In all circumstances, proper attention is to be devoted in analyzing the need for the capital expenditure so that it would be curtailed to the minimum required. Replacement in capital expenditure analysis: Thirdly, replacement need may arise to avoid capital wastage for existing equipment to check its disposal value or it may be obsolescence replacement. Analysis in routine expenditures: In the second type of outlay, routine expenditure may be working condition improvement, maintenance expenditure, competition oriented expenditure etc.ģ. Capital Expenditure analysis in major projects: As regards major projects, strategic investment may be made for expansion of productive capacity or achieving product innovation or preparing barriers against capital fluctuations.Ģ. With exercise control over capital expenditure in any of the above categories, the capital expenditure analysis should concentrate on three types of outlays viz:ġ.
Expenditure which is justified on non-economic grounds.Types of Capital Expenditure:Ĭapital expenditure is classified into three main forms viz: Planning done for incurring capital expenditure is followed by control devices to assess the divergences between the expected and achieved results. Planning and control are inter-linked and consecutive steps for the successful implementation of any programme. Such expenditures are health, safety, welfare projects, training and education.Ħ. Expenditure is incurred indirectly for production. Expenditure is incurred for research work.ĥ. Expenditure is incurred for business development such as exploration of new market, advertisement etc.Ĥ. Expenditure is incurred for maintaining normal business operation such as replacing old machines by new ones, establishing new office etc.ģ. Expenditure is incurred on the new plant and machinery either for introducing new product or increasing the market potentialities of the existing product.Ģ. The capital expenditure may be classified into the following categories.ġ. Capital expenditure is otherwise called as Capital Investments.Ĭapital expenditure is incurred at one point of time whereas benefits of the expenditure are realized at different points of time in future. 3.2 Capital rationing in Capital expenditureĬapital expenditure is the expenditure incurred to get the benefits which are expected in the days to come.
2 Classification of Capital Expenditure.
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