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Capital Expenditures

Capital expenditure is money spent by an accounting entity on the purchase of permanent or fixed assets for use in the business and not for immediate resale or on the permanent improvement of or addition to or extension of an existing asset with a view to increase the earning capacity of the business enterprises.

Examples of Capital Expenditures fall into four groups:

(i)    Tangible Assets such as plant and machinery, land, building, furniture, fixtures and fittings, motor vehicle, office equipment. Legal expenses paid in connection with the purchase of property, and expenses of delivering or installing fixed assets like machinery are included in the cost of fixed assets.

(ii)    Intangible Assets
like goodwill, trade marks, patents, copyrights etc.

(iii)    Investments in shares and debentures
of other companies for a long duration as distinct from investment in marketable securities.

(iv)    Cost of financing a fixed asset (i.e., interest paid on loans to purchase of fixed asset) is added to its cost only for the period up to the time the asset is put to use; interest paid for the subsequent period cannot be added to the cost of the fixed assets.
In short, cost incurred for, or associated with, assets that benefit several accounting periods are called capital expenditure.

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