CAPEX STANDS FOR CAPITAL EXPENDITURE. WHEN A COMPANY INVESTS IN FIXED ASSETS IN TERMS OF ACQUIRING, IMPROVING, AND REPAIRING. LIKE BUILDING, EQUIPMENT ETC.
FEW CAPEX EXAMPLE.
BUYING A BUILDINGBUYING PATENT RIGHTSBUYING EQUIPMENTSREPAIRING ASSETSSTARTING A NEW BUSINESS
USEFUL LIFE IN CAPEX
THE USEFUL LIFE OF AN ASSET DETERMINES THE TYPES OF EXPENDITURE. CAPITAL EXPENDITURES ARE FOR THE LONG TERM HENCE ASSETS MUST HAVE A USEFUL LIFE FOR 1 YEAR OR MORE.
CAPEX CALCULATION FORMULA
CAPEX= NET INCREASE IN PP&E + DEPRECIATION EXPENSE
PP & E STANDS FORPROPERTYPLANTEQUIPMENT
HOW TO CALCULATE THE NET INCREASE IN PP&E?
PP & E AT THE END OF THE YEAR – PP & E AT THE BEGINING OF THE YEAR
HOW TO CALCULATEDEPRECIATION EXPENSE?
ACCUMULATED DEPRECIATION AT THE END OF THE YEAR – ACCUMULATED DEPRECIATION AT THE BEGINING OF THE YEAR
CAPEX IS GENERALLY A HEAVY INVESTMENT AND TYPICALLY FOUND IN PROPERTY, PLANT, AND EQUIPMENT. CAPEX DEPLOYMENT IS NOT A MANAGER-LEVEL DECISION, IT IS ALWAYS DECIDED BY THE BOARD OR THE OWNER.