Question

How do capital expenditures differ from ordinary expenditures?

Answer 1

THE EXPENDITURES THAT ARE NON RECURRING IN NATURE ie THOSE DO NOT OCCUR MULTIPLE TIMES IN A YEAR OR WITHIN A FEW YEARS ARE CALLED CAPITAL EXPENDITURES. EXAMPLE PURCHASING OF FACTORY BUILDING. THE EXPENDITURES THAT ARE RECURRING AND OCCURS EVERY YEAR, EVERY MONTH OR EVERY WEEK ARE CALLED ORDINARY EXPENDITURES. EXAMPLE PAYING RENT FOR FACTORY BUILDING. THEIR DIFFERENCES CAN BE BROADLY CATAGORISED AS UNDER:

1) CAPITAL EXPENDITURES ARE CHARGED AGAINEST PROFIT AS DEPRECIATION OVER THE YEARS FOR A LONG PERIOD OF TIME. ORDINARY EXPENDITURES ARE CHARGED AGAINEST PROFIT WITHIN THE CURRENT YEAR WHEN THEY ARE INCURRED.

2) A CAPITAL EXPENDITURE IS CONSUMED OVER THE USEFUL LIFE OF THE ASSET PURCHASED. A REVENUE EXPENDITURE IS ASSUMED WITHIN A SHORT TIME PERIOD MOSTLY WITHIN THE RELATED FINANCIAL YEAR.

3) CAPITAL EXPENDITURES MOSTLY INVOLVES LARGER MONETARY VALUES THAN ORDINARY EXPENDITURES.