What is a 'capital expenditure'?

What is a 'capital expenditure'?

• A. A minor repair cost associated with general maintenance
• B. Major expenses incurred for improvements or upgrades to a property that enhance its value
• C. The cost of regular tenant services
• D. Monthly expenses related to leasing agreements

Answer: (B)

A capital expenditure refers to substantial financial outlays that are made to improve or enhance a property, ultimately increasing its value or extending its useful life. This can include costs associated with significant renovations, roof replacements, new HVAC systems, or other major upgrades that contribute to the property’s overall worth. Such expenses are different from routine maintenance costs or minor repairs, which are necessary but do not necessarily add significant value. Capital expenditures are generally treated as investments in the property and are capitalized on the balance sheet over time rather than expensed in the period in which the costs were incurred. Understanding the distinction between capital expenditures and other types of expenses is crucial for property management, financial planning, and budgeting.

A capital expenditure refers to substantial financial outlays that are made to improve or enhance a property, ultimately increasing its value or extending its useful life. This can include costs associated with significant renovations, roof replacements, new HVAC systems, or other major upgrades that contribute to the property’s overall worth.

Such expenses are different from routine maintenance costs or minor repairs, which are necessary but do not necessarily add significant value. Capital expenditures are generally treated as investments in the property and are capitalized on the balance sheet over time rather than expensed in the period in which the costs were incurred. Understanding the distinction between capital expenditures and other types of expenses is crucial for property management, financial planning, and budgeting.