Because capital expenditure is used for buying long term and fixed assets, so, this type of investment needs proper planning and control. If there is no planning and control, we will take wrong decisions and our this investment will become wasted assets which will have no market value.
Planning of Capital Expenditure
Planning is very useful for getting better and useful investment at lowest capital expenditure. In this planning, we have to try to best to solve some question like how, when, why and who in advance.
1. Check the Need of Business
If I ask one question from you. Why should you buy any fixed asset? Or why should you spend money on capital expenditure? What you will say me. You should answer the question on the basis of requirement in your business. If there is no need, it will be the wastage of money. For example, for my commerce website, I need one camera for media snap whose cost is Rs. 68000. I check my business, there is no such camera. If there is already same camera, then, this type of investment will be wastage of money. Like this, you should also check your business need, then you should try to best to buy same fixed asset.
2. Check the Current Resources of Company
Then, after getting the answer of why should buy the any particular fixed asset, you should get the answer, how to buy? Answer is with money. For this, you need to check your current resources. I also need to check my current resources, for example, if resources will be in 3 months, I will buy at the end of 4th month because I do not want to disturb my other plans of capital expenditure. Like, this, you need to think.
3. Compare Capital Expenditure with Return on Investment
Now, you need to compare your capital expenditure with its future return on same investment. If return on investment is more than invested money, it is better investment. Otherwise, it will be bad investment. You also check the time. For this, better is to use capital budgeting techniques.
Control of Capital Expenditure
Now, you have bought the fixed asset, your duty is to control it. Following are its main steps
1. To do the accounting of capital expenditure
Every fixed asset which you are buying, should record in the books of accounts. Timely, you should make the plan of its repair and you should also annual depreciation provision on it. This depreciation provision will help you to buy new fixed asset at the time of scrap of same fixed asset. It is just like reserve of new capital expenditure.
2. Audit
Time to time, audit of fixed assets is necessary. Audit of physical quantity and value will help to safeguard the fixed asset and proper use of capital expenditure for business.
3. Feed Back
Time to time, we have to check the physical performance of your fixed asset.
4. Investment Monitoring
Investment monitoring is also useful technique of controlling capital expenditure. With this, if your market value of your fixed asset is decreasing fastly due to lots of reasons, you can sell it and buy other new fixed assets. It may be possible only with investment monitoring.
Planning of Capital Expenditure
Planning is very useful for getting better and useful investment at lowest capital expenditure. In this planning, we have to try to best to solve some question like how, when, why and who in advance.
1. Check the Need of Business
If I ask one question from you. Why should you buy any fixed asset? Or why should you spend money on capital expenditure? What you will say me. You should answer the question on the basis of requirement in your business. If there is no need, it will be the wastage of money. For example, for my commerce website, I need one camera for media snap whose cost is Rs. 68000. I check my business, there is no such camera. If there is already same camera, then, this type of investment will be wastage of money. Like this, you should also check your business need, then you should try to best to buy same fixed asset.
2. Check the Current Resources of Company
Then, after getting the answer of why should buy the any particular fixed asset, you should get the answer, how to buy? Answer is with money. For this, you need to check your current resources. I also need to check my current resources, for example, if resources will be in 3 months, I will buy at the end of 4th month because I do not want to disturb my other plans of capital expenditure. Like, this, you need to think.
3. Compare Capital Expenditure with Return on Investment
Now, you need to compare your capital expenditure with its future return on same investment. If return on investment is more than invested money, it is better investment. Otherwise, it will be bad investment. You also check the time. For this, better is to use capital budgeting techniques.
Control of Capital Expenditure
Now, you have bought the fixed asset, your duty is to control it. Following are its main steps
1. To do the accounting of capital expenditure
Every fixed asset which you are buying, should record in the books of accounts. Timely, you should make the plan of its repair and you should also annual depreciation provision on it. This depreciation provision will help you to buy new fixed asset at the time of scrap of same fixed asset. It is just like reserve of new capital expenditure.
2. Audit
Time to time, audit of fixed assets is necessary. Audit of physical quantity and value will help to safeguard the fixed asset and proper use of capital expenditure for business.
3. Feed Back
Time to time, we have to check the physical performance of your fixed asset.
4. Investment Monitoring
Investment monitoring is also useful technique of controlling capital expenditure. With this, if your market value of your fixed asset is decreasing fastly due to lots of reasons, you can sell it and buy other new fixed assets. It may be possible only with investment monitoring.
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