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Hi tutor,
Could you please help me with the question 16 in KIT book?
The ‘physical capital maintenance’ concept states that profit is the increase in the physical productive capacity of the business over the period. This concept is applied in:
A. Current cost accounting
B. Historical cost accounting
C. Current value accounting
D. Current purchasing power accountingCould you please explain why the answer is A? Thank you in advance.
Hi,
Current cost accounting incorporates using the up to date values of assets in the accounts so that they are up to date with the most recent values. As physical capital maintenance looks at keeping the current operational capacity of the business reflected in the accounts then by using CCA and updating the cost to reflect the current value of assets/liabilities in times of changing prices then it is applying the physical capital maintenance concept.
Thanks
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