capital expenditure

[mafaq]

PLZ ANYONE SEND ME COMPLETE ANS
WHY IT IS KNOWN AS CAPITAL EXPENDITURES?
THE TERM CAPITAL IS ESSENTIAL TO NS PLZ GIVE ME EXACT AND RELEVENT ANS
REGARDS
M.AFAQ AKBAR

[Anupriya]

Capital expenditure is the expenditure which improves the earning capacity of an asset so that the asset works more efficiently or lasts longer. This benefit can be expected to last for more than one accounting period. Capital expenditure increases the value of a non-current asset. This means that the working capacity and the life of the assets are increased. This results in long lasting benefit to the entity.

"Capital" expenditure benefits the organisation in the long-run. Expenditures which are capital in nature and are depreciated over the life of the asset are capitalised to the cost of the asset. This is known as capitalisation of an asset.

Following table will help you understand it in a better way:

Nature of expense : Example

1. Purchase of non-current assets :Computers, vehicles, building, land,
plant & machinery
2. Cost of bringing the non current
asset into the entity :carriage inward
3. Legal & professional cost spent
on purchasing non-current assets:stamp duty, registration fees
4. Cost needed to make these non-
current assets ready for use :installation charges
5. Improvement to existing non -
current assets :fitting of air-conditioner in vehicles

[santoshkumar Ge]

and also dismantling and replacing some spare parts can be capitalized, trail run less sale proceeds also can be capitalized.