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Approval Process

Imagine you are the Corporate Financial Officer (CFO) of a Fortune© 500 company.

  • Describe to your classmates the process your company would use in approving the capital expenditure budget. Remember that companies try to minimize expenditures.
  • What evidence would you submit to top management to support your request for requested expenditures the company needs and why?

Can you make response each posted below.

1. Jaime Sanders posted Mar 31, 2018 9:33 PM

The capital expenditures budget should include funds for any investments, long-term assets, joint ventures and any other investment activity. Any proposals would be reviewed to determine if they are sound investments for the company to make and be voted on a the board before a final budget would be produced. For investments evidence would be needed to show that the return on funds invested would be worth the expenditures. With long-term assets it would be necessary to show the need for such items at this particular time within the company. Any capital expenditures should only be made in the instance that there is solid evidence to show that they will benefit the company in the long-term. Capital expenditures should be made to grow the company and provide for additional profits during future years, as well as the year in which they are being purchased.

2. From: Sarah Mcconnell posted Mar 29, 2018 3:36 PM

Hello everyone,

The capital consumptions spending plan identifies the measure of cash of a business will put on long-term resources and resources into activities. In due to the fact that assets for uses maybe dignified and signed as a whole, majority of the businesses have a unique process for favoring reserves for the specific things incorporated through a capital uses spending plan. The procedure incorporates a budgetary assessment to find out if the business’s arrival on speculation targets are connected and when the objectives are acknowledged, a subjective audit by a top administration group. Numerous of organizations incorporate long-term resources as for instance, joint endeavors, purchases a variety of organizations. Also purchases or rents of settled resources and furthermore recent products, new markets, innovative work, critical advertising projects, and data innovation things in their capital consumptions spending plans.

References:

Weygandt, J., Kimmel, P. & Kieso, D. (2015). Accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

3. From: David Cogar posted Mar 29, 2018 8:25 PM

Professor and Class,

“Capital expenditures are expenses a business makes to generate financial benefits over a period of years. Thus, a capital expense is the cost of assets that have usefulness and can help a company create profits for a period longer than the current tax year. Because capital expenditures represent substantial investments of cash, designed to show a return on the capital investment over a period of years, it is important for companies to carefully plan for them. Nearly all companies budget separately for capital expenditures. Deductions for capital expenditures are spread out over a space of years and figured as depreciation.” (Investopedia)

“The procedures for the preparation of a capital expenditures budget obviously vary from one company to another. The decisions involve very large expenditures, and it is management that must make the evaluation as to whether the investment in assets is worth the cost. Budgeting for capital expenditures is critical future planning. In deciding on a certain capital expenditure, a company’s management makes a statement about its view of the company’s current financial condition and its prospects for future growth. It is also giving indications regarding what direction(s) it plans to move in the years ahead.“ (Investopedia)

According to the textbook, these are some steps for approving a capital budget:

1. Project proposals are requested from departments, plants, and authorized personnel.

2. Proposals are screened by a capital budget committee. Are you worthy?

3. Officers determine which projects are worthy of funding. Capital Budget

4. Board of directors approves capital budget.

David Cogar

https://www.investopedia.com/ask/answers/122214/how-should-company-budget-capital-expenditures.asp

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