Capital Expenditure

Question 1

Capital Expenditure

Answer 1

Money spent by a business to buy capital items, which are assets that will stay in the business for a long period of time

Capital items are either non-current assets and intangible assets

Question 2

Capital Items

Answer 2

Assets bought from capital expenditure such as machinery and vehicles that will stay in the business for more than a year

Question 3

Non-Current Assets

Answer 3

• Non-current assets are items owned by a business that will remain in the business for a reasonable period of time
• These are shown on a business’s statement of financial
  position (or balance sheet) and include land and premises, machinery and equipment, vehicles, and fixtures and fittings
• These are sometimes referred to as ‘tangible assets’
  because they can be touched

Question 4

Statement Of Financial Situation

Answer 4

A financial document that shows the net worth of a business by balancing its assets against its liabilities

It is often called a balance sheet

Question 5

Intangibles

Answer 5

• An intangible asset is something owned by the business that cannot be touched but adds value to the business
• The four common intangibles within a business are:

Goodwill
Patents
Trademarks
Brand Name

Question 6

Goodwill

Answer 6

• When you buy an existing business, its name and reputation will already be known, and it may already have an established customer base or set of clients
• This increases the value of the business and therefore increases the selling price of the business
• A sum of money is added to the value of the business to reflect the value of this goodwill
• However, goodwill is difficult to place a figure on

Question 7

Patents

Answer 7

• A patent is the legal protection of an invention, such as a unique feature of a product or a new process
• An entrepreneur or business may patent their idea to stop others from copying the idea
• Having a patent allows the business to
  exploit this in the future by launching an innovative product at a premium (more expensive) selling price
• The patent itself must, therefore, be worth something, but
  again it is difficult to know exactly how much value to place on it

Question 8

Trademarks

Answer 8

• A trademark is a symbol, logo, brand name, words or even colour that sets apart one business’s goods or services from those of its competitors
• Trademarks can be a key influence on consumer choice and build a strong brand loyalty
• A trademark, therefore, is of value to a business and consequently recorded as an intangible asset

Question 9

Brand Name

Answer 9

• A feature of a business that is recognised by customers and distinguishes the business from competitors
• Customers will link the brand name to expectations based on previous experiences with the brand
• It is sometimes said that a brand name is a promise of what to expect

Question 10

Depreciation

Answer 10

• Used to show the fall in value in the business’s accounts; most fixed assets lose value over time
• Straight line depreciation reduces the value of an asset by the same amount each year over its life
• Reducing depreciation shows the loss of value as being higher during the early years