Capital goods are tools created for a business to use in producing consumer goods. Capital goods have a useful life of over one year and are considered tangible assets. Examples of capital goods include buildings, vehicles, machinery, and equipment.
Because capital goods have a long lifespan, they are depreciated rather than expensed. Depreciation accounts for the loss of the asset’s value each year of its lifetime. Depreciation is taken by determining the capital goods’ lifespan, then taking partial depreciation each year. For example, a capital good with a lifespan of 20 years is depreciated at the rate of 1/20 per year.