Page 39 - PowerPoint Presentation

THE CONCEPTUAL FRAMEWORK
Capital Maintenance

Capital

• An entity can adopt financial or physical concepts for capital.

• Financial

• capital is viewed as amounts invested (in either historical cost or

purchasing power terms).

• Physical

• capital is viewed as the productive capacity of an entity.

Financial capital maintenance

• Financial capital maintenance seeks to preserve the value of shareholders’
funds, either in monetary terms (historical cost) or real terms (constant

purchasing power).

Physical capital maintenance

• Physical capital maintenance seeks to preserve sufficient shareholders’

funds to allow the business to continue to operate at current levels of
activity, achieved by some form of CCA, adjusting for specific price changes

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