7.1 Capital Assets and Expenditures

From an economic viewpoint, capital assets have a useful life of more than one year whereas from an accounting perspective, capital assets have a purchase price above a certain dollar amount. Capital assets are inputs in the production process of private goods (e.g., manufacturing facility) and public goods (e.g., schools, hospitals, fire stations, infrastructure).

Capital expenditures are outlays to purchase capital assets and have implications beyond a single financial period and high initial cost on large tangible projects. Those expenditures are non-recurring except for operation and maintenance covered by recurrent budgets. Since a large infrastructure investment has a lifetime beyond one year, borrowing of capital to support capital expenditures is appropriate due to service provision over multiple years. This ensures that current tax payers are not responsible to cover the entire capital expenditure and that future residents pay their appropriate share.