ACCOUNTING FOR CAPITAL EXPENDITURE
What is classed as Capital Expenditure?
Expenditure on Assets that:
“…are intended for use on a continuing basis in the company’s activities” (Companies
Act)
“…have physical substance and are held for use in the production or supply of goods
and services, for rental to others, or for administrative purposes on a continuing
basis…” (FRS 15)
Therefore expenditure incurred to acquire long-term assets such as property, plant or
equipment should be capitalised. This can include the following:
 Labour costs of the entity’s own employees arising in the construction or
acquisition of the asset. The University utilises this definition to charge
Project Managers’ salaries to Capital Projects
 “Mini-projects” comprising invoices of less than £20k (the University’s
materiality threshold below which expenditure would not normally be
capitalised) where the total expenditure is greater than this amount eg bulk PC
purchases or where the acquisition of a large piece of equipment is comprised
of several smaller purchases. Craig Sherrit should be advised of these to
ensure that they are capitalised.
As a general rule, subsequent expenditure on fixed assets should be charged to a
Revenue budget. Such expenditure is generally of a repairs and maintenance nature
and does not improve the asset. However subsequent expenditure can be capitalised
where it:
 Provides an enhancement of the economic benefits of the asset or
 relates to a major inspection or overhaul of the asset that restores the economic
benefits of the asset
Expenditure that should not be capitalised
The above includes:
 Administrative and other general overheads. Specifically hospitality, travel,
turfing and bushes are not capital and if charged to a Capital Project code
should be recharged to a Revenue budget.
 Labour costs not related to the specific asset
Coding Structure for Capital Expenditure
Buildings
Nominal – AA**
Budgetholder – 00UES
Activity – AZZ****
Equipment
Nominal – AB**
Budgetholder – 02U**
Activity – dependent on the funding source eg TZZ or RZZ for Core, RBZ for SFC,
RGA for a Research Council etc
Authorisation levels
These will normally be consistent with levels for Revenue expenditure. However, in
the case of Institutional Capital Projects higher authorisation levels have been set for
Estates staff on the basis that budgets for these projects have previously been
approved by the Operating Board (previously JPFEC).
Deferred Capital Grants
These are sources of external funding used towards the meeting the cost of a capital
project. As well as SFC Capital grants these can include Fundraising (normally
channelled via the Development Trust), and Grants from bodies such as the NHS and
Research Councils.
The coding structure for DCGs is:
Nominal
Budgetholder
HAAA – SFC Buildings
15UGA
HBAA – Non FC Buildings
15UGA
HAAB – SFC Equipment
15UGB
HBAB – Non FC Equipment
15UGB
The Activity code will normally be comparable to the expenditure code for a similar
funding source eg RBZ for SFC, RGA for a Research Council, RGB for Development
Trust etc
Contributions to Capital Expenditure from College Revenue budgets
When a College is funding a contribution to a Capital project the simplest method of
actioning this from a Management Accounting point of view is to input a journal entry
debiting a College code and crediting the Capital project code. The merits of this are
that
 the journal would provide an audit trail of the College contribution
 the I&E bottom line budgeted surplus would not change
However, the above is not proper Financial Accounting practice terms because:
 the University’s fixed assets will be understated
 in the year that the journal is processed the University’s I&E surplus will
also be understated
To satisfy both the Management and Financial Accounting requirements it is therefore
proposed that when a College contribution is approved
 the College’s revenue budget for that year will be decreased and the
capital project budget increased by the amount of the contribution
 a compensating budget will be set-up in Financial Adjustments in code
4300 MC000 UZZ0000. When preparing the out-turn forecast for
Financial Adjustments it will be assumed that there will be nil
expenditure against this budget. We will therefore satisfy the dual aim
of not changing the I&E budgeted surplus while at the same time
reflecting reduced revenue expenditure in the out-turn forecast
Capital Expenditure funded from Discretionary and Principal’s Dowry Reserves
1. Funded from reserve draw-downs additional to those included in that financial
year’s revenue budgets:
a) the normal activity code will apply eg expenditure funded from
Zoology Discretionary reserves should be charged to ROQ0061.
b) balance sheet nominal and budgetholder codes should also be used.
These will vary depending on whether the expenditure is Buildings
(AA** 00UES) or Equipment (AB** 02U** eg 02UZY for Zoology).
2. Funded from reserve draw-downs already included in that financial year’s
revenue budgets:
As in (1) but with a compensating budget addition to 4300 MC000 UZZ0000
At the year-end the relevant reserve balance should be reduced to take reflect this
expenditure.
Capital Expenditure funded from Core Revenue budget underspends rolled
forward from a previous financial year
A capital project budget should be established and the Depreciation budget should be
uplifted to include related Depreciation charges.