Which of the following term indicates the capital invested in Plant and Machinery:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Fixed Capital
Option (1) Capital Structure — Incorrect. Capital structure is the mix of owners’ funds and borrowed funds used by the firm. It is about where money comes from, not what it is spent on.
Option (2) Working Capital — Incorrect. Working capital is invested in current assets, such as stock, debtors and cash, which turn into cash within a year.
Option (3) Cost of Capital — Incorrect. This is the rate a firm pays for its funds, such as interest on loans or the return expected by shareholders.
Option (4) Fixed Capital — Correct. Fixed capital is money invested in long-term assets, which are used in the business for many years. Plant and machinery, land and buildings are the usual examples. Decisions to invest in them are called capital budgeting decisions.
NCERT (2026-27 Edition): “Meaning Every company needs funds to finance its assets and activities. Investment is required to be made in fixed assets and current assets. Fixed assets are those which remains in the business for more than one year, usually for much longer, e.g., plant and machinery, furniture and fixture, land and building, vehicles, etc.” “Management of Fixed Capital Fixed capital refers to investment in long-term assets. Management of fixed capital involves allocation of firm’s capital to different projects or assets with long-term implications for the business. …” |