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Conceptual framework – Capital maintenance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Conceptual framework – Capital maintenance

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by Anonymous.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • March 6, 2021 at 7:56 pm #613795
    Anonymous
    Inactive
    • Topics: 3
    • Replies: 2
    • ☆

    Hello, I came across this question in the Kaplan text and was unsure of how to get the answer.
    Could you please help me out?

    Ross Co made a profit of $350,000 for 20×9 based on historical cost accounting principles. Ross Co had opening capital of $1,000,000. Specific price indices increase during the year by 20% and general price indices by 5%.
    How much profit should Ross Co record for 20×9 under three different capital maintenance concepts?

    Option A – $350,000 under real financial capital maintenance, $300,000 under money financial capital maintenance, and $150,000 under physical capital maintenance.
    Option B – $350,000 under money financial capital maintenance, $150,000 under real financial capital maintenance, and $300,000 under physical capital maintenance.
    Option C – $350,000 under money financial capital maintenance, $300,000 under real financial capital maintenance, and $150,000 under physical capital maintenance.
    Option D – $150,000 under money financial capital maintenance, $350,000 under real financial capital maintenance, and $300,000 under physical capital maintenance.

    The answer according to the text is Option C. But I don’t really get how they arrived at those amounts.

    March 13, 2021 at 7:25 am #614324
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6460
    • ☆☆☆☆☆

    Hi,

    Real capital maintenance, we adjust for the impact of general inflation (5%). Physical capital maintenance, we adjust for specific inflation (20%).

    To account for the inflation figures, we need to remove the impact of inflation using the 5%/20$ figures. Have a go and see if you can then figure it out.

    Let me know how you get on and I can help further if required.

    Thanks,

    April 5, 2021 at 3:06 pm #615997
    Anonymous
    Inactive
    • Topics: 3
    • Replies: 2
    • ☆

    Hello, sorry I still don’t understand it. Do we use the 5% and 20% on the opening capital?

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