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Capital Cost Threshold
One of several methods for distinguishing between capital costs (Capex) and non-capital costs. There are three types of capital thresholds:
  • The value of the expense (eg., anything over $5,000 is a capital expenditure)
  • The frequency of the expense *(eg., anything that occurs less often than once a year is a capital expense)
  • The definition of the expense (eg., anything that relates to asset "x")
The benchmark at which a capital cost is differentiated from an operating cost.


Evaluation
Some of the merits and advantages of the capital cost threshold are listed below:

  • Eliminates many smaller items from the report
  • Avoids duplication of relatively small expenses that are typically funded from the operating budget
Some of the disadvantages or limitations of the capital cost threshold are listed  below:
  • Sometimes a single, small asset may not have material value but does exceed the capital cost threshold as part of a group. Portable assets are example of assets that may only have material value as a group.
  • May result in an underreporting of true life cycle costs.
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Fig.  Exterior painting and sealant renewal is sometimes classified as a capital expense.


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Fig. Roof renewal is typically a large capital expense
carried out every 15-25 years.

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