Chapter 12
Budgeting for Capital Expenditure and Depreciation
IN THIS CHAPTER
Calculating the cash required for budgeted asset purchases
Determining the depreciation on budgeted capital expenditure
Figuring out the written-down value of assets for inclusion on the balance sheet
The last two chapters offer a high-level overview of building financial models. In this chapter, you delve into more detail in one part of a financial model: the capital expenditure (CapEx).
In Chapter 10, I explain the process of purchasing assets and calculating their depreciation. For example, you purchased a coffee machine, as well as fixtures and furniture. These purchases were reflected in your cash flow statement, but you also needed to calculate their depreciation based on their useful life. You used this amount in the Income Statement and showed it on the Balance Sheet in order to show the current value of fixed assets. The way this was calculated was fairly simple — and sufficient for our purposes. Some models need to delve a little deeper, and that’s what I do here.
In this chapter, I explain in more detail how to model depreciation. Here, you take a list of existing and budgeted CapEx items, ...
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