Basic and working capital

Fixed assets - is the share of productive capital, which is completely in the long term, is involved in the production. But it carries its value to the finished product and gradually returned to the business in the form of money in parts. This includes work equipment - buildings, structures, machinery, equipment, transportation, etc. They are bought at once, and its cost is borne by the product created when worn.

Working capital - the other part of the productive capital, the cost of which is completely transferred to the newly created product. She returns in the form of money for one circuit. We are talking about things work and quickly wears (for the year) tools. To working capital include wages.

Depreciation is: physically and mentally. Physical wear and tear means the loss of the means of labor its usefulness. As a result, they become financially unsuitable for further use (breakdown of machinery, factory building demolition, etc.) and if the equipment is idle and loses its quality (degradation caused by cold, heat, water, etc.).

Obsolescence of labor means that they are physically fit for use, and no longer economically justify themselves and need to be replaced. The process is divided into two parts:

a) where the machinery creates cheaper hardware, resulting in impairment of the old comes the existing equipment;

b) where the old machines are replaced by more productive (produce more in the same time). As a result, equipment faster transfers its value to the finished product.

Funds for the simple reproduction of capital accumulated in the sinking fund.

Depreciation is a process of gradual (in part) the transfer cost of capital to the extent of wear on the manufactured product, turning it into cash in order to further compensation deterioration of labor. In other words, depreciation is part of the cost of capital, which gradually transfers its value to the product.

By the time the wear of the material elements of the capital in the fund accumulated amortization of such amount of money by which to buy new machines and similar equipment. This money goes to the repair tools.

Sinking fund formed by the depreciation, the latter is a form of money transferred to the production cost of existing fixed assets.

The value of the annual sinking fund depends on two factors: the average cost of capital and depreciation. A depreciation rate А is defined as the annual amount of depreciation А of the average annual cost of a capital K, expressed in %:

Depreciation rate shows how many years the cost of capital should be fully recoverable. Inflated depreciation entails artificial increase in production costs. Lowering standards - not reimburse wear and tear.

Renovation - the update fixed capital, the economic process of substitution, retired due to wear and tear, the new means of labor (full recovery). In simple reproduction volume of renovation is the sum of depreciation.

Expanded reproduction of the firm means an increase in the size of capital, which leads to an increase in the production of new value. Increase in size is the current capital is due to the accumulation.

The accumulation of capital - is the increment of money and material resources, going on extended reproduction. This capital can be called investment in the future.

Accumulation mechanism primarily includes expanded funding and internal sources of additional capital. External source - a bank or other credit. Internal power - self-financing.

When the company expanded reproduction of the profit that goes to the private owner, is divided into two parts:

a) income going to consumption;

b) the income is going to accumulate.

In this regard, the value of savings depends on how much of the profit is distributed to the income and self-financing of capital (Scheme 1).