Capital Expenditure BY TAHA POPATIA

CAPITAL EXPENDITURE REVENUE EXPENDITURE

Very significant amounts
Results in the acquisition of non-current assets or an
improvement in their earning capacity
Is not charged as an expense in the statement of profit
or loss of a business enterprise, although a depreciation
charge will usually be made to write off the capital
expenditure gradually over time
Results in the appearance of a non-current asset in the
statement of financial position of the business
Not very significant amount
Incurred for the purpose of the trade of the business or
to maintain the existing earning capacity of non-current
assets
It is charged to the statement of profit or loss of a
period, provided that it relates to the trading activity
and sales of that particular period
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CAPITAL INCOME REVENUE INCOME

Derived from the sale of non-trading assets
The profits or losses from the sale of non-current assets
are included in the statement of profit or loss of a
business, for the accounting period in which the sale
takes place
Derived from the sale of trading assets
Derived from the interest and dividends received from
investments held by the business

PREPARING CAPITAL EXPENDITURE BUDGETS

Capital expenditure budget is essentially a non-current asset purchase budget
As part of the overall budget co-ordination process, the capital expenditure budget must be reviewed in relation to
the other budgets
Before major capital expenditure is incurred, a company needs to be confident that the expenditure is worthwhile
To ensure that a capital expenditure is worthwhile for a business various project appraisal method are used
including net present value, payback period, discounted payback period and internal rate of return

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