Maharashtra State BoardHSC Commerce 12th Board Exam
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Distinguish Between of the Fixed and Working Capital. - Secretarial Practice

Distinguish between of the Fixed and Working Capital.

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Solution

  Fixed Capital Working Capital
(1)

Meaning

Fixed capital refers to any kind of physical capital. i.e. fixed assets.

Working capital refers to current assets minus current liabilities.
(2)

Nature

It stays in business almost permanently i.e. for more than one accounting year.

Working capital is circulating capital.
(3)

Purpose

It is not used up in production of product but invested in fixed assets such as land, building, equipments, etc.

Working capital is invested in short term assets such as cash, account receivable, inventory, etc.
(4)

Sources

Fixed capital fund can come from selling shares, debentures, long term loans, bonds, etc.

Working capital can be funded with short term loans, deposits, trade credit, etc.
(5)

Objective of investment

Investor invests money in fixed capital hoping to make future profit.

Investor invests money in working capital for getting immediate return.
(6)

Risk Involved

Investment in fixed capital implies a risk.

Investment in working capital is less risky.
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