Differentiate between fixed capital and working capital. It is a 5 mark question. I don’t want any copy paste answers. Incomplete or inappropriate answers will be reported.
Answers
Explanation:
FIXED CAPITAL :
Fixed capital is capital or money that we invest in fixed assets.fixed capital is conventionally defined as the stock of tangible, durable fixed assets owned or used by resident enterprises for more than one year. This includes plant, machinery, vehicles and equipment, installations and physical infrastructures, the value of land improvements, and buildings.
EXAMPLE : Tools and machines range from very simple tools such as a farmer's plough to sophisticated machines such as generators, turbines, computer automated machines etc... They are not used up or consumed immediately in the production process. They help to produce these goods over many years. They require some repair and maintanence so that they remain useful and can be used year after year. These are called FIXED CAPITAL or PHYSICAL CAPITAL.
WORKING CAPITAL:
Working capital, also known as net working capital (NWC). Working capital refers to the capital, which is used to perform day to day buisness operations. It includes raw materials, money required, accounts receivable and cash equivalents.
EXAMPLE : Some money is also required to buy other necessary materials for production and make payments for completing the production. It takes time to complete the production and then sell sell these goods or services in the market. Only then does money flow back into the production process. This requirement for raw material and money is therefore called WORKING CAPITAL. This is different from physical capital because unlike tools, machines or buildings, it is used in different production and manner.
Here is your answer. I have written it on my own with bases of my social textbook without using any sources. Hope it helps you.