What are Investment Goods?

Malcolm Tatum

Also known as capital goods, investment goods are the physical goods that are used by a business to manufacture products that are then sold to other businesses or directly to consumers. The most basic examples of these types of goods include the physical facility used in the manufacturing process, the machinery that is used throughout the plant facility and the equipment that is directly used in the production of the goods. Identifying certain assets as investment or capital goods is important from an accounting standpoint, both in terms of accurately assessing operational costs and in the reporting and remittance of taxes due on those assets.

Investment goods are the physical goods that are used by a business to manufacture products.
Investment goods are the physical goods that are used by a business to manufacture products.

Investment goods have a direct impact on the ability of a business to produce goods that can in turn be sold to customers and generate revenue for the company. As the name implies, the company is making an investment in the plant facility or office building that houses the operation, as well as any equipment and machinery that aids in the production process. As long as the output of those goods is managed efficiently and sales levels are maintained within a reasonable range, there is a good chance that the money invested in the capital goods will be justified. When this is the case, the company is able to generate enough revenue to cover operational expenses and still generate some sort of profit.

By accurately accounting for the cost of investment goods, it is easier for a company to determine if the output is sufficient to create the finished products that can be sold to consumers. Unless that output yields enough products to at least cover the costs associated with investment goods, the business has little to no chance of succeeding. For this reason, companies continually track any expenses related to the production process and make sure the proper balance between costs and returns is maintained.

The identification of investment goods within a business structure is also important from a tax perspective. In many nations around the world, taxes are assessed on these assets using a tax schedule that is different from the schedules used with other assets owned by the company. Depending on current tax laws, the business may be able to claim certain deductions or depreciation on the plant, equipment, or machinery used in the production process. This makes it all the more important to understand exactly what the tax agency will consider investment goods, and arrange the accounting structure to comply with those standards. Doing so makes it easier to claim allowable deductions that help to minimize the tax burden, and keep more of the earnings in the control of the business.

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