Capital assets are assets that are owned by the company, purchased for the intent of earning an income, and are intended for resale. True or False?

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks whether the statement 'Capital assets are assets that are owned by the company, purchased for the intent of earning an income, and are intended for resale' is True or False.
Option 1: True. This option asserts that capital assets fit a definition that emphasizes ownership, income-generating intent, and resale purpose. In accounting and finance, capital assets (often called fixed assets or long-term assets) are typically acquired to support operations, production, or service delivery over many periods, not primarily to be resold in the ordinary course of business. Their main characteristics are long-term use, depreciation over time, and contribution to ongoing business capacity. The inclusion of 'intended for resale' conflicts with the standard concept of a capital asset, which is not held for immediate sale to customers.
Option 2: False. This option correctly signals a mismatch between the statement and the conventional definition. Capital assets are generally owned and used over multiple accounting periods to earn income indirectly through production or services, not acquired with the primary purpose of resale. If the asset were intended for resale, it would typically be classified as inventory or trading stock, not a capital asset. The nuance here is about the asset’s role in the business model and its expected use period, which differentiates capital assets from inventory.
Why the True option is flawed: It conflates the purpose of holding the asset (use in operations) with a resale objective, which is characteristic of inventory rather than capital assets. This mischaracterizes how capital assets contribute to revenue generation and financial reporting. 
Why the False option is correct: It aligns with standard accounting distinctions between long-term, depreciable assets and short-term inventory intended for sale. It correctly implies that capital assets are not primarily purchased to be resold, but rather to support business activities over time. 
In summary, the statement mixes up the primary purpose of capital assets with that of inventory, leading to an inaccurate characterization of capital assets.

BBK99E2 - Basic Bookkeeping Level 2 Part 2 - Online Exam

Capital assets are assets that are owned by the company, purchased for the intent of earning an income, and are intended for resale. True or False?

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