Planning and Controlling Capital Expenditures

Planning and Controlling Capital Expenditures Essay example
Finance & Accounting
Pages 13 (3263 words)
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Name of the student: Course code: Instructor’s name: Date due: Planning and Controlling Capital Expenditures Capital Expenditures According to Nice (2002), Capital expenditures imply outlays of cash that are mostly needed to upgrade a business asset. Capital expenditure can sometimes be referred to as capital spending or capital expense.


A capital expenditure is considered deductible since it represents an improvement to the business and this deducted takes place over a specific life of an item, after than all at once as in the case of repair or maintenance expenditures. Sometimes it is cumbersome to determine the difference that exists in capital expenditure and a routine expense. Generally capital expenditure improves the worth of an asset while if it keeps the asset in working condition, it is referred to as routine expense. Hence, engaging in capital expenditure is a routine way of upgrading and expanding business whether done on a small scale or on a large scale (Pike and Neale, 2003). Large firms or corporations may acquire extra companies, as in the case of automotive giant which purchases another car manufacturer. Consequently, allowances are made in the budget of the company for the capital expenses, including the ones involving the replacement of items which are no longer repaired. Capital expenditures thus normally yield benefit over a long period of time resulting into fixed assets. The resource constraint is a frequent phenomenon of all the economic activities in business. In addition, when a firm is able to spend on specific items it is not willing to do so (Nice, 2002). ...
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