Given the following list of outlays, indicate whether each is normally considered a capital expenditure or an operating expenditure. Outlays Classification of Expenditure
a. Initial lease payment of $5,000 for electronic point-of-sale cash register systems.
b. An outlay of $20,000 to purchase patent rights from an inventor.
c. An outlay of $80,000 for a major research and development program.
d. An $80,000 investment in a portfolio of marketable securities.
e. A $300 outlay for an office machine.
f. An outlay of $2,000 for a new machine tool An outlay of $240,000 for a new building.
g. An outlay of $240,000 for a new building.
h. An outlay of $1,000 for a marketing research report.

a. Initial lease payment of $5,000 for electronic point-of-sale cash register systems.

Operating expenditure. This is like regular rental payments. No Asset is created.

b. An outlay of $20,000 to purchase patent rights from an inventor.

Capital Expenditure. An Asset is acquired & it will written off over its life. Patent life is usually 20 yrs

c. An outlay of $80,000 for a major research and development program.

Operating Expenditure. No Asset is created. This expenditure will be passed through P&L acct

d. An $80,000 investment in a portfolio of marketable securities.

Capital Expenditure. Investment in security a/c is an Asset acct & will be in Balance sheet

e. A $300 outlay for an office machine.

Capital Expenditure. Office machine is an Asset.

f. An outlay of $2,000 for a new machine tool

Operating Expenditure. Machine tool is a expenses item

g. An outlay of $240,000 for a new building.

Capital Expenditure. A New Assets created in Balance sheet

h. An outlay of $1,000 for a marketing research report.

Operating Expenditure: This expenditure is passed through P&L