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

Which statement best reflects how the Framework describes profit in relation to capital maintenance?

The Framework describes profit as the residual amount remaining after expenses, including capital maintenance adjustments where appropriate, are deducted from income. If expenses exceed income, the residual is a net loss. Only inflows exceeding the amount needed to maintain capital count as profit.

  1. AProfit is the residual amount after expenses, including capital maintenance adjustments where appropriate, are deducted from incomeCorrect
  2. BProfit is the total cash received during the period
  3. CProfit is always equal to the increase in the market price of the owner's shares
  4. DProfit is the amount of capital contributed by owners

Explanation

Paragraph 104 describes profit as the residual amount that remains after expenses, including capital maintenance adjustments where appropriate, are deducted from income. If expenses exceed income the residual is a net loss. Cash received or capital contributed is not profit.

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