Define and explain capital expenditures
Expenditure means the amount spent. Any
expenditure incurred for the following purposes is capital expenditure:
For acquiring fixed assets such as land,
building, plant and machinery, furniture and fitting and motor vehicles.
These assets should not be acquired with a view to resell them at a profit
but to retain in the business. The cost of fixed asset would include all
expenditure up to the asset becomes ready for use.
For making improvement and extensions to the
fixed asset e.g., additions to buildings.
For increasing the earning capacity of a
business or for reducing the cost of manufacture, administration or
distribution in a business e.g., expenditure incurred in removing the
business to a central locality or compensation paid to retrenched employee.
For raising capital monies for the business
such as brokerage paid for arranging loans, discount on issue of shares and
debentures, underwriting commission etc.
All capital expenditures represent either an
asset or liability and are shown in the balance sheet.
List of Capital Expenditures - (Examples of Capital Expenditures):
The following is a list of the usual items of
Cost of goodwill.
Cost of freehold land and building and the
legal charges incurred in this connection.
Cost of lease.
Cost of machineries, plants, tools, fixtures,
Cost of trade marks, patents, copy rights,
Cost of car, lorry etc.
Cost of installation of lights and fans.
Cost of any other assets acquired by way of
Erection cost of plant and machinery.
Cost of addition to existing assets.
Structural improvements and alteration in the
Expenses for developments in case of mines and
Expenses for administration incurred during
construction and equipment of any industrial enterprise.
Expenses incurred in experimenting which
finally result in the acquisition of a patent or other rights.