Are there different types of capital expenditure?

D

Dinarius

Registered User
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From a position of total ignorance..........!

Say, for example, a company buys 10 new desktop computers. That's a form of capital expenditure: right?

Now, say, they develop the entrance to their premises, putting in new pillars and electronic gates. That's also a type of capital expenditure. Right?

But, the first will be written off in a few years, while the second will outlive most of the staff.

Are they described differently? Are there different tyes of CS?

Thanks.

D.
 
Capital expenditure is expenditure on anything that is not consumed as part of the business process. Capital items, therefore have a value beyond the end of the accounting period.

Capital items are distinguished through the process of depreciation. An item which has a 3-year life-span is written off (depreciated, i.e. typically 1/3 of the cost is charged against profits each year) over 3 years. while an item with a 10-year life is depreciated over 10 years. And some capital items, e.g. premises, which has a very long life, and may go up in value migh not be depreciated at all.

In preparing accounts for tax purposes, you must conform to certain guidelines or rules re depreciation.
 
Are there any set lists as to how long to capitalise an item? Or is it just common sense knowledge that accountants would know? I would love to see it writen somewhere that a laptop has a value of seven years and must be capitalised as so.
 
Probably the most famous example of depreciation over a long period was the runways at Heathrow. For many years they were depreciated on the basis of a life of 100 years. when one considers that at that time, the concept of powered flight had only existed for 100 years - how could one predict that these runways would have such a life
 
Joe1234 said:
Is there not a maximum of 8 years over which capital allowances (excluding on property) are claimed?
Click to expand...

For ACCOUNTING purposes items would be depreciated over their expected useful lives. So in the financial statements a PC with a 3 year life may be depreciated over 3 years. Or fitted units with a 10 year life may be depreciated over 10 years.

For TAX purposes Capital Allowances must be claimed at 12.5% pa over 8 years regardless of whether the item has a useful life of 3 or 5 or whatever years. Any adjustments on final write off of them item come as a Balancing Allowance or Charge.

This does create differences in the allowances as per the accounts and as per tax.
 
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