Capital Expenditure is expenditure which is incurred in purchasing new property which will help the production of goods and hence increase the earning capacity of the business. This type of expenditure is “incurred in acquiring assets for the purpose of earning income or increasing the earning capacity of the business.” If heavy expenditure is incurred on repairs which ultimately increase the efficiency of the plant or machinery, such as expenditure is of capital nature. Similarly, expenses incurred in erecting plant and machinery should be capitalized as such expends increase the value of machinery.
Definition