Concept of Capital Expenditure
Every business concern has to face the problem on capital expenditure decisions some time or the other. Hence, planning for capital expenditure has become an integral part of policy making, management and budgetary control. Capital expenditure is one which is intended to benefit future periods and normally includes investment in fixed assets and other development projects. It is essentially a long-term function, and such for a decision to buy land, buildings or plant and machinery etc., would influence the activity of the business for a considerable period of time. Hence, it is essential to keep a close watch on capital expenditure at all times. Further, the advent of mechanization and automation has resulted in management being confronted with ever more frequent and difficult problems. Despite the fact that various techniques have been developed to assist management in its task of decision-making more effectively, the ultimate decision depends on the availability of relevant information which can be generated only by well-established capital expenditure budgeting system. The other commonly used nomenclatures for capital expenditure decision are “Capital Budgeting”, or “Capital investment Decision”, or simply “Investment Decisions”.
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