Making a Financial Case

Understanding Financial Concepts Used To Inform Management Decisions

1: Understanding financial concepts used to inform management decisions

1.1: Explain the differences between capital and revenue expenditure, using examples Capital Revenue
A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

Within the Aneurin Bevan University Health Board we are governed by the ‘Financial Control Procedure – Capital Assets and Charges’ (Appendix 1). Section 4.2 of the procedure states:

Capital expenditure is defined as expenditure which creates assets that are capable of being used for more than 1 year and:
• Individually cost more than £5,000, or • Collectively cost more than £5,000, where the assets are functionally interdependent, have broadly simultaneous purchase dates and are under single management control, or • Form part of an IT network which collectively cost more than £5,000 and individually cost more than £250, or • Form part on the initial equipping and setting up cost of a new building, ward or unit irrespective of their individual or collective cost. Revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures

Section 4.3 of the procedure states:

Expenditure that