Capital Asset

  

Question: When is an asset not a capital asset?
Answer: When it has a useful life of less than one year.

We're going to get really philosophical here for a second. In day-to-day living, what a useful life is can be hard to define. Exit philosophers. Enter accountants. In the world of accounting, it is really very simple.

Capital assets that normally have a useful life longer than a year include buildings, land, and major equipment, but they can also include trademarks, patents, copyrights, trucks and even artwork. You normally would not be buying and selling a capital asset on a daily basis...it's there for the long term.

Capital assets are an important line item on a company's balance sheet. If Cupcakes For All bought a new automatic cupcake maker for $10,000 this year, that is the number it would put on its balance sheet. But capital assets are usually depreciated and become worth less over time. So by year five, the book value has decreased and it might only be listed as a $2,000 capital asset on their balance sheet.

Companies can set up their own definition of what assets should be capitalized and figure out the depreciation schedule for each. However, auditors from the IRS will spot those who depreciate an asset for a very long period of time in an attempt to inflate their profits with very small depreciation expenses.

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Finance: What is a Hard Asset?12 Views

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Finance allah shmoop What is Ah hard asset Yeah It

00:07

takes a lot of hard work to get an asset

00:08

like that Okay So hard asset is just one that

00:12

you can bang on touch Engage with cell Alright examples

00:17

Oil it's Hard asset gold Hard of vintage nineteen Fifty

00:21

seven Ferrari with beige leather interior hard four thousand head

00:25

of longhorn cattle in texas A commercial building in the

00:28

best part of town All of these arm or less

00:31

commodities Hard assets Well okay Okay The categories Rare cars

00:35

art coins stamps stuff like that that's where they fit

00:38

So what do you care if something is ah hard

00:40

asset or a soft one Well most or all hard

00:43

assets are commodities and they generally do very well in

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periods of very high inflation when you know stocks were

00:51

getting crushed And yeah the feds raising rates appoint a

00:54

quarter now forever Well equities and bonds will get crushed

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Commodities well generally keep up with the spike in prices

01:02

causing the fed raised rates in the first place So

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they're a good hedge for most investment portfolios And not

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all of them are great forever like check out riel

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Inflation adjusted oil prices the last few decades you had

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not a good run Most not all do well though

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an oil will likely have its day in the sun

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again At some point you lan When in doubt remember

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what kim kardashian and warren buffett said A good asset

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is hard to find and a hard asset is good

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to find But we won't tell you who said which

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