Acapital 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 orintangible, fixed or circulating. Land and building, plant and machinery, motorcar, furniture,jewellery, route permits,goodwill, tenancy rights,patents,trademarks,shares,debentures,mutual funds,zero-coupon bonds are some examples of what is 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, generator, etc. is the examples of personal effects. (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
Infinancial economics, a distinction is made betweencapital and other assets. Capital refers to anyasset 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 objectivecapital 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), andintellectual property (including software), that have an estimated useful life (also known asservice 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 fulllife-cycle cost, including alldirect andindirect costs associated with theplanning,engineering, procurement includingconstruction (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 othercapital lease, regardless of whether the title has passed to the Federal Government; through anoperating lease for an asset with an estimated useful life of two years or more; or through an exchange. Capital assets include theenvironmental 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 topublic capital orinfrastructure 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.SeeInternational Public Sector Accounting Standards for details. SeeTriple bottom line for widely used public sector accounting methods in whichnatural capital andsocial capital are characterized not asintangibles orexternalities but as actual capital assets.
In some income tax systems (for example, in the United States), gains and losses from capital assetsare 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 assetsexcept inventory of supplies or property held for sale (including subdivided real estate),depreciable property used in a business, accounts ornotes 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
In their textbook on thefinancial accounting, authors Clyde P. Stickney andRoman L. Weil[9] advise that the term should be avoided except intax accounting in the US private context, to counter its usage in other contexts vaguely. For example, it is often used as a synonym forfixed assets[10] or for investments insecurities.[9]
Several public sector standards in global use, notablytriple bottom line accounting as defined byICLEI for world cities, require that employees or the environment or something else be treated as a capital asset. In this context, it means managers have a responsibility to maintain, and to report changes in value as gains or losses of the capital assets.[11]
Capital assets should not be confused with thecapital a financial institution is required to hold. Thiscapital is computed from the right-hand side of thebalance sheet whileassets are found on the left-hand side.[9]
^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.
