DEFINITION of Future Capital Maintenance
Future capital maintenance is a term used to account for future expenses that a company expects to incur in order to maintain its fixed assets. This includes the funds necessary to renew, repair, or replace an asset in order for it to continue to function as needed. The company owning the assets likely has an idea of the frequency at which the asset will need to be repaired or replaced. The company makes a line item on their financial statements to account for this regularly occurring expense and saves the money. When a repair needs to be made to the asset, the total needed for the repair is taken from the saved balance and the expense is recognized.
BREAKING DOWN Future Capital Maintenance
Future capital maintenance is an item on the financial statements that accounts for regularly occurring, expected maintenance of fixed assets. In order to obtain accurate earnings projections, the value of capital including future maintenance costs must first be determined. Otherwise, certain financial ratios may be skewed. State, county, and local governments can issue municipal bonds to raise funds for future capital maintenance costs.
Example of Future Capital Maintenance
XYZ Corp makes widgets. The company owns a widget press which requires yearly maintenance to remain functional. Every 10 years, the company buys a new widget press. XYZ Corp utilizes future capital maintenance as an item on their financial statements to incorporate this regular and expected cost into their budget and reporting figures.