Question

A fixed asset should be financed through

(a) a long term liability

(b) a short term liability

(c) a mix of long and short term liabilities

Answer 1

Fixed assets are those assets which are invested in a company for a longer time period, generally more than one year. As these assets have long term implication on the business in terms of growth and profitability, they should be financed through long term liabilities such as long term loans, preference shares, retained earnings, etc.