What is Capital Equipment?
Capital equipment (CE) is a good with a useful life of longer than 1 year used in the productive operations of a company. It is an investment made by a company to carry on or support its manufacturing activities.
Capital equipment means machinery and equipment purchased or leased, and used in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process of manufacturing, fabricating, mining, or refining. Capital equipment also includes machinery and equipment used primarily to electronically transmit results retrieved by a customer of an online computerized data retrieval system.
What Does Capital Equipment Mean?
Capital equipments are physical items acquired for a productive activity. Companies are frequently investing in these items to expand their operations or to keep up with new techniques or technological advances. From an accounting perspective they are normally recorded as fixed assets, but in order to be classified as such, according to U.S. accounting rules, they must worth more than $5,000 and have an expected life spam of more than 1 year. Some industries spend much more than others when it comes to capital equipment.
Capital intensive businesses such as airlines are an example of this, since most of its business comes from the operation of aircrafts (equipments) the level of capital equipment investments is frequently higher than other industries. On the other hand, manufacturing businesses are also more capital intensive than service businesses. An example of these items would be machinery, trucks, lifting systems, inventory transportation equipment or warehouse racks, among others.
Types of Capital Equipment
Fixed Capital Equipment (FCE)
- Capital equipment is permanently attached to a building.
- FCE has a useful life of more than two years and an acquisition cost of $5,000 or more.
- The removal of the FCE would substantially alter the building’s value.
- Fixed capital equipment items are considered an improvement to the building, and a part of the building.
- Fixed capital equipment items are not issued inventory numbers and therefore are not carried on inventory records.
Examples of fixed capital equipment items are: plumbing fixtures, heating and electrical equipment, built-in shelves and cabinets, and inlaid carpeting.
Movable Capital Equipment (MCE)
- Movable capital equipment is defined as capital equipment, which is not permanently attached to a building or a structure.
- Movable capital equipment is not an integral part of its surroundings. Its removal does not affect the value of the item or the value of the real property.
- MCE items are issued inventory numbers and are carried in the Generalized Inventory file. change in status, i.e., moved, sold, surplusage, stolen, traded-in, etc., must be reported to Purchasing.
- Movable capital equipment is further defined as stationary or portable.
Stationary Capital Equipment (SCE)
- Many items of movable capital equipment are generally housed in the same location because of size and/or application.
- Such items are classified as stationary and their locations are a permanent part of the inventory record.
Portable Capital Equipment (PCE)
- Many items of movable capital equipment because of size, use, or application may constantly be moved from place to place.
- Examples include audio-visual equipment, dictating machines, test meters, etc.
- Items in this category are designated portable capital equipment.
- PCE must be assigned a “home” location. At the “home” location, a record should be kept of the PCE’s current location including the name of the person to whom it is issued. Also, Home locations must be reported to Purchasing so that they can be recorded on inventory records.