Definition of Capital Expenditure

Please note that this definition of capital expenditure is based on advice given by NIACE's finance team in April 2007.

Please ensure that any funding for which you apply meets the definition below and that of capital approved by your auditors.

General Definition - Capital Expenditure

Capital expenditure may be defined as expenditure on the acquisition of a fixed asset, i.e. one which bestows benefits to the entity and the services it provides for a period exceeding one year, and in which the entity retains a vested interest.

Fixed assets are therefore owned by the entity and intended for long term use within it. There are two categories of Fixed Assets:

Tangible Fixed Assets (FRS* 15)

Tangible fixed assets are defined as "assets that have physical substance and are held for use in the production or supply of goods and services, or for administrative purposes on a continuing basis in the reporting entity's activities".

Tangible fixed assets are initially valued at cost, cost being the purchase price together with any costs directly attributable to bringing it into working condition for its intended use. Examples of "directly attributable costs" are given within FRS* 15, though these are not exhaustive.

In an IT context this would normally include computer hardware (with associated directly attributable costs) but may also include directly attributable software development costs (see Intangible Assets below).

Intangible Fixed Assets (FRS* 10)

An intangible fixed asset is defined as a "non-financial fixed assets that do not have physical substance but are identifiable and are controlled by the entity through custody or legal rights" (FRS* 10). Control of the asset would normally be secured by legal rights, such as a licence granting access to the benefits of the asset for a fixed period, or patents and copyrights restricting access by others.

In the context of IT assets, this would normally include initial software licences granting right of use for a period exceeding one year, but not annual licences or maintenance.

Internally developed intangible assets may be capitalised only if they have a "readily ascertainable market value".

As stated in FRS* 10, "software development costs that are directly attributable to bringing a computer system or other computer-operated machinery into working condition for its intended use within the business are treated as part of the related hardware rather than as a separate intangible asset"

*Financial Reporting Standard

Capitalisation Guide - Summary List for I.T. Assets

• Computer hardware and peripherals.

• Associated software and software development costs (including initial implementation costs) necessary to bring the computer system into working condition.

• Software licences held in perpetuity or for any other period exceeding one year.

Other directly attributable costs, including:

• Site preparation and clearance (in preparation for the computer hardware)

• Initial delivery and handling costs

• Installation costs

• Acquisition costs (such as stamp duty, import duties and non-refundable purchase taxes) - where relevant

• Professional fees (such as legal, architects' and engineers' fees) - where relevant