Fixed capital is the material base of an organization

In order for the organization to function fully and produce the appropriate products or services, it must have a suitable material base and its sources.

The material base of the organization, its main capital - these are the buildings, machinery, equipment, various structures, machines that the organization owns and which participate in production processes, as well as the fixed assets valued in monetary terms. Naturally, without the availability of necessary materials and auxiliary tools, no production can exist.

The concept of the main fund of the organization and its components

Because The fixed capital of the enterprise or organization is related to their stock structure, then it is necessary to consider in more detail the issue of fixed assets.

• Firstly, these are production assets: transport, equipment and machinery, power grids, cars and roads, etc., i.e. All that is directly or indirectly involved in the production and implementation of intermediate and final products. Naturally, all of this wears out over time and in process of exploitation, to maintain them in the right form or to replace them with new ones, money is needed . The cost of renovation is included in the cost of finished products, and replenishment occurs through capital investments.
• Secondly, these are the so-called basic non-productive funds: residential buildings, buildings for public and cultural organizations (kindergartens, schools, houses of culture, creativity, health), etc. They are not directly involved in production processes, but they serve them. Restoration and reproduction of them come from the national income of the state, and to a lesser extent at the expense of individuals.
• Thirdly, these are circulating funds and circulation funds.

Each stock type has its own rather complex structure and many components. One has only to say that production fixed assets are divided into active and passive. The first are involved in the most important production processes, they are judged on the operability and viability of the enterprise. The second are designed to ensure the proper functioning of assets.

Estimation of fixed capital

So, fixed capital is an expression of the enterprise's fixed assets in terms of money. It is necessary to calculate in specific amounts the degree of wear and tear of the elements of fixed assets and the allocation of appropriate means for the restoration of the productive material base. Because Fixed assets are intended for long-term operation, and the conditions for reproduction and restoration change rather quickly, the assessment of fixed capital is made by several methods: a balance sheet or an initial, recovery, liquid, residual, average annual. Let us briefly consider what some of them are.

With a balance sheet valuation, fixed capital is the money that went to the initial purchase of fixed assets. This includes transportation costs for deliveries, installation works, commissioning, etc. Prices are taken from the calculation of those that operated at the time of the facility.

In restorative evaluation, fixed capital is the value of fixed assets as early as today, and takes into account the distortion of the price factor in connection with inflation and other socio-economic processes. To calculate the replacement cost, apply:

A) method of indexation of book value ;

B) the method of recalculating directly the book value in relation to the prices that formed at the beginning of January of the next calendar year.

Residual value is the difference in prices that arises between the primary cost and depreciation of fixed assets expressed in money. The other methods also have their own specific meaning.

Forms of equity capital

The basic capital of the organization at different stages of its existence can have different forms of expression:

• Investment, i.e. Investing in real existing assets: purchase of equipment, construction of buildings, etc .;
• Directly production and depreciation of equipment, its physical and moral wear;
• Proceeds or compensation - at their expense, a new purchase of means of production.

In addition, the components of fixed capital are: fixed assets, long-term investments to increase long-term assets, investments in securities, as well as assets that are not tangible - these are intellectual property products, the reputation of the organization, organizational financial expenses, etc.

Calculation and assessment of the organization's fixed capital is carried out according to special formulas.