CAPITAL EXPENDITURE

The expenditure incurred by the business enterprise for the purchase of fixed assets or to repay the loan is known as Capital Expenditure. This is the expenditure, the benefit of which accrues to the firm for the long time. This expenditure is also done to increase the capacity, efficiency, life span or economy of an existing fixed asset. These expenditures are posted to the Balance Sheet.

ACCORDING TO WLLIAM PICKLES

“Capital expenditure may be regarded as an outlay resulting in the increase or acquisition of asset or increase in the earning capacity of a business.

The following are regarded as capital expenditure:

• Purchase of furniture, motor vehicles, electric motors, office equipment, loose tools and other tangible assets.
• Cost of acquiring intangible assets like goodwill, patents, copy rights, trade marks, patterns and designs etc.
• Addition or extension of assets.
• Money spent on installation and erection of plant and machinery and other fixed assets.
• Wages paid for the construction of building.
• Structural improvements or alterations in fixed assets resulting in an increase in their useful life or profit earning capacity.
• Cost of issue of shares and debentures (certain expenditures are incurred by the companies when share and debentures are issued).
• Legal expenses on raising loans for the purchase of fixed assets.
• Interest on loan and capital during the construction period.
• Expenditures incurred for the development of mines and plantations etc.
• Money spent to bring a second-hand asset into working condition.
• Cost of replacing factory building from an old place to a new arid better site.
• Premium given for a lease.

FEATURES OF CAPITAL EXPENDITURE                

TERM: This expenditure is done for long term.

AMOUNT: The amount of expenditure is large.

CAPITALIZATION: The amount of expenditure is capitalized.

SHOWN IN: This expenditure is shown in the Balance Sheet or Position Statement.

OUTLAY: This expenditure is non- recurring in nature.

BENEFIT: The benefit of this expenditure is incurred for more than one year.

EARNING CAPACITY: This expenditure is done to increase the earning capacity of the business.

MATCHING CONCEPT: This expenditure is not matched with capital receipts.

Also Study	Also Study	Also Study	Also Study
Accounting	Non profit organisation	Depreciation	Liquidity ratios
Nature of Accounting	Receipts and Payments Account	Depreciation Accounting	Acid Test Ratio
Benefits of Accounting	Scope of accounting	Hire Purchase Accounting	Cash Ratio
Difference between cost accounting and financial accounting	Financial accounting, cost accounting and management accounting	Difference between hire purchase and instalment system	Financial ratio analysis
Difference between transaction and event	Transactions	Users of Accounting	Ratio analysis
Limitation of Accounting	Capital Expenditure	Instalment System	Difference between consignment and sale
Book Keeping	Revenue Expenditure	Reserves Accounting	Abnormal loss vs normal loss in consignment
Accountancy	Difference between capital and revenue expenditure	Provisions	Treatment of loss on consignment
Accounting as science or an art	Accounting Equation	Single entry system	Accounting treatment of consignment
Book Keeping vs accounting	Deferred Revenue Expenditure	Difference between statement of affairs and balance sheet	Joint venture vs consignment
Book keeping vs accountancy	Capital receipt	IFRS	Departmental Accounting
Accounting vs accountancy	Revenue receipt	Balance Sheet	Methods of departmental accounting
Basis of Accounting	Difference between capital and revenue receipt	Profit and loss Account	Allocation of expenses in departmental accounting
Branches of accounting	Difference between accounting concepts and conventions	Trading Account	Inter-departmental transfers
Cash and mercantile system of accounting	Accounting Standards	Voyage Account	Different types of branches
Accounting Principles	Objectives of Accounting	Accounting for Incomplete Voyage	Departmental vs Branch accounting
Golden ru les of accounting	Process of Accounting	Joint venture	Methods of branch accounting
Double entry system of book keeping	Scope of Accounting	Joint Venture Vs Partnership	Incorporation of branch trial balance
Double entry vs Single entry system	Accounting Concepts vs Accounting conventions	Methods of recording transactions in Joint Venture	Garner VS Murray Rule
History of Accounting	Difference between provisions and reserves	Consignment