what is fixed capital explain with example
Answers
Answer:
Fixed capital is capital or money that we invest in fixed assets. In other words, money that we invest in assets of a durable nature. These are assets that we repeatedly use over a long period. We can also use the term ‘fixed investment‘ with the same meaning.
Fixed assets are tangible assets that we cannot convert into cash easily. Property is an example of a fixed asset. So are plant and equipment.
We do not resell fixed assets as part of our everyday business operations. We use fixed assets in the production of our company’s income or for administrative purposes.
Some people use the terms fixed assets/capital interchangeably. However, technically, when we use the term ‘capital,’ we refer to the money we invest in fixed assets
For example, equipment and facilities form part of fixed assets. Wood, however, in a furniture factory, is not. We use wood in the production of furniture, i.e., it is a component of an item of furniture.
The term contrasts with circulating capital. Circulating capital includes, for example, raw materials.
Therefore, in furniture a factory, we refer to the building and machinery as fixed assets and the wood as circulating capital.
Explanation:
Answer:
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According to economics and accounting, fixed capital is any kind of real, physical asset that is used in the production of a product but is not used up in the production. It contrasts with circulating capital such as raw materials, operating expenses and the like. It was first theoretically analyzed in some depth by the economist David Ricardo