Manufacturing companies heavily rely on their capital assets to generate revenues and profits. A capital asset can be tangible or intangible and movable or immovable. Typical forms of tangible capital assets for a manufacturing company include land, buildings, machinery, plants, factories and furniture. Typical intangible capital assets include goodwill, patents and trademarks.

Capital Assets

A capital asset is acquired or developed by a manufacturing company with an intent to use it in the production process to generate benefit in the future. The asset must generate the benefit for the manufacturing company for a time period longer than a year. Manufacturing companies record tangible capital assets on their balance sheets as part of property, plant and equipment. Intangible assets, such as goodwill, trademarks and patents, are recorded as separate line items under the noncurrent assets section of the balance sheet. Typically, capital assets are depreciated over their useful lives and manufacturing companies show a separate line item called accumulated depreciation on their balance sheets.

Tangible Capital Assets

A manufacturing company ordinarily buys land to build plants and factories on it that house the company's equipment and machinery. During the factory construction phase, manufacturing companies are allowed to capitalize any costs associated with building their plants. Any equipment and machinery with a useful life beyond one year are capitalized.

For tax and accounting purposes, land is assumed to have indefinite life and is therefore not depreciated. Plants, buildings, factories, machinery and other equipment have finite useful lives and the company depreciates them before the cost basis is fully depleted. The U.S. generally accepted accounting principles, or GAAP, allow various depreciation methods, such as the declining balance method, the straight line method and sum-of-the-years' digits method.

In addition to outright purchase, companies can lease capital assets. Under GAAP, if certain criteria for a capital lease are satisfied, companies are required to capitalize assets and record the respective obligation on the liability side of the balance sheet. Typical forms of leased capital assets include buildings, land, machinery and equipment.

Intangible Capital Assets

A trademark is another example of capital assets the manufacturing company may record on its balance sheet as a result of merging or acquiring another company or defending the trademark. Ordinarily, it is difficult for manufacturing companies to estimate the cost basis of internally developed trademarks, and therefore they are seldom capitalized. Trademarks have indefinite lives and are not amortized.

Goodwill is another capital asset a manufacturing company puts on its balance sheet as a result of the acquisition of another company for a price that exceeds the fair value of net assets acquired. Under GAAP, goodwill is not amortized but is assessed annually for impairment. If the manufacturing company's management deems the underlying assets behind goodwill impaired, the company records an impairment charge on its income statement.


When a manufacturing company sells capital assets, it records the capital gains or capital losses. If the remaining unamortized cost basis exceeds the proceeds received on the sale, the company records a capital gain. Also, the manufacturing company can retire a capital asset by writing it off the books and recognizing it as a capital loss if there is an unamortized cost basis left for the asset.

  1. What are typical examples of capitalized costs within a company?

    Learn examples of company capitalized costs, including expenses incurred to put fixed assets, software development costs, ... Read Answer >>
  2. How are net tangible assets calculated?

    Learn about net tangible assets, what it measures and how to calculate a company net tangible assets using examples. Read Answer >>
  3. How do intangible assets show on a balance sheet?

    Intangible assets are often intellectual assets, but their valuation and accounting can vary, depending on whether they're ... Read Answer >>
  4. What are the different types of tangible assets?

    Learn what tangible assets are, what other names they are called, what specific items are included and how they are handled ... Read Answer >>
  5. How do fixed assets and current assets differ?

    Current assets can be converted into cash in less than one year, while fixed assets are long-term physical assets. Read Answer >>
Related Articles
  1. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  2. Investing

    Goodwill versus other intangible assets: What's the difference?

    "Intangible" assets don't possess physical substance. Yet they are quantifiable, and of great importance to any business.
  3. Investing

    Writing Down Goodwill

    An ill-fated acquisition of Hewlett-Packard's demonstrates what can happen when goodwill goes bad.
  4. Investing

    Goodwill Impairment Test: When You Overpay in M&A

    Overpaying for acquisitions can result in goodwill impairment charges and loss in stock value. How do companies test whether they have paid too much?
  5. Investing

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  6. Investing

    Key Financial Ratios for Manufacturing Companies

    An investor can utilize these financial ratios to determine whether a manufacturing company is efficient, profitable and a good long-term investment option.
  7. Investing

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  8. Investing

    Impairment charges: The good, the bad, and the ugly

    An impairment charge is a term used to describe writing off worthless goodwill. Learn its potential impact is on EPS.
  1. Business Asset

    A business asset is a piece of property or equipment purchased ...
  2. Goodwill

    Goodwill is an intangible asset that arises as a result of the ...
  3. Intangible Asset

    An intangible asset is an asset that is not physical in nature ...
  4. Goodwill To Assets Ratio

    The goodwill to assets ratio is a ratio that measures how much ...
  5. Capitalization

    Capitalization, in accounting, is when the costs to acquire an ...
  6. Real Asset

    A real asset is a physical or tangible asset, such as gold, real ...
Trading Center