Category: 

What is a Capital Expenditure?

Purchasing or constructing a new office building is a capital expenditure for a company.
For hotel owners, installing a new swimming pool is a capital expenditure because it improves the facility.
Capital expenditures of publicly traded companies are listed in an annual report.
Article Details
  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 17 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
A chameleon’s tongue is 1.5 times the length of its body.  more...

September 1 ,  1939 :  The Nazis invaded Poland, starting World War II.  more...

A capital expenditure is an outlay of cash to acquire or upgrade a business asset. Common examples of a capital expenditure include the purchase of a new building, or the cost of significant upgrades to an existing facility. A capital expenditure is considered to be deductible, because it represents an improvement to the business, and it is deducted over the expected life of the item, rather than all at once as in the case of repair or maintenance expenditures.

A capital expenditure is also sometimes referred to as capital spending or a capital expense, and many publicly traded companies list their capital expenditures for the year in annual reports, so that stockholders can see how the company is using their money in long term planning. Most companies engage in capital expenditures yearly, in an attempt to constantly upgrade and improve facilities, vehicles, and equipment.

Sometimes it can be difficult to determine the difference between a capital expenditure and a routine expense. In general, if the expenditure improves the value of the asset, it is a capital expenditure, while if it simply keeps the asset in working condition, it is a routine expense. For example, installation of a new bathroom in a rental is a capital expenditure, because it increases the value of the rental. Repairing the stove, however, is a routine expense designed to keep the rental in operating condition.

Ad

Engaging in capital expenditure is a routine way to improve and expand a business, whether done on small or large scale. Large corporations may acquire additional companies, as in the case of an automotive giant which purchases another car manufacturer, while smaller businesses may consider the purchase of a new office printer to be a capital expenditure. In general, allowances are made in the budget of the company for capital expenditures, including unexpected ones involving the replacement of items which are no longer able to be repaired.

A capital expenditure is amortized over the length of the life of the investment, which may range from an expectation of five to 40 years, depending on the investment. This time period is known as a recovery period, and recovery periods for major assets are set out so that companies will know how to deduct capital expenditures. The amortization means that the company cannot deduct the cost of the capital expenditure all at once, and must instead spread it out over the life of the investment. For example, someone who installs a 25,000 US Dollars (USD) fence which has a five year recovery period may deduct 5,000 USD each year for five years.

Ad

Discuss this Article

anon951530
Post 27

Is a salary survey an operational expense or capital expenditure?

anon938123
Post 26

Can the $21,000 expenditure be considered capital... ?

I would say no. The survey does not increase the value of the community nor does it enhance or encourage business growth. It is an operational cost, and one that, were I a member, I would question. This is something that can be discerned in a scheduled HOA meeting or through a mailer. Paying $21k for a survey makes it seem like someone on the board has a nephew who conducts surveys.

okpodu
Post 25

What must I do if I want to increase my business starting capital from 20K to 30K? I want my current business capital to be stated as 30K. What are the rule governing this changes?

anon223113
Post 20

How should I consider large capital expenditures in a free cash flow model?

The whole amount is deducted in the period it occurred, right? Because it's a cash flow, it cannot be spread over the life period of the asset, right?

anon145879
Post 17

It can also be said that routine expenses are also called revenue expenses since they are done not for the first time. Capital expenses are done for the first time to improve value in businesses likewise routine expenses but routine expenses is more concerned with repairs of damaged parts.

anon86190
Post 16

I want to understand the technical difference between Capital and Operational.

Our HOA Board is planning to spend over $21,000 from our general fund to do a survey of the homeowners. The big plan is to build a new fitness center and they want to find out if everyone in this senior community would be willing to pay big money.

The question: Can the $21,000 expenditure be considered capital since it is to improve the facilities/community and eventually sales? Thanks.

In reference to the above question, i would suggest that the contribution for the above survey it will not be a capital expenditure, because the fund using for not to repair an asset or related. so it will treat as routine expenses.

anon85429
Post 15

Are purchase of tires and overhaul of vehicle things that could be capitalized?

anon80801
Post 14

Is there somebody who can tell me "what is the difference between capital investment and capital expenditures with strong reference?

anon76852
Post 13

what are the major phases of capital expenditure planning and control?

anon56182
Post 12

What is considered a capital expenditure? a t.v?

a computer? a microwave?

anon51474
Post 11

what is an example of a company that has made a recent significant capital investment?

anon37695
Post 9

Do all capital expenditures necessarily involve fixed assets?

anon36218
Post 8

When a town home complex (HOA) is painted and minor carpentry needs are included in the paint prep is the cost a capital expense or just an expense. If capital what is the recovery period

anon26975
Post 7

What is the key motive for making capital expenditures?

anon24217
Post 6

what is the strategic decision based on capital expenditure?

anon14460
Post 4

do all capital expenditures involve fixed assets?

trouble85206
Post 3

I understand the technical difference between Capital and Operational.

Our HOA Board is planning to spend over $21,000 from our General Fund to do a Survey of the homeowners. The big plan is to build a new fitness center and they want to find out if everyone in this Senior community would be willing to pay big $$$.

The question: Can the $21,000 expenditure be considered CAPITAL since it is to improve the facilities/community and eventually sales?? Thanks....

anon3630
Post 2

What are contribution of Capital Expenditure to Gross Domestic Product of a country?

anon2625
Post 1

Is the purchase of marketable securities by a company a capital or operating expense?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email