Suppression tactics

When three lifts at a Network Rail station stopped working, an automated solution was sought, explains Steve Pott s

We hear the terms often: Capex and Opex or capital expenditure and operational expenditure. But understanding their relationship and differences can help workplace and facilities management departments make important budgetary decisions.

Geoff Kontzle, CIPS course director at DPSS Ltd, offers this helpful comparison:

● Capex typically concerns oneoff long-term purchases such as buildings, vehicles, plant, equipment or land; while

● Opex usually concerns shortterm day-to-day expenses such as maintenance and repairs, office supplies, salaries, vehicle expenses.

Capex purchases, Kontzle says, are intended to benefit an organisation for more than a year. This approach can be effective. “If an asset’s useful life exceeds one year, which is typical for this type of purchase, the cost can be expensed using depreciation, normally on a straightline basis over a period anywhere from three to 10 years.”

However, there are also potential drawbacks. Kontzle says: “Money spent on Capex can mean for some organisations that there is less cash available for working capital requirements, which may limit short-term operations.”

Capex items appear as assets in an organisation’s balance sheet and their depreciation is also recorded within the profit and loss account.

Taxed terms

Kontzle says ‘expenditure’, defined in accounting, refers to long-term spending, while ‘expenses’ refer to spending for day-to-day activities.

“Nonetheless, the terms are often used interchangeably for Opex, which is an expense recorded within the profit and loss account.

“One of the challenges is determining from a taxation perspective whether an item is a Capex or Opex for its treatment in charging it to the profit and loss account as a tax-deductible item or