Premium Essay

Capital Expenditure

In: Other Topics

Submitted By hal09
Words 388
Pages 2
THE DEFINITION OF EXPENDITURE FOR CAPITAL PURPOSES

Previous Definition in Financial Procedure Rules
The previous definition of capital expenditure was set out in Part IV of the Local
Government and Housing Act 1989. All capital expenditure and financing must be in accordance with the provisions of the LGHA 1989 and the Local Authorities (Capital
Finance) Regulations 1997. No leasing or credit arrangement as defined by the
LA(CF)R 1997 shall be entered into without the approval of the Director of Finance.

Any service using an asset will be charged with a cost of capital employed which represents interest foregone in owning the asset and depreciation, representing the proportion of the asset’s useful life consumed in the year in question.

Current Position
The LGHA has now effectively been replaced by the Local Government Act 2003 which defines capital expenditure as ‘expenditure that falls to be capitalised under proper practices’. It then goes on to define proper practices as meaning the CIPFA
Recommended Practice (SORP) and any specific legislation. Specific legislation relating to capital expenditure tends to be defined in various Capital Finance
Regulations.

The SORP definition of capital expenditure is therefore supported by statute.
However, it does not have a single definition of capital expenditure, but includes references to capitalising expenditure in various parts of the SORP.
In the Fixed Assets section of the SORP expenditure that should be capitalised includes: • Purchase of intangible assets (software and licences)
• Internally developed intangible assets that have a marketable value
• Acquisition, creation or enhancement of tangible fixed assets such as - * the acquisition, reclamation or enhancement of land * the acquisition, construction, preparation, enhancement or replacement of roads, buildings and other…...

Similar Documents

Premium Essay

Revenue and Capital Expenditures

...Revenue and capital expenditure are aspects of business management that seem very similar at first. Both revenue and capital expenditure are purely focused on the process of spending money to help a business survive and grow. The key difference between the two is the intention of the expenses and the direction of the money flow. Revenue is for short-term costs that are not used afterwards to make the company grow, such as repairs which are most common. Capital expenditure is for assets that are considered or categorized long-term, such as new vehicles or software, which will be used to make the company stronger. Revenue expenditure is money being spent immediately and exclusively for short-term purposes. These are expenses associated with profit-producing assets, such as repair, that may or may not increase the life of the given asset. Revenue expenditure is more often associated with day-to-day costs the company accrues through its life cycle. Capital expenditure is money is being spent on assets that will increase the company’s ability to pull in profit or operate at a higher performance level. New software technology, vehicles, machinery and tools that will be used for at least 12 months are considered capital expenditure. Capital expenditure, unlike revenue, is looked at more as an investment than a cost, because it is being used to strengthen the company so it can do better business. When purchasing a capital asset, a business either will spread the cost out over the......

Words: 456 - Pages: 2

Premium Essay

Comparing Capital Expenditures

...Comparing Capital Expenditures In certain industries there are clear leaders. For example, Wal-Mart is a clear leader in the retail industry and Google is a clear leader in search engines. But with smaller companies find ways to thrive in those giant’s shadows. Competition in the coffee industry is hard to distinguish at times, but Starbucks is a brand name that stands out on its own. Coffee competitors have done a good job of differentiating themselves by using environments and product mix. Coffee is the second largest U.S. import, and specialty coffee is forecasted to be an $11 billion dollar a year industry. In order to strive in this industry, companies must have the appropriate buildings, properties and equipment. Capital Expenditures are the cash that is used to buy, revamp or upgrade these physical assets. Capital expenditures are forecasted using CapEx % of gross profits and are allocated proportionally to each division based on the gross margin. This paper will compare the capital expenditures of Dunkin Brands and the Starbucks Corporation (Fig.1). Direct Competitor Comparison SBUX DNKN Market Cap: 49.50B 4.42B Employees: 160,000 1,104 Qtrly Rev Growth (yoy): 0.11 0.06 Revenue (ttm): 14.02B 667.67M Gross Margin (ttm): 0.57 0.79 EBITDA (ttm): 2.59B 313.12M Operating Margin (ttm): 0.14 0.39 Net Income (ttm): 1.51B 106.11M EPS (ttm): 1.97 0.94 P/E (ttm): 33.59 44.29 PEG (5 yr expected): 1.61 1.72 P/S......

Words: 1089 - Pages: 5

Premium Essay

Capital Expenditures About Ted

...Surgery Unit Director who is getting ready to prepare a capital expenditure funding program for the coming year. His unit is too small and is running at over 90% capacity, so Ted wants more room. On the other hand, a cardiology surgeon at the hospital wants to create a new cardiac surgery program that would require extensive funding for new state-of-the-art equipment. Therefore, the surgeon has been campaigning with the hospital board members (Baker & Baker, 2011). Furthermore, Ted will need valuable information and will need to have a great strategy to prepare the capital expenditure funding program. Baker & Baker (2011) explains, “Capital expenditures involve the acquisition of assets that are long lasting, such as equipment, buildings, and land. Therefore, capital expenditure budgets are usually intended to plan, monitor, and control long-term financial issues” (p. 177, para 1). While Ted is preparing a capital expenditure budget proposal, there are four requests he should ask for upon creating the proposal. First and foremost, Ted should compose a timeline to show when his unit will open along with justification of the need for the proposal based on firm estimates of future needs (Department of Premier and Cabinet, December 2010, p. 9). A timeline will be able to let the others see his plan more clearly. In addition, Ted should also ask for the hospital’s guidelines and criteria for preparing a capital expenditure funding program. Baker & Baker (2011) states, “Some......

Words: 860 - Pages: 4

Premium Essay

Capital and Revenue Expenditures

...Capital and Revenue Expenditures 1 Capital and Revenue Expenditures Clarissa Jude April 24, 2015 University of Phoenix Capital and Revenue Expenditures 2 “A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset. A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.” (Wizell, John, Accounting Made Easy. 2010). This in summary means that every cost to purchase, keep up and maintain said purchase will be reported in the financial documents. The difference between capital and revenue expenditures are: Capital Expenditures | Revenue Expenditures | 1 | Its effect is long term i.e., it is not exhausted within the current account year. Its benefit is enjoyed in future year or years also. In a word, its effect is reduces gradually. | 1 | Its effect is temporary, i.e., it is......

Words: 504 - Pages: 3

Premium Essay

Comparing Walmart and Target Capital Expenditures

...Comparing Walmart and Target Capital Expenditures University   Comparing Walmart and Target Capital Expenditures In every business there is always a need for capital expenditures. Capital Expenditures can be very beneficial and can also differentiate the numbers from rival companies. According to readings “capital expenses are extensive and mostly hold a company’s substantial amount of money. Companies invest in prime property, plant, machinery, buildings and other forms of fixed assets, which also act as securities for the company. I chose to look up the Capital Expenditures of two companies that are known in many households: Walmart and Target. The annual report of mutually businesses over the past three years will be examined. This paper will examine and compare the reports and the amount of capital spending over the past three years while defining how the amount of capital spending remains constant or if it’s altered. Capital expenditures can determine the major financial decisions that a company must make in order to acquire a sound investment. This paper will attempt to expand on the clarification of capital expenditure and the impact it can have on the organization’s debt capacities and capital structures. As stated by Byrd and associates in the text, there should be a comparison of the level of capital spending across the two firms. The paper will further point out how the spending was similar and/or different and speculate why the similarities or differences......

Words: 834 - Pages: 4

Premium Essay

Comparing Capital Expenditure for Nbd and Invesco

...Comparing Capital Expenditure for NBG and INVESCO Name: Course: Number: As defined by Hitchner, & Mard, (2003), capital expenditure is a cost that is incurred today for future benefits realization. Today’s capital expenditures create a difference in the company’s future status depending on the company’s strategies and resolutions. Capital expenditures are extensive and in most case, they will hold most of the company’s money. At one point in time, companies will invest in plant machinery, buildings, prime property, or any other form of fixed assets. Despite having the stage at which any company will have to incur capital expenditure, these capital expenses will vary depending on the industry the company is operating in, its operations, and the size of the company. Despite being closely related to the capital assets, capital expenses also relate to the maintenance cost of the already acquired assets (Hitchner, & Mard, 2003). The paper will analyze the capital expenditures of INVESCO and National Bank of Greece (NBG) companies by providing the differences and similarities of their capital expenditures. The analysis of the capital expenditure for the two companies will be between 2011 and 2013 financial years. The National Bank of Greece (NBG) The NBG is a global financial organization with well-established branches in various countries including the United States of America. NBG offers financial products and services to their clients ranging from those of......

Words: 1056 - Pages: 5

Premium Essay

The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures

...State Income Tax Apportionment and Tax Incentives on New Capital Expenditures Sanjay Gupta and Mary Ann Hofmann ABSTRACT: This study examines how variations in states’ corporate income tax regimes affect new capital investment by business. Using U.S. state-aggregated data from 1983 to 1996, we find in pooled and fixed-effects regressions that new capital expenditures by corporations in the manufacturing sector are decreasing in the income tax burden on property (measured as the product of the statutory tax rate and the property factor weight), and increasing at a decreasing rate in investment-related tax incentives. The effect of the income tax burden on property is more pronounced for states mandating unitary taxation or the throwback rule. Triangulating our empirical findings with prior analytical and simulation studies suggests the following hierarchy for the relative importance of major attributes of state corporate income tax regimes: the unitary or throwback requirement is most influential on incremental capital investment, followed by apportionment weights and tax rates, and, finally, investment-related incentives. Keywords: state taxation; apportionment formula; tax incentives, unitary business principle, throwback rule. JEL Classification: H20; H71. INTRODUCTION he purpose of this study is to provide empirical evidence on the effects of variations in states’ corporate income tax regimes on new capital investment by business. Specifically, the study......

Words: 13848 - Pages: 56

Premium Essay

What Is the Role of Women in Fostering Development? Discuss the Influence of Gender on Household Expenditure, Human Capital and Policymaking.

...What is the role of women in fostering development? Discuss the influence of gender on household expenditure, human capital and policymaking. (word limit : 1500) Women paly an immense role in development, be it physical, moral or emotional development. Their role in eradicating hunger and poverty and development and current challenges is becoming very crucial (EGM, 2011) as is evident from the 56th session of the Commission on the Status of Women (CSW) in 2012, who prioritized their theme on these key areas. They contribute in a multitude of ways to ensure their family and society is brought out of poverty. Many of the activities performed by the rural women are not identified as “economically active employment” in the national accounts but are important and essential for their households (FAO, 2011). They constitute a major share of labor on the family farms (UNIFEM, 2005). Prominent gender inequalities often keep then from enjoying their social and economic rights. Access to decent work, which they could use in turn to leverage upon to improve their socio-economic condition, is limited too for them (FAO/IFAD/ILO, 2010b). As a result of this a huge social and economic cost is imposed on the society and it also tends to impede the process of rural development with problems that include lags in agricultural produce (EGM, 2011). They play an important role in translating the agricultural produce into food and nutrition security and also for the well being of their......

Words: 751 - Pages: 4

Free Essay

Case Study Analysis (General Deductions U/S 37-Income Tax Act, 1961)

...6 months. The assessee claimed deduction of Rs. 20 lakhs as business expenditure, under section 37(1) of Income Tax Act. Is the claim justified? II. ANALYSIS OF FACTS: Each member of the association was manufacturing less than what it could have, if it was working full time. The members agreed to such an agreement as otherwise there would have been over-production of silk. The loom hours could be traded for, if you had an excess of them. Loom hours are the number of hours that you work your looms (mills) for. Section 37 speaks about ‘General Deductions’: Any expenditure not specifically covered by sections 30 to 36 is deductible under section 37, if the following conditions are satisfied: a) It should be in respect of business carried on by the assessee b) It should have been laid out or expended wholly or exclusively for the purpose of business c) It must have been incurred in the previous year d) It should not be in the nature of capital expenditure or personal expenditure of the assessee III. Legal Issues: 1. Whether ‘Loom Hours’ is a capital asset? 2. If an asset sold is capital receipt in seller’s hands, does it mean it’s automatically capital expenditure in the purchasers’ hands? 3. If the expenditure is made with respect to acquire ‘enduring benefit’ is it only capital expenditure in nature? 4. Purchase of loom hours is a capital or revenue expenditure? IV. Legal Analysis: Legal Issue-1 In CIT Vs Maheshwari Devi......

Words: 1476 - Pages: 6

Premium Essay

Unit5 P2

...In this task I will explain the difference between capital and revenue items of expenditure and income Capital income Capital income is money coming into the business, but not necessarily from direct sales of products or services. Capital income is money that comes into the business but not as revenue from what the businesses main frame of making profit is. Zara’s capital income would be any loans that the business receives. Another form of capital income Zara receives is money that comes into the business from sales of shares. Sole trader’s capital investments is also another form of capital income. Revenue income Revenue income is money coming into the business from sales of goods or services. This is the form of revenue that the businesses main purpose for setting up is to make profit in this form of revenue income. Revenue income could also be from receiving payments loans given out with interest in return or money coming in from rent payments that come into the business. Zara’s main form of revenue income is from the sales of their clothing goods both online and in store. Difference between capital and revenue income The difference between capital and revenue income is that capital income is made from money that comes into the business but not from the direct method that the businesses main purpose of making profit is. For example a business’s main objective may be to make as many sales from a product as possible, the money that they receive from this is revenue......

Words: 706 - Pages: 3

Premium Essay

Accounting Ii

...Reflection Expenditures are unavoidable for any company to exist in the competitive market, to expand the business or to find new opportunities to open up beneficial business in those areas, etc. Expenditure is defined as payments of cash or cash equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by a source document like invoice, voucher, receipt, etc. All payments made by a company can be broadly categorized into capital expenditure and revenue expenditure. Capitol expenditure is an amount spent to acquire or enhance a productive asset to increase the capacity or efficiency of a company for more than an accounting period is defined as capital expenditure. That is, simply, capital expenditure is the expenditure made with the intension of getting the benefit from that expenditure for more than one year (usually accounting period is one year). For example, amount spent on long-term assets like machinery, plants, buildings, etc, either to improve or to acquire, is capital expenditure. Normally capital expenditure is capitalized in the books of accounts and then that amount will be depreciated over the useful life of the assets. It is also known as capital spending. It is essential to understand the differences between capital expenditure and revenue expenditure as the accounting treatments are different. Revenue expenditure is cash or resources spent on sales revenue generation or for......

Words: 442 - Pages: 2

Premium Essay

Xacc-291 Reflection

...daily incur revenue expenditures to upkeep their operating efficiency and productive life of an asset. Expenditures are unavoidable as well as they are very necessary to expand the business. Expenditures are payments of cash or cash equivalent for goods or services. The difference between revenue and capital expenditures is that revenue expenditures are expenses that are immediately charged against revenue as expenses. Regular and periodic repairs are revenue expenditures because they are charged directly to specific accounts. Examples of these accounts would be Repairs and Maintenance Expense. Capital expenditures are expenditures will increase the company’s investment primarily in productive facility. A capital expenditure is an amount spent to attain or improve a long term asset such as buildings or equipment. When recording capital expenditure, it is usually recorded in accounts classified or titled as Property, Plant and Equipment. Generally, because capital expenditures provide income for the company over a period of years, companies are not allowed to deduct the full cost of the asset in the year the expense is incurred. Revenue expenses typically are shorter term expenses because they always required to meet the ongoing operational costs of running a business. (Investopedia, 2015) The contrasting factor of capital and revenue expenditures is that revenue expenditures can be fully tax deducted in the same year the expense occurred. Revenue expenditures can be......

Words: 447 - Pages: 2

Premium Essay

Week 2 Checkpoint Xacc291

...Capital Expenditures & Revenue Expenditures Veronica rowe XACC/291 Jan 29, 2014 Shontell Chrisman Capital Expenditures & Revenue Expenditures Capital expenditures; a sum spent to procure or development of a long term asset, such as buildings or equipment. Under normal accounting methods the cost is put under equipment, plant, property. Everything except the cost of land can be charged as depreciation expenditure over the useful life of the asset. Capital expenditures are put on financial report as an asset on balance sheet. Capital expenditure rewards are spread over several accounting periods. Capital expenditures can include replacement cost to delivery cost, legal charges and everything in between. Revenue expenditures; are amounts distributed out instantaneously, they match entries of the existing accounting period. Scheduled maintenance is a revenue expense, because they are charged without waiting to an account like maintenance and repairs expenditures. Major repairs do not affect the life of the asset. Revenue expenditures are put on financial report on the income statement. Revenue expenditures may include maintenance charge, repair, and renewal and everything in between. Both are classified as assets. The difference between the source of Capital and Revenue expenditures is special, because Capital is comprised of cost related to fixed assets, and Revenue expenditures affect is temporary, they come often and contains no physical presence, and does......

Words: 323 - Pages: 2

Premium Essay

Gefgdsffw41242Rwc

...or subscription basis. One of the key benefits of cloud computing is that the users are no longer are faced with business limiting capital expenditure, instead they can make the decision to convert this expenditure into operational expenditure. This will result in enabling the business to move forward on a level IT playing no longer have to own their own infrastructure. The users only have to consume the resources as a service and only pay for those that they use. This being said, as a Service model, the users can be billed either through a utility computing or subscription basis. One of the key benefits of cloud computing is that the users are no longer are faced with business limiting capital expenditure, instead they can make the decision to convert this expenditure into operational expenditure. This will result in enabling the business to move forward on a level IT playing no longer have to own their own infrastructure. The users only have to consume the resources as a service and only pay for those that they use. This being said, as a Service model, the users can be billed either through a utility computing or subscription basis. One of the key benefits of cloud computing is that the users are no longer are faced with business limiting capital expenditure, instead they can make the decision to convert this expenditure into operational expenditure. This will result in enabling the business to move forward on a level IT playing no longer have to own their own......

Words: 1340 - Pages: 6

Free Essay

Reflection

...differences in revenue expenditures and capital expenditures it is important to know what they are and how a company records and reports them. According to Weygandt, Kimmel & Kieso, (2010) during the useful life of a plant asset, a company may incur costs for ordinary repairs, additions, or improvements. Ordinary repairs are expenditures to maintain the operating efficiency and productive life of the unit. Companies record such repairs as debits to Repair (or Maintenance) Expense as they are incurred. Because they are immediately charged as an expense against revenues, these costs are often referred to as revenue expenditures. According to Weygandt, Kimmel & Kieso, (2010) additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset. They are usually material in amount in occur infrequently. Companies generally debit these amounts to the plant asset affected. They are often referred to as capital investments. Most major U.S. corporations disclose annual capital expenditures. Similarities There is only one similarity between revenue expenditures and capital expenditures. They are similar because they both have an effect on operating efficiency. Differences There are more differences between revenue expenditures and capital expenditures than similarities. Revenue expenditures are smaller and more frequent while capital expenditures are larger and infrequent. Revenue expenditures......

Words: 305 - Pages: 2