Monday, November 15, 2010

Why is Capital Expenditure treated as an Asset?

A capital expenditure is treated as an asset because it adds to the value of an existing fixed asset that the company holds with a useful life extending beyond the taxable year. This actually means that there will be an increase in future economic benefits provided by the expenditure and that the company can use depreciation methods to reduce its costs on the balance sheet.

This distinction is very important in income tax law and will affect how an account records a capital expenditure to the tax authorities.

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