CapEx, short for capital expenditure, is spending on assets that will benefit an organization for more than one year: equipment, vehicles, buildings, IT hardware, and major upgrades that extend an asset's life or capacity. Because the benefit lasts, the cost is capitalized, meaning recorded on the balance sheet as an asset, and then charged to profit gradually through depreciation over the asset's useful life.
Under IFRS (IAS 16) and US GAAP, a cost is generally capitalized when it is probable the asset will bring future economic benefits and the cost can be measured reliably. In practice, organizations also set a capitalization threshold below which small items are simply expensed.
CapEx vs OpEx
| Item | CapEx | OpEx |
|---|---|---|
| What it buys | Long-term assets and major improvements | Day-to-day running costs |
| Benefit period | More than one year | The current period |
| Accounting | Capitalized, then depreciated | Expensed when incurred |
| Where it shows | Balance sheet (PP&E), cash flow from investing | Income statement |
| Examples | New forklift; engine rebuild that extends life; server room fit-out | Fuel; routine servicing; software subscriptions; rent |
See OpEx for the other side of the comparison.
What counts as capital expenditure
- Buying a new asset: purchase price plus costs to get it ready for use, such as delivery, installation and testing.
- Improvements: work that adds capacity, extends useful life or improves performance beyond the original standard.
- Major replacements: replacing a significant component, such as a roof or an engine, where the old part is derecognized.
- Not CapEx: repairs and maintenance that only keep the asset working as before; these are OpEx.
CapEx formula
When you only have financial statements, capital expenditure for a period is often estimated as:
This uses net PP&E and ignores disposals and impairments, so treat it as an estimate. The cash flow statement, under "purchases of property, plant and equipment", gives the actual figure.
Examples of CapEx and OpEx decisions
Building a CapEx budget
- Start from the asset register. List assets near the end of their useful life, with age, condition and maintenance cost.
- Add growth needs. New sites, more staff or new services that need equipment.
- Estimate costs, including installation, training and disposal of the old asset.
- Prioritize by risk, compliance and payback, and phase spending across years.
- Track actual against budget, and capitalize each purchase in the register when it goes into service.
Common mistakes
- Capitalizing repairs. Routine maintenance is OpEx even when it is expensive.
- Forgetting directly attributable costs. Delivery and installation are part of the asset's cost.
- Not tagging capitalized items. If a capitalized asset cannot be found at audit, it becomes a ghost asset on the books.
- Inconsistent thresholds. Apply one written capitalization policy across departments.
CapEx in Asetavo
Capitalized assets in Asetavo carry cost, in-service date, useful life and salvage value, and depreciation schedules (Business plan) run from those fields with separate book and tax views. Maintenance costs are recorded on work orders against the same asset, so you can see capital cost and running cost side by side. To plan replacements, start with the free asset register template or model the numbers in the depreciation calculator.
