BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A long term liability
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A short term liability
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A mixed of long and short term liability
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By a Bank Finance
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Detailed explanation-1: -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.
Detailed explanation-2: -Liabilities refer to money you owe, and long-term liabilities are debts that are not due for more than one year. Assets are things you own, and fixed assets are long-term assets such as manufacturing or office equipment, buildings, land and vehicles.
Detailed explanation-3: -Decision to invest in fixed assets are irrevocable. Therefore these assets should be financed by Fixed Capital.
Detailed explanation-4: -Answer and Explanation: Under matching policy, long term financing is used to finance fixed assets and permanent current assets, while short term financing is used to finance temporary current assets.