Question

State any three characteristics of fixed capital.

Hint:

Fixed capital is critical for business operations, as it consists of long-term assets that help generate revenue and support growth over time.

Answer 1

Fixed capital refers to the long-term assets or investments used by a business to produce goods and services. Below are three key characteristics of fixed capital:
Step 1: Long-Term Investment.
Fixed capital involves investments in assets that are used over a long period, typically more than one year. These assets are essential for the ongoing operations of the business and include buildings, machinery, and equipment.
Step 2: Depreciation.
Fixed capital assets undergo depreciation over time. As these assets are used in the production process, their value decreases gradually due to wear and tear. Depreciation is accounted for in financial statements, reflecting the reduction in value.
Step 3: Illiquid Nature.
Fixed capital is generally illiquid, meaning it cannot be quickly converted into cash. These assets are meant for long-term use and are not intended for resale or quick disposal.