Future Capital Maintenance

What Is Future Capital Maintenance?

Future capital maintenance is a term used to account for future expenses that a company hopes to cause to keep up with its fixed assets or equipment expected to assist with creating income.

Future capital maintenance is commonly estimated by an accounting department and is written as a detail on a company's financial statements. Any funds that are essential to recharge, repair, or supplant an asset or piece of equipment for it to keep on functioning can be counted inside the future capital maintenance category.

The company claiming the assets probably has a thought of the frequency at which the asset should be repaired or supplanted. Subsequently, the company makes a detail on its financial statements to account for this consistently happening expense and saves a portion of money for this customary maintenance or upgrade. At the point when a repair should be made to the asset, the total required for the repair is taken from the saved balance and the expense is recognized.

How Future Capital Maintenance Works

Future capital maintenance is a detail on a company's financial statements that accounts for routinely happening, expected maintenance of fixed assets. To get accurate earnings projections, the value of capital including future maintenance costs must not entirely settled. If not, certain financial ratios might be slanted once calculated. State, district, and nearby legislatures can issue municipal bonds to raise funds for future capital maintenance costs.

Under generally accepted accounting principles (GAAP), companies must show whether the expenses fall under maintenance or capital expenses. As indicated, maintenance expenses incorporate costs incurred to fix a PC important for work, investigate a piece of machinery required in a dress factory, or pay for normal vehicle reviews for a vehicle rental company. In the interim, capital expenses incorporate any upgrades or purchases of new equipment.

Illustration of Future Capital Maintenance

For instance, a certain XYZ Corp makes gadgets. The company claims a gadget press which requires yearly maintenance to stay functional and keep delivering gadgets. Moreover, at regular intervals, the company needs to buy another gadget press. Hence, XYZ Corp uses future capital maintenance as a thing on its financial statements to incorporate this ordinary and expected cost into their budget and reporting figures.

With this project, XYZ Corp can better plan its expenses, compute its profitability, and have a more accurate image of its financial wellbeing.

Features

• Future capital maintenance is a term used to account for future expenses that a company hopes to cause to keep up with its fixed assets.
• To acquire accurate earnings projections, the value of capital including future maintenance costs must still up in the air. If not, certain financial ratios might be slanted.
• Future capital maintenance is written as a detail on a company's financial statements and incorporates the funds important to reestablish, repair, or trade an asset for it to keep on functioning on a case by case basis.