Machinery, tools, railways tractors, factories etc., are all fixed capital. They are used up in a single act of production.

In economics, capital refers to that of wealth which is used for further production of wealth. Land is the natural factor of production, it is permanent in nature. Capital is a man made factor of production. It lacks permanency.

Fixed capital requirements: In order to start the business, funds are required to purchase fixed assets like land and building, plant and machinery, and furniture and fixtures. This is known as the fixed capital requirements of the enterprise.

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 use fixed assets in the production of our company’s income or for administrative purposes.

Fixed capital includes the assets and capital investments, such as property, plant, and equipment (PP&E), that are needed to start up and conduct business. Fertilisers and pesticides contain chemicals. Therefore, it is not a fixed capital.

In equation form:

1. Net Fixed Assets Formula = Gross Fixed Assets – Accumulated Depreciation.
2. Net Fixed Assets Formula= (Total Fixed Asset Purchase Price + capital improvements) – (Accumulated Depreciation + Fixed Asset Liabilities)

The net fixed asset formula is calculated by subtracting all accumulated depreciation and impairments from the total purchase price and improvement cost of all fixed assets reported on the balance sheet. This is a pretty simple equation with all of these assets are reported on the face of the balance sheet.

Fixed assets examples In business, fixed assets are often called “property, plant and equipment” (PP&E). That is because most fixed assets are items that have been bought to serve a business purpose. Typical examples of PP&E include land, buildings, vehicles, machinery and IT equipment.

Factors Affecting Requirement of Fixed Capital:

• Nature of Business:
• Scale of Operation:
• Technique of Production:
• Technology Up-gradation:
• Growth Prospects:
• Diversification:
• Availability of Finance and Leasing Facility:
• Level of Collaboration/Joint Ventures: