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Accounting For Managers - Revenue Recognition

Capital Expenditure:

   Posted On :  26.01.2018 06:28 am

Capital expenditure is that expenditure, the benefit of which is not fully consumed in one period but spread over periods i.e. The benefits are expected to accrue for a long time. Any expenditure which gives the following outcomes is a capital expenditure:

(i)        increases the capacity of an existing asset.

 

(ii)      increases the life of an existing asset.

 

(iii)    increases the earning capacity of the concern.

 

(iv)    results in the acquisition of a new asset.

 

(v)      decreases the cost of production.

 

Following are the examples of capital expenditure:

 

(i)        expenditure resulting in the acquisition of fixed assets e.g. Land, building, machines, etc.

(ii)      expenditure resulting in extension or improvement of fixed assets e.g. Amount spent on increasing the seating accommodation in the picture hall.

(iii)    expenditure in connection with installation of a fixed asset.

 

(iv)    expenditure incurred for acquiring the right to carry on a business e.g. Patents, copyright, etc.

(v)      major repairs and replacements of parts resulting in increased efficiency of a fixed asset.

An expenditure cannot be said to be a capital expenditure only because:

 

(i)        the amount is large.

 

(ii)      the amount is paid in lump sum.

 

(iii)    the amount is paid out of that fund which has been received out of the sale of fixed asset.

(iv)    the receiver of the amount is going to treat it for the purchase of fixed asset.

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