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CAPITAL EXPENDITURE

Posted on July 28, 2019 By commerceiets No Comments on CAPITAL EXPENDITURE

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  • CAPITAL EXPENDITURE
    • FEATURES OF CAPITAL EXPENDITURE                

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.

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AccountingNon profit organisationDepreciationLiquidity ratios
Nature of AccountingReceipts and Payments AccountDepreciation AccountingAcid Test Ratio
Benefits of AccountingScope of accountingHire Purchase AccountingCash Ratio
Difference between cost accounting and financial accountingFinancial accounting, cost accounting and management accountingDifference between hire purchase and instalment systemFinancial ratio analysis
Difference between transaction and eventTransactionsUsers of AccountingRatio analysis
Limitation of AccountingCapital ExpenditureInstalment SystemDifference between consignment and sale
Book KeepingRevenue ExpenditureReserves AccountingAbnormal loss vs normal loss in consignment
AccountancyDifference between capital and revenue expenditureProvisions Treatment of loss on consignment
Accounting as science or an artAccounting EquationSingle entry systemAccounting treatment of consignment
Book Keeping vs accountingDeferred Revenue ExpenditureDifference between statement of affairs and balance sheetJoint venture vs consignment
Book keeping vs accountancyCapital receiptIFRSDepartmental Accounting
Accounting vs accountancyRevenue receiptBalance SheetMethods of departmental accounting
Basis of AccountingDifference between capital and revenue receiptProfit and loss AccountAllocation of expenses in departmental accounting
Branches of accountingDifference between accounting concepts and conventionsTrading AccountInter-departmental transfers
Cash and mercantile system of accountingAccounting StandardsVoyage AccountDifferent types of branches
Accounting PrinciplesObjectives of AccountingAccounting for Incomplete VoyageDepartmental vs Branch accounting
Golden ru les of accountingProcess of AccountingJoint ventureMethods of branch accounting
Double entry system of book keepingScope of AccountingJoint Venture Vs PartnershipIncorporation of branch trial balance
Double entry vs Single entry systemAccounting Concepts vs Accounting conventionsMethods of recording transactions in Joint VentureGarner VS Murray Rule
History of AccountingDifference between provisions and reservesConsignment
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FINANCIAL ACCOUNTING Tags:FEATURES OF CAPITAL EXPENDITURE

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