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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

Which statement about the concepts of capital maintenance in the ICAI Framework is correct?

Physical capital maintenance requires adoption of the current cost basis of measurement. Financial capital maintenance, by contrast, does not require any particular basis; the selection depends on the type of financial capital the enterprise is seeking to maintain. So the statement linking physical maintenance to current cost is correct.

  1. AFinancial capital maintenance requires the use of the current cost basis of measurement
  2. BPhysical capital maintenance requires the adoption of the current cost basis of measurementCorrect
  3. CPhysical capital maintenance does not require any particular basis of measurement
  4. DBoth concepts require the historical cost basis

Explanation

The Framework says physical capital maintenance requires the current cost basis. Financial capital maintenance does not require a particular basis; the choice depends on the type of financial capital the enterprise seeks to maintain. The option reversing the two concepts is therefore wrong.

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