Question

This is considered as 'working capital'

• A. Tools
• B. Machines
• C. Buildings
• D. Money in hand

Hint:

Types of Capital: - Fixed Capital: Long-term assets used repeatedly in production (e.g., machinery, buildings, land). They depreciate over time. - Working Capital: Short-term assets required for daily operations. Working Capital = Current Assets - Current Liabilities. Current Assets include: Cash, Bank balance, Accounts Receivable (debtors), Inventory (raw materials, work-in-progress, finished goods). Raw materials are also a component of working capital (as inventory). The options provided are more distinct.

Answer 1

The Correct Option is D

Step 1: Define fixed capital and working capital.
In economics and business, capital is categorized based on its nature and use: - Fixed Capital: Refers to durable assets that are used repeatedly in the production process over a long period.
They are not consumed or converted into cash in a single operating cycle.
Examples include land, buildings, machinery, tools (if durable and long-lasting).
- Working Capital: Refers to the capital required for day-to-day operations of a business.
It is the difference between current assets and current liabilities.
Current assets include cash, accounts receivable, inventory of raw materials and finished goods.
These are expected to be converted into cash within one operating cycle (usually a year).

Step 2: Classify the given options.
Option (1) Tools: If these are durable tools used over many production cycles, they are typically considered fixed capital.
However, small, consumable tools might be part of current assets/expenses.
Option (2) Machines: These are classic examples of fixed capital, as they are long-term assets used in production.
Option (3) Buildings: These are also classic examples of fixed capital.
Option (4) Money in hand (Cash): Cash is the most liquid current asset and is a primary component of working capital.
It is used to meet daily operational expenses, purchase raw materials, pay wages, etc.

Step 3: Identify working capital.
Among the options, "Money in hand" (cash) is a direct component of working capital.
Tools, machines, and buildings are typically classified as fixed capital.
This matches option (4).