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ACCA Applied Skills · Financial Reporting · Recognition and measurement

Lumen Co began the year with net assets of $800,000. Over the year there were no owner transactions and net assets at the year end were $950,000. General inflation for the year was 10%. Under financial capital maintenance measured in units of constant purchasing power, what is the profit for the year?

Profit is $70,000. Under constant purchasing power capital maintenance, opening net assets of $800,000 are uplifted by 10% inflation to $880,000 to be maintained. Closing net assets of $950,000 less $880,000 gives $70,000 of profit.

  1. A$150,000
  2. B$70,000Correct
  3. C$80,000
  4. D$30,000

Explanation

Opening net assets restated for inflation = 800,000 x 1.10 = 880,000. Profit = 950,000 - 880,000 = 70,000. Option 0 is the nominal profit. Option 2 wrongly deducts only 70,000... it subtracts inflation incorrectly from the nominal basis.

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