Capital costs - expenses of the enterprise that are incurred in the acquisition, creation, improvement, expansion of assets of the enterprise. The main point is that from this kind of expenses the benefit will come over not just one accounting period, but several. Capital expenditures are spent on the purchase of fixed assets, their long-term lease, improvement of fixed assets at the disposal of the enterprise. At the end of all accounting periods, these costs are shown in the Asset balance sheet, in the line corresponding to the name of this main asset. Throughout the activities of the enterprise, most of the capital costs gradually become costs in the part of the process of generating financial results. When determining the net profit of the enterprise for the year, the corresponding accounting officer calculates how much of the cost of a particular fixed asset can be spent in the current year. Since this distribution of the use of fixed assets relates more to design measurements, accounts of the financial result should be considered as acceptable approximate values of annual profit.
Capital expenditures have one subjective moment: the accrual of a certain percentage on fixed capital invested in reserves. It may vary for different enterprises depending on the base rate ( bank interest rate ). The point of using such a rate or related rates is that the funds necessary to replace such capital can be acquired at such a rate.
Capital costs are the costs of technical re-equipment, reconstruction of existing and acquisition of new (previously unused) fixed assets. Thanks to them, a simple and wide reproduction of the assets of the enterprise is carried out. Capital expenditures require clear and constant control. To determine their size at the enterprise add up the budget of these costs. During this calculation, all planned capital investments are calculated. This budget includes the following data:
- The initial cost of available fixed assets, calculated on a specific date (beginning of the period);
- the amount of depreciation, which is supposed to accrue in the planning period;
- the amount of unused amortization at the beginning of the planning period;
- an approximate calculation of the cost of all equipment to be sold or replaced in the planning period;
- the approximate amount of depreciation intended for the acquisition of fixed assets in the planning period;
- the residual value of funds, as well as the amount of depreciation of the enterprise at the end date of the planning period.
Capital expenditures are calculated on the basis of calendar plans for the implementation of investment projects , a financing strategy, a budget application for the purchase of fixed assets, and a preliminary schedule of investment expenditure flows.
This type of capital investment inherently represents a one-time cost aimed at increasing the volume of fixed assets intended to expand production. They are a combination of various economic resources intended for the reproduction of fixed assets. Capital costs of the enterprise are divided into direct and indirect. These direct costs are directed directly to a specific investment object in the production sector, indirect (associated) - to those associated with the main objects (production or social infrastructure).
As a rule, the source of capital expenditures is a part of the company's profit, depreciation or credit resources.