Which of the following purchases would most likely be considered a capital budget item?

• A. A cost of less than $50.00, with life expectancy of 5 years
• B. A cost of more than $50.00, with a life expectancy of 6 months
• C. A cost of more than $1,000.00, with a life expectancy of 3 months
• D. A cost of more than $1,000.00, with a life expectancy of 3 years

Answer: (D)

In capital budgeting, items that become long-term assets are treated as capital expenditures because they provide benefits over multiple years and are capitalized and depreciated. A purchase is typically considered capital if its cost meets the organization’s capitalization threshold and its useful life exceeds one year. The option that costs more than $1,000 and has a three-year life fits best: it represents a substantial investment and its benefits extend over several years, so it would be included in the capital budget and depreciated over its useful life. The other options either have short lives (six months or three months) or are relatively low-cost, which would usually be expensed rather than capitalized.