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Capital Expenditure and Depreciation - Essay Example

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College
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Finance & Accounting
Pages 6 (1506 words)

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Finance and Accounting What capital expenditure is means? Capital expenditure (Capex) is defined as the expenditure gained on the purchase or improvement or alteration of fixed assets (Henry and Piekarski, 2005). For example: purchase of a car used to deliver goods…

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Capital Expenditure and Depreciation

Acquiring fixed assets like building, land, plant and machinery, motor vehicle and furniture fittings are regarded as the capital expenditure. The assets are not to be sold for making profit but that assets should be retained in the business. Capex generally yields gains over a long period of time (Banerjee, 2010). Capex on a financial statement is important as the investors are interested in the amount of capital improvement that he experiences. The declining capex will make the investor cautious as well as abnormal increased values signals that the investor should also be cautious (Jennings, 2006). The different types of capex are the following: Expenditure resulting from the acquisition of permanent assets: Any asset that can be converted into cash later. The money spent to acquire the asset is called capex (Warren, 2009). Expenditure resulting from purchase, erection or receipt of a fixed asset: The expenses in addition to the purchase price that are incurred for manufacturing the asset for use are added to the cost of the asset and thus is regarded as capex. The examples are the wages that are paid to the workers for manufacturing machines, the cost of the place where the machine will be manufactured and the interest on the loan raised to purchase a fixed asset. ...
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