ACCA Applied Knowledge · Financial Accounting · Key principles and concepts of accounting
At the start of the year Dune Co had opening net assets of $500,000 and no capital introduced or withdrawn. Closing net assets were $590,000. General inflation over the year was 8%. Under financial capital maintenance in real (constant purchasing power) terms, what profit did Dune Co make?
The profit is $50,000. Under real financial capital maintenance, opening net assets of $500,000 are uplifted by 8% inflation to $540,000. Closing net assets of $590,000 less $540,000 leaves $50,000. The $90,000 figure ignores inflation and reflects nominal money capital maintenance.
- A$50,000
- B$60,000Correct
- C$90,000
- D$130,000
Explanation
Opening capital must be restated for inflation: 500,000 x 1.08 = $540,000. Profit is closing net assets less restated opening capital: 590,000 - 540,000 = $50,000. $90,000 is the profit under nominal money capital maintenance, which ignores inflation.
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