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:
increases the capacity of an existing asset.
the life of an existing asset.
the earning capacity of the concern.
in the acquisition of a new asset.
the cost of production.
are the examples of capital expenditure:
expenditure resulting in the
acquisition of fixed assets e.g. Land, building, machines, etc.
expenditure resulting in
extension or improvement of fixed assets e.g. Amount spent on increasing the
seating accommodation in the picture hall.
in connection with installation of a fixed asset.
expenditure incurred for
acquiring the right to carry on a business e.g. Patents, copyright, etc.
major repairs and replacements of
parts resulting in increased efficiency of a fixed asset.
expenditure cannot be said to be a capital expenditure only because:
the amount is large.
amount is paid in lump sum.
the amount is paid out of that
fund which has been received out of the sale of fixed asset.
the receiver of the amount is
going to treat it for the purchase of fixed asset.