Final answer:
Capital expenditure is the money spent by a business to purchase, improve, or extend the life of long-term assets, also known as non-current assets. It is different from routine expenses or repairs and maintenance as it aims to increase an asset's earning capacity. The correct description of capital expenditure is the acquisition of non-current assets or improvement in their earning capacity.
Step-by-step explanation:
The term capital expenditure refers to funds that a business uses to purchase, upgrade, or extend the life of long-term assets. Long-term assets, also known as non-current assets, include property, plant, and equipment that a company intends to use for more than one year. Capital expenditures can also improve the earning capacity of these assets. Options such as repairs and maintenance are typically categorized as expenses rather than capital expenditures because they do not improve an asset's earning capacity long-term. Instead, they simply maintain an asset's current condition.
Capital expenditure is not defined by a specific price threshold (like "expensive items over £10,000") nor is it directly related to owners' capital, which is the equity invested by shareholders or owners. The correct explanation for capital expenditure is Option C: on the acquisition of non-current assets, or improvement in their earning capacity.
Investment expenditure refers to the spending on new capital goods and can fall into four categories: producer's durable equipment and software, nonresidential structures, changes in inventories, and residential structures. Investment is crucial for economic analysis because it contributes to the Gross Domestic Product (GDP). It's important to note that in economic terms, investment does not denote financial market activities such as trading stocks or bonds, but refers to spending on real capital. For instance, business investment in 2020 was reported at $3.6 trillion, which drastically contributes to the country's economic output as per the Bureau of Economic Analysis.