Question

Fixed capital is required

• A. For payment of routine expenses
• B. For purchase of land
• C. For purchase of stock
• D. For payment to creditors

Hint:

Fixed capital is invested in long-term assets like land, buildings, and machinery, while working capital meets short-term operational needs.

Answer 1

The Correct Option is B

Step 1: Understanding fixed capital.
Fixed capital refers to the funds that are invested in long-term assets of a business.
These assets are not intended for immediate resale but are used over several years to generate income.
Examples include land, buildings, machinery, vehicles, and equipment.
Step 2: Purpose of fixed capital.
Fixed capital is required for the purchase, installation, and maintenance of long-term assets that help in the production of goods and services.
It is essential for establishing and expanding the infrastructure of an organization.
Step 3: Why land purchase is part of fixed capital.
Land is a long-term asset that provides the physical foundation for business operations such as factories, offices, and warehouses.
The expenditure on land is non-recurring and remains fixed regardless of the level of production.
Step 4: Analysis of options.
- (1) For payment of routine expenses: Incorrect — these are short-term and come under working capital.
- (2) For purchase of land: Correct — land is a long-term investment and requires fixed capital.
- (3) For purchase of stock: Incorrect — this is a current asset funded through working capital.
- (4) For payment to creditors: Incorrect — involves current liabilities, not fixed assets.
Step 5: Conclusion.
Hence, fixed capital is required for the purchase of land.