7.11: Capital Expenditure Budget

A capital expenditure budget is a list of fixed assets that a company plans to acquire over a future period of time. These assets may be purchased to replace existing assets that are aging or outdated, or they may be additionalresources necessary to meet growing demand. Amounts for these expenditures are usually determined by looking at current costs and factoring in potential pricing adjustments in the future.

A sample capital expenditures budget follows.

Capital Expenditures Budget

Asset	2020	2021	2022	2023	2024
$\ \quad \quad$Machinery – Cutting Department	$12,000	$18,000		$24,000	$31,000
$\ \quad \quad$Machinery – Assembly Department	57,000	43,000	18,000		15,000
$\ \quad \quad$Delivery vehicle		35,000		42,000
$\ \quad \quad$Office equipment	21,000	4,000	7,000	1,000	3,000
Total	$90,000	$100,000	$25,000	$67,000	$49,000

Budgets provide a financial roadmap for executing the plans management has developed. Keep in mind that they are projections of what will take place in the future rather than reports of past performance. They can be compared to evaluate actual performance once it can be measured. That assessment often leads to discovering strengths and weaknesses that can be considered when making subsequent plans going forward.