Concept of Capital Maintenance
Concept of Capital Maintenance:
Maintenance of capital by a firm is very necessary in order to survive. If it does not keep its capital constant by way of say distribution of dividends higher than it can afford it is eating in to its own capital which it cannot continue to do for long. Capital can be like to a tree & income its fruits.
If the branches of the tree are cut off it will cease to five fruits & possibly the tree itself may dry up. A day may soon arise when the firm has to be wound up due to inadequacy of capital.
Financial Concept:
Under the financial concept income is equal to the change in the money amount of net assets. If there is no change in the amount of net assets there is no income. Here the financial capital in measured in units of money.
Physical Concept:
A physical Concept of capital maintenance to be as well of at the end of a period as at the beginning, business must have the same quality of assets.
The firm should have capacity to produce the same value of goods or volume & services in the following year as could be produced in the current year.
Source: A/c Books & Notes
Tags: accountant, accounting, Accounting Management, Capital, Capital Expenditure, Concept, Concept of Income, Expenditure, Financial Concept, income, income and expenditure, Maintenance, Management, Management Accounting, of Capital, Physical Concept, revenue, tax, Working Capital
By: Management Duniya
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