Question

Short note on fixed capital

Answer 1

Fixed capital is a mandatory one-time investment made at the introductory phase of a business establishment.

Fixed capital is not alike working capital, which is required on a continuous basis to operate (run) the ordinary course of production and distribution of goods and services.The meaning of fixed capital can be easily grasped from these points:

Fixed capital is a compulsory initial investment made in the business.It helps to lay down the basic infrastructure on which business is supposed to stand and flourish in a long run.It is a part of total capital invested in the business.It has a permanent existence in the business to meet its long-term needs.It is used for purchasing fixed assets like land, building, plant, machinery, etc.It is also used for purchasing intangible assets like patents, copyrights, goodwill, etc.It is required for promoting the business.It is also required for expansion, modernization and diversification of business.Fixed capital gets depreciated as an asset is used over time with few exceptions like in case of land.Fixed capital requirement is estimated by the promoters of business. This estimation must be made as accurately as possible. To achieve this, the promoters seek professional help and take advice from experts such as engineers, architects, etc.

Answer 2

The value of capital assets that can be used for production at a particular period is known as fixed capital.

• All capital items that are accounted for in gross fixed capital creation are included. The value of acquisitions less sales of new or used fixed assets is used to calculate this.
• Non-financial assets that are generated and employed frequently or continuously in industrial processes for a longer period of time are known as fixed assets.
• Homes, other buildings and structures, machinery and equipment, weapon systems, farmed biological resources, and intellectual property goods are all considered fixed assets.
• Fixed capital is the percentage of a company's overall capital expenditure that is allocated to purchasing tangible assets like buildings, cars, and machines that are used virtually permanently or, more precisely, for more than one accounting period. A fixed asset can either be bought and owned by a company, or it can be arranged as a long-term lease.

Hence, fixed capital is the amount which is to be paid even if business is not in working position.

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