Physical capital maintenance
The concept focuses on maintaining operating capability rather than merely preserving the nominal monetary amount of net assets. It requires a current cost measurement basis in the Conceptual Framework discussion; increases in the prices of resources needed to maintain capacity are capital maintenance adjustments rather than profit under that concept. The concept informs theory and does not override particular IFRS requirements.
Worked example
A company starts and ends a period able to produce 1,000 units a day. Replacement costs rise, but productive capacity has not increased. Under a physical-capital-maintenance concept, the price rise alone does not establish profit.
Common mistake
Equating a rise in nominal asset prices with an increase in physical operating capacity, or assuming this conceptual method is mandatory for all IFRS financial statements.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |