Question

Write a short note on 'types of capital'.

Answer 1

Capital, the third agent or factor is the result of past labour and it is used to produce more goods. Capital is the machinery, factories, tools, offices, etc., that are used to produce other goods and services.

Capital has, therefore been defined as ‘produced means of production’. It is a man-made resource.

Types of capital:

There are different types of capital such as:

1. Fixed capital: It refers to durable capital goods which are used in production again and again till they wear out. Machinery, tools, means of transport, factory building, etc are fixed capital. Fixed capital does not mean fixed in location. Since the money invested in such capital goods is fixed for a long period, it is called Fixed Capital.
2. Working capital: Working capital or variable capital is referred to the single use produced goods like raw materials. They are used directly and only once in production. They get converted into finished goods. Money spend on them is fully recovered when goods made out of them are sold in the market.
3. Circulating capital: It is referred to the money capital used in purchasing raw materials. Usually the term working capital and circulating capital are used synonymously.
4. Sunk capital: Capital goods which have only a specific use in producing a particular commodity are called Sunk capital. E.g. A textile weaving machine can be used only in textile mill. It cannot be used elsewhere. It is sunk capital.
5. Floating capital: Capital goods which are capable of having some alternative uses are called floating capital. For e.g. electricity, fuel, transport vehicles, etc are the floating capital which can be used anywhere.
6. Money capital: Money capital means the money funds available with the enterprise for purchasing various types of capital goods, raw material or for construction of factory building, etc. it is also called liquid capital. At the beginning the money capital is required for two purposes one for acquiring fixed assets i.e. fixed capital goods and another for purchasing raw materials, payment of wages and meeting certain current expenses i.e. working capital.
7. Real capital: On the other hand, real capital is referred to the capital goods other than money such as machinery, factory buildings, semi-finished goods, raw materials, transport equipments, etc.