Capital expenditures refer to the expenses (Also see What Do You Need to Know About Ordinary and Necessary Business Expenses?) that a company has capitalised. These are the expenses (Also see An Overview of Revenue Expenditure) spent to acquire or build the assets the company requires. This type of expenditure will appear in the company’s balance sheet as the investment that it has made, instead of showing in the profit and loss statement as an expense.

Before you can start calculating the capital expenditure of your business, you will need some information in the financial statements. So, it would be best if you got those statements prepared. If you are not sure about the steps of preparing them or you do not have time to generate them, hiring an in-house accountant or an accounting firm in Johor Bahru can be the right choice.

There are two different ways that you can use to calculate the capital expenditures incurred. The first method is by using the balance sheet and profit and loss statement of your company. To calculate the capital expenditure by using this method, you need to determine the net increase in your company’s property, plant and equipment and the depreciation (Also see Why Do We Calculate Depreciation?) expense that your company has incurred in that accounting year.

The calculation of the net increase in property, plant and equipment requires you to deduct the plant, property and equipment at the beginning of the year from the amount of those you have at the end of that year. Then, you need to obtain the depreciation expense incurred for that year from the profit and loss statement. Lastly, sum up the net increase in your company’s property, plant and equipment as well as the depreciation expense to arrive at the capital expenditure for that year.

An alternative way for the calculation of capital expenditures of your company is by using the statement of cash flow. You can analyse these expenditures by studying the cash flows (Also see Preparing the Statement of Cash Flow) from investing activities recorded in the statement. This amount includes the particulars of both the amount your company has obtained by selling its capital assets as well as the amount spent to acquire those assets. Hence, you may calculate the sum of capital expenditure incurred by determining the amount of cash outflow with the purpose of buying capital assets.

In a nutshell, the capital expenditure incurred will always appear in the property, plant and equipment as well as the non-current assets sections in the company’s balance sheet. Besides, by using the statement of cash flow, one will also be able to know the amount of cash flow the company has made on the capital expenditure by looking at the cash flow from investing activities. However, note that the sum of capital expenditures calculated by using these two methods may be different due to various reasons. For example, you have not paid for the purchase of a fixed asset, and this will only appear in the balance sheet but not in the cash flow statement.