What is Capital Expenditure?
The estimated expenditure of the government in a fiscal year which affects the assets and liabilities status of the government is known as Capital Expenditure. It comprises expenditures, such as the acquisition of land, building, machinery, and other equipment; construction of dams and steel plants; investment in shares, loans, and advances by the Central Government to state and union territory governments; public sector undertakings and other entities.
Features of Capital Expenditure:
- Nature: These are non-recurring expenses, meaning they do not happen regularly and usually involve large sums of money.
- Purpose: The primary goal is to enhance the productive capacity or efficiency of the business or to create new assets. Examples include purchasing machinery, buildings, or technology upgrades.
- Impact on Balance Sheet: Capital Expenditures are capitalized, meaning they are added to the asset side of the balance sheet and then depreciated over the useful life of the asset. This spreads the cost over several years.
- Tax Treatment: These expenditures are not fully deductible in the year they are incurred. Instead, they are depreciated over the useful life of the asset, spreading the tax benefit across several years.
- Examples: Purchasing new machinery or equipment; Construction of buildings or infrastructure; Upgrading existing facilities; Acquiring land; and Investment in research and development.
Difference between Revenue Expenditure and Capital Expenditure
Revenue Expenditure and Capital Expenditure are two different kinds of budget expenditures. Revenue Expenditure refers to the spending incurred in the day-to-day running of government or business operations. However, Capital Expenditure (CapEx) refers to the spending on acquiring, upgrading, or maintaining physical assets such as property, industrial buildings, or equipment.
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