FIXED CAPITAL

Fixed capital refers to the investment made

by the business for acquiring long term
assets. These long-term assets don’t
directly produce anything but help the
company with long-term benefits.
 A fixed capital example would be that if a firm
invests into a building where the production process
will take place will take place, it would be referred to
as fixed capital, because:

Firstly, the building will not get directly consumed

by the production process. But if the company
doesn’t have the building it wouldn’t be able to run
the production process.
Secondly, investing into the building is a fixed capital
because this building will serve the business for a long
period of time and the building can be referred to as
long term asset.

Thirdly, if the business thinks to sell out the building in

future, it will get a residual value even if its economic
usefulness is exhausted.
 Fixed Capital Examples:
Land
Building
Manufacturing machinery and
equipment
Other equipment
Also, please note that intangible assets like Patents
and Copyright are also classified as examples of
fixed capital investments.
Useful Life- What is the useful life of an
asset/fixed capital?
Useful life refers to the amount of time an asset is
expected to be functional and fit-for-purpose.
How do I calculate an asset’s useful life?
Calculating the useful life of an asset is not an
exact science. However, it is important to make as
accurate an estimate as possible because useful life
has a direct impact on how much an asset is
expensed in each accounting period.
For example, if you change an asset’s
useful life from three to six years,
depreciation is carried out for twice as
long but the amount expensed each period
is halved.
Several factors can affect how long an asset is expected to be
useful, including:

Usage- the more an asset is used, the

quicker it will deteriorate
Whether the asset is new at the time of
purchase
Technological advances
Typically, the useful life of an asset
fits somewhere within the follow
ranges:
Cars and automotive equipment: 3-6 years
Furniture: 5-12 years
Machinery and equipment: 3—20 years
Property, buildings and renovations: 10-50 years .