Question

explai. the concept of capital expenditures and give 2 examples

Answer 1

Capital expenditure refers to the investment made by the company or organization on fixed assets such as building, machinery etc which fetches future economic benefits for a period more than one year. An expenditure incurred to improvise a capital asset is also a capital expenditure. Capital expenditure affects both short-term and long term therefore ideal capital budgeting decisions to be paid because capital expenditure is an expenditure where a huge amount of capital is locked in to that expenditure. Once a capital investment is made it is irreversible because once a capital investment made and post which an organization incurs losses then the organization cannot reverse such a decision because the capital equipment was acquired with customization as per the organization's requirement. Capital investment increase the value of asset of the firm hence once the capital asset is put to use depreciation shall be accounted for such capital asset to diminish the value of asset throughout their useful lives.

Example of capital expenditure is

1. Investment in fixed asset such a building, plant and machinery

2. Intangible asset such a license or patent

3. Software

4. Expenses incurred to obtain licese for business and or an intangible asset