and to report changes in value as gains or losses.[11]See
human capital,
natural capital,
triple bottom line,
human development theory.
Capital assets should not be confused with the
capital a financial institution is required to hold. This
capital is computed from the right-hand side of the
balance sheet while
assets are found on the left-hand side.[9]See
Basel III for a summary of how such requirements are proposed to be calculated.
^
abcdOffice of Management and Budget (OMB) Circular A–11: Planning, Budgeting, and Acquisition of Capital Assets, Supplement-Capital Programming Guide.(2-14) Accessed at
[1]
^Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, paragraph 19.
A capital asset is defined as property of any kind held by an assessee. It need not be connected to the assesse’s business or profession. The term encompasses all kinds of property, movable or immovable,
tangible or
intangible, fixed or circulating. Land and building, plant and machinery, motorcar, furniture,
jewellery, route permits,
goodwill, tenancy rights,
patents,
trademarks,
shares,
debentures,
securities, units,
mutual funds,
zero-coupon bonds etc. are all considered capital assets.[1][2]
Any stocks in trade, consumable stores, or raw materials held for the purpose of business or profession have been excluded from the definition of capital assets.
Any movable property (excluding jewellery made out of gold, silver, precious stones, and drawing, paintings, sculptures, archeological collections, etc.) used for personal use by the assessee or any member (dependent) of assessee's family is not treated as capital assets. For example, wearing apparel, furniture, car or scooter, TV, refrigerator, musical instruments, gun, revolver, generator, etc. is the examples of personal effects. (But see IRS publication 544 chapter 2.)
Agricultural land situated in rural area.
6.5% gold bonds or 7% gold bonds 1980, national defense gold bond 1980, issued by the central government.
Special bearer bonds, 1991
Gold deposit bonds issued under gold deposit scheme, 1999.
Security deposits issued under gold monetisation scheme 2015
Specific common definitions
In
financial economics, a distinction is made between
capital and other assets. Capital refers to any
asset used to make money as opposed to other assets used purely for personal enjoyment or consumption. The goal of the distinction is to ensure personal taste does not play a role in valuation of capital. However, differences of opinion still are possible based on how much money the asset will produce. With the further assumption that people agree on the probability distribution of future cash flows, it is possible to have an objective
capital asset pricing model. Even without the assumption of an agreement, it is possible to set rational limits on capital asset value.[3][4]
For United States Federal government accounting, capital assets have been defined including land (including parklands), structures, equipment (including motor and aircraft fleets), and
intellectual property (including software), that have an estimated useful life (also known as
service life) of two years or more. Capital assets exclude items acquired for resale in the ordinary course of operations or held for the purpose of physical consumption such as operating materials and supplies.[5]
The cost of a capital asset is its full
life-cycle cost, including all
direct and
indirect costs associated with the
planning,
engineering, procurement including
construction (purchase price and all other costs incurred to bring it to a form and location suitable for its intended use), operations and maintenance (including service contracts), and disposal.[5]
Capital assets may be acquired in different ways: through purchase, construction, or manufacture; through a lease-purchase or other
capital lease, regardless of whether the title has passed to the Federal Government; through an
operating lease for an asset with an estimated useful life of two years or more; or through an exchange. Capital assets include the
environmental remediation of land to make it useful, leasehold improvements and land rights; assets owned by the Federal Government but located in a foreign country or held by others (such as Federal contractors, State and local governments, or colleges and universities); and assets whose ownership is shared by the Federal Government with other entities.[5]
Capital assets include not only the assets as initially acquired but also additions, improvements, modifications, replacements, rearrangements and reinstallations, and major improvements (but not ordinary repairs and maintenance).[5]
For State or Local governmental accounting in the United States with reference to
public capital or
infrastructure a capital asset is defined as any asset used in operations with an initial useful life extending beyond one reporting period.[6] Generally, government managers have a "stewardship" duty to maintain capital assets under their control. See
International Public Sector Accounting Standards for details. See
Triple bottom line for widely used public sector accounting methods in which
natural capital and
social capital are characterized not as
intangibles or
externalities but as actual capital assets.
In some income tax systems (for example, in the United States), gains and losses from capital assets
are treated differently than other income. Sale of non-capital assets, such as inventory or stock of goods held for sale, generally is taxed in the same manner as other income. Capital assets generally include those assets outside the daily scope of business operations, such as investment or personal assets. The United States system defines a capital asset by exclusion.[7] Capital assets include all assets except inventory of supplies or property held for sale (including subdivided real estate),
depreciable property used in a business, accounts or
notes receivable, certain commodities derivatives and hedging items, and certain copyrights and similar property held by the creator of the property. The United Kingdom has an even broader definition.[8]
US tax definition versus broader economic definition
A well-known
financial accounting textbook[9] advises that the term be avoided except in
tax accounting because it is used in so many different senses, not all of them well-defined. For example it is often used as a synonym for
fixed assets[10] or for investments in
securities.[9]
However this advice is questionable beyond the US private context. Several public sector standards in global use, notably
triple bottom line accounting as defined by
ICLEI for world cities, require that employees or the environment or something else be treated as a capital asset. In this context it means something managers have a responsibility to maintain, and to report changes in value as gains or losses.[11]See
human capital,
natural capital,
triple bottom line,
human development theory.
Capital assets should not be confused with the
capital a financial institution is required to hold. This
capital is computed from the right-hand side of the
balance sheet while
assets are found on the left-hand side.[9]See
Basel III for a summary of how such requirements are proposed to be calculated.
^
abcdOffice of Management and Budget (OMB) Circular A–11: Planning, Budgeting, and Acquisition of Capital Assets, Supplement-Capital Programming Guide.(2-14) Accessed at
[1]
^Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, paragraph 19.