Capital Expenditure Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Capital Expenditure, written in plain English, along with examples of how it is used.
What is Capital Expenditure?
(n) Capital expenditure is the expenditure incurred by a business entity during its course of business wherein the benefits or results out of such expenditure extends for a long time or the benefits are used in the business instead of the item Eg. Constructing a road to the factory premises
History and Meaning of Capital Expenditure
Capital Expenditure refers to the expenditure incurred by a business entity during its course of business. The benefits or results out of such expenditure extends for a long time or the benefits are used in the business instead of the item. For example, investing in a new plant, building, or purchasing a new equipment for business operations. Capital Expenditure is different from Operating expenditure, as Operating expenditure is a short-term expense that is incurred in the current period and is fully deducted from the revenues.
Examples of Capital Expenditure
- A company purchases land for building a new factory. This would be considered a capital expenditure as the land will be used for a long time in the business rather than selling it off.
- A company purchases an expensive piece of machinery to produce its products. Since the machinery will be used for several years in the business, the purchase cost is deemed as a capital expenditure.
- A company invests money in upgrading its computer network that will be used for several years in the business. This is also considered a capital expenditure.
Legal Terms Similar to Capital Expenditure
- Fixed Assets: Assets that are bought and held for long-term use in the business and are not intended for resale such as buildings, land, equipment, machinery.
- Intangible Assets: Assets that do not have physical existence but represent long-term benefits in the business such as patents, trademarks and brand names.
- Depreciation: A method of allocating the cost of a fixed asset over its useful life.