Maximizing Your Assets: Understanding and Leveraging Capital Expenditure

### What does a Capital Expenditure (CAPEX) generally add value to? - [ ] Short-term operational costs - [ ] Non-tangible assets - [x] Long-term assets - [ ] Liabilities > **Explanation:** A capital expenditure typically adds value to long-term assets like buildings, equipment, or vehicles. These investments are expected to provide value for more than a year, as opposed to short-term operational costs, which are immediately used up within the accounting period. ### Which of the following is commonly a capital expenditure? - [ ] Office supplies such as paper and pens - [x] Furniture and equipment - [ ] Utility bills - [ ] Employee salaries > **Explanation:** Capital expenditures often include items that add value over the long term, such as furniture and equipment. Office supplies and operational costs like utility bills and salaries are considered operational expenses, not capital expenditures. ### Over what period can capital expenditures typically be depreciated for tax purposes? - [ ] Up to 5 years - [ ] Up to 15 years - [x] Up to 39 years - [ ] Up to 50 years > **Explanation:** Capital expenditures can be depreciated over a period of up to 39 years for tax purposes. This means the cost of the capital expenditure can be spread out over several years, reflecting its use and contribution to the business or property over time. ### What type of capital expenditure might you add to a home to increase its value significantly? - [x] A swimming pool - [ ] Landscaping service - [ ] Seasonal maintenance - [ ] Monthly home insurance payments > **Explanation:** Adding a swimming pool is an example of a capital expenditure that can significantly increase the value of a home. Unlike landscaping services or maintenance, capital expenditures generally involve significant investments and long-term improvements. ### Can repairs always be considered capital expenditures? - [ ] Yes, all repairs to buildings are capital expenditures - [x] No, only if they improve the condition of the building - [ ] Yes, if they cost more than $1000 - [ ] No, all repairs are operational expenditures > **Explanation:** Not all repairs are considered capital expenditures. Only those that improve the building's condition significantly, such as asbestos removal or installing smoke alarms, may qualify as capital expenditures. Regular maintenance and minor repairs typically remain operational costs. ### What is the primary distinction between a capital expenditure and an operational expense? - [ ] The cost amount - [ ] The type of asset it pertains to - [x] The duration of the benefit - [ ] The size of the company > **Explanation:** The primary distinction between a capital expenditure and an operational expense is the duration of the benefit. Capital expenditures provide value or benefit for more than a year, while operational expenses are typically for day-to-day needs that do not offer long-term benefits. ### Which of the following could be considered a capital expenditure for a business? - [ ] Purchase of raw materials - [x] Acquisition of new machinery - [ ] Monthly electricity bill - [ ] Payment of employee wages > **Explanation:** The acquisition of new machinery is a capital expenditure as it adds long-term value to the business. In contrast, purchasing raw materials, paying the monthly electricity bill, and employee wages are short-term operational expenses. ### How must some additions due to a capital expenditure be managed for tax purposes? - [ ] Deducted as an entire amount in the year of purchase - [x] Depreciated or amortized over a specified number of years - [ ] Added to the company's liabilities - [ ] Recorded as incidental expenses > **Explanation:** Some additions due to a capital expenditure must be managed by depreciating or amortizing them over a specified number of years for tax purposes. This accounting method allows businesses to spread out the cost of an asset over its useful life. ### What type of expense is the installation of smoke alarms in a building? - [ ] Operational expense - [ ] Incidental expense - [ ] Non-tangible asset expense - [x] Capital expenditure - > **Explanation:** The installation of smoke alarms is considered a capital expenditure when it improves the condition of the building. The cost of installing appliances that add safety and protection contributes to the long-term value and usability of the property. ### Which of the following would NOT be considered a capital expenditure? - [ ] Construction of a new wing in a building - [ ] Purchase of office chairs - [x] Payment of the company's internet bill - [ ] Buying a company vehicle > **Explanation:** Payment of the company's internet bill is an operational expense and not considered a capital expenditure. Capital expenditures are significant investments in long-term assets like buildings, furniture, or vehicles.