Capital expenditure is that expenditure
which result in the purchase, alteration or improvement of fixed assets. Such
expenditures result in an increase in the earning capacity of a business. Such
expenditure is incurred with a view to bringing in improvements in productivity
or earning capacity for getting long-term advantages for the business. It is
not incurred for day -to-day working of the business. The following types of expenditure are treated as – 'Capital
i) Acquisition of an asset.
ii) Delivery of fixed assets.
iii) Installation of fixed assets
iv) Legal cost of buying assets/property.
v) Demolition costs
vi) Architect fees
vii) Improvement of fixed assets
viii) Extension of an asset:
ix) Putting the new assets into working condition
x) Acquisition of a right to carry on business
xi. Cost of overhauling second hand machines.
xii. Development expenditure
Other examples are --- money paid
for goodwill since it will attract the old firm's customer and thus result in
higher sales and profit. Money spent to
reduce the working expenses, for example conversion of hand driven
machinery to power driven machinery and expenditure which enable a firm to
produce a large quantity of goods.
It is important to note that all amounts
spent up to the point an assets is ready for use should be treated as capital
expenditure. The examples are - Fees paid to lawyer for drawing up the
purchase deed of land, overhaul expenses of second hand machinery etc. Interest
paid on loans raised to acquire a fixed asset is particularly noteworthy. Such
interest can be capitalized; i.e. added to the cost of the assets but only for
the period before the assets is ready for use.
It is not necessary that capital expenditure always generate profit. Even if
there is a loss or asset has not been used, such expenditure will be treated as
Join COC Education, We provided best
video classes for CA/CMA/CS/Class 11th & 12th/ B.com/M.com
Contact us on-
9999631597, 8448322142, 7303445575
Visit YouTube Channel http://www.youtube.com/channel/UCzqqr31HSE- B4HcM1Cw4RiQ?sub_confirmation=1
Click Now for Demo Video https://www.coceducation.com/free-lectures
Join WhatsApp group for your domain
ENROLLED WITH US TODAY AND ENLIGHTEN YOUR CAREER!!!