CAT / FIA FFM Syllabus E. Investment Decisions - Preparation of a capital expenditure budget - Notes ^{2 / 5}

The capital expenditure budget is a non-current assets purchase budget, and it will form part of the longer term plan of a business.

Sales, production and related budgets usually cover a 12 month period.

This requires a consideration of the organisation's requirements for land, buildings, plant, machinery, vehicles, fixtures and fittings and so on for the short, medium and long term.

Suitable financing must be arranged

If available funds are limiting the organisation's activities then it will more than likely limit capital expenditure.

The capital expenditure budget must be reviewed in relation to the other budgets.

Proposed expansion of production may require significant non-current assets expenditure which should be reflected in the budget.

Before major capital expenditure is incurred, we need to be confident that the expenditure is worthwhile.

We therefore need to appraise the project on which the expenditure is to be made, to see if it is likely to be of positive value to the business.