With reference to physical capital in Indian economy, consider the following pairs:ItemCategoryFarme

Question

With reference to physical capital in Indian economy, consider the following pairs:ItemCategoryFarmer's ploughWorking capitalComputerFixed capitalYarn used by the weaverFixed capitalPetrolWorking capitalHow many of the above pairs are correctly matched?

Accepted Answer

In the intricate realm of business finance, fixed capital and working capital stand as crucial pillars, each playing a distinct yet complementary role in shaping an enterprise's financial structure. Fixed capital represents the long-term assets that contribute to a company's foundation and growth. These assets, including buildings, machinery, and equipment, are not intended for immediate turnover but serve as the infrastructure necessary for sustained operations over an extended period. Farmer's plough and computer are classified as fixed capital because they are long term assets that provide benefit over multiple production cycles. Hence pair 1 is not correctly matched and pair 2 is correctly matched.Conversely, working capital addresses the short-term financial needs essential for day-to-day operational activities. Both petrol and yarn are raw materials consumed within a single production cycle and are essential for the day to day operations of their respective businesses. Hence they are categorised under working capital. Hence pair 3 is not correctly matched and pair 4 is correctly matched.Source: NCERT