ACCA Applied Knowledge · Financial Accounting · Key principles and concepts of accounting
Opening net assets of a company were $400,000 and closing net assets were $520,000. No capital was introduced or withdrawn. General inflation over the year was 10%. Under real financial capital maintenance, what is the profit for the year?
Profit is $80,000. Real financial capital maintenance restates opening net assets of $400,000 by 10% inflation to $440,000, and only the excess of closing net assets of $520,000 over this amount is profit.
- A$120,000
- B$80,000Correct
- C$40,000
- D$160,000
Explanation
Opening capital must be restated to 400,000 x 1.10 = $440,000 to maintain purchasing power. Profit is 520,000 - 440,000 = $80,000. The $120,000 figure is nominal profit ignoring inflation. The $40,000 figure wrongly deducts the inflation adjustment twice.
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