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Capital Expenditure #CapitalExpenditure

Expenditure that create permanent assets and yield periodical income, and loans given to state government and local bodies are called capital expenditure.
  • Capital Expenditure, on the other hand, generates enduring benefits and helps in revenue generation over more than one accounting period.
  • Capital expenditures are placed on the asset side of the balance sheet as they will generate benefits for more than one accounting period and will be transferred to profit and loss account of the year on the basis of utilisation of that benefit in particular accounting year.
  • Capital expenditures are transferred to profit and loss account of the year in which their benefits are utilised.
  • Expenditure may represent acquisition of any tangible or intangible fixed assets for enduring future benefits.

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EXAMPLE-

  1. Overhaul expenses are incurred to put second-hand machinery in working condition to deriveendurable long-term advantage
  2. Money spent for reducing revenue expenditure would have generated long-term benefits to the entity. It becomes part of intangible fixed assets if it is in the form of technical know-how and tangible fixed assets if it is in the form of additional replacement of any of the existing tangible fixed assets. So this is capital expenditure.
  3. Legal fee paid to acquire any property is part of the cost of that property. It is incurred to possess the ownership right of the property and hence a capital expenditure.
  4. Repairing and white washing expenses for the first time of an old building are incurred to put the building in usable condition. These are the part of the cost of building. Accordingly, these are capital expenditure.
In short, they are:
 Loan disbursals by the government.
 Loan repayments by the government of the borrowings made in the past.

 Plan expenditure of the government.

  Capital expenditure on defense by the government – defense is a non-plan expenditure which has capital as well as revenue expenditures element in its maintenance.
  General services – railways, postal department, water supply, education, rural extension, etc.

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