What is solid capital?

Fixed capital is a term related to the assets that the company owns and uses in the operation of business for a relatively long time. These assets, also referred to as fixed assets, include property, equipment and assets of plants such as buildings and furniture. They are not consumed in the production process and do not include stocks or assets made or held for further sale. The costs of fixed assets are depreciated for its useful service life rather than deducted as the cost of the year of purchase. The oil industry is an example where it must be carried out before major expenditure. The oil company must have massive equipment to find, collect and oil products. Another example would be pharmaceutical companies that must invest in research and development equipment. Capital causes a situation in which it is difficult for new companies to penetrate into business. The requirement for a high level of fixed capital is one of the obstacles that causes a specific industry to have limited competition. Of the company,Which have been business for some time, can alleviate some expenses after the development of savings from the extent in which the supply of product costs less per unit due to a large number of units that the company is able to produce.

In order to depreciate or deduct the cost of the fixed capital asset, it is necessary to determine the depreciable value of the items. The value of assets is usually its price, but to determine absolute physical life, calculation may be required. While a piece of equipment can be functional for a longer period of time, absolute physical life concerns how long the item will be useful. Any equipment that the technological basis has that it can become obsolete due to new discoveries or improvements on the market. Depreciation should only take place during the life of a useful asset.

There are many techniques to depreciate the value of the fixed capital asset. Depreciation methods include a straight line, decreasing balance and metodu unit or activity. All except the latest method assumes that depreciation is an element of time; This means that the asset becomes less useful, the longer it is in production. Depreciation of activities-Methods connects depreciation with actual productivity of asset. The purpose of any depreciation method is to adapt the cost of asset with its income that produces usefulness.