Canadian FAQ #209 – Capital Assets On A Balance Sheet

Grant Gilmour

What are Capital Assets on a Balance Sheet? The Capital Assets category appears under Long Term Assets on a Balance Sheet. It is also referred to as Property, Plant and Equipment. This section is comprised of various property such as buildings, machinery, computers, vehicles and other equipment.


An asset is considered capital if it has a useful life of more than one year and is expected to be used to generate revenue over time. The carrying value of the Capital Asset on the Balance Sheet represents the total cost less depreciation to date. This is referred to as the net book value.

Land is not a depreciable asset as it is expected to appreciate over time. For accounting purposes, assets are commonly depreciated using the straight line method. Depreciation is also commonly referred to as amortization and it is presented as an operating expense on the Income Statement. For example, a piece of equipment may have a useful life of 5 years so it is depreciated over 5 years for accounting purposes. If this equipment was purchased for $1,000, then depreciation expense will be recorded at $200 per year. The net book value of this equipment after year one would be $800 ($1,000 less $200).

For tax purposes, assets are depreciated using the declining balance method. The rate of depreciation depends on which class of assets is categorized in. For example, equipment is a Class 8 property that is depreciated at a rate of 20% per year. The net carrying value of the depreciable property, referred to as undepreciated capital cost, is multiplied by the depreciation rate to calculate the tax deduction. For tax purposes, the depreciation is referred to as capital cost allowance. In the year of the capital asset addition, the half year rule applies and you only receive half of the deduction for tax on the addition.

When a capital asset is sold, you may realize a gain or loss on the disposal. Due to the different depreciation methods for tax and accounting purposes, the undepreciated capital cost often does not equal the net book value as the net effect of disposal of assets is different. A capital asset may also be written off on the books if it has been discarded or removed from service.


If you have any questions about Capital Assets or other Balance Sheet items, get in touch.

Grant has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.

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