Financial capital maintenance is adopted in which of the following accounting methods: Financial capital maintenance is adopted in which of the following accounting methods: Continuously Contemporary Accounting Current purchasing power accounting Historical cost accounting Fair value accounting
Question
Financial capital maintenance is adopted in which of the following accounting methods:
Financial capital maintenance is adopted in which of the following accounting methods:
Continuously Contemporary Accounting
Current purchasing power accounting
Historical cost accounting
Fair value accounting
Solution
Financial capital maintenance is adopted in the following accounting methods:
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Current purchasing power accounting: This method adjusts non-monetary items in the financial statements to reflect changes in the general purchasing power of the currency. It maintains the financial capital of the entity in terms of purchasing power, which means it takes into account the effects of inflation or deflation.
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Fair value accounting: This method measures and reports assets and liabilities on the basis of their fair value. It maintains the financial capital of the entity in terms of the fair value of the assets and liabilities, which means it reflects the current market conditions.
Historical cost accounting and Continuously Contemporary Accounting do not adopt financial capital maintenance. Historical cost accounting maintains the financial capital in terms of nominal monetary units, without considering changes in the purchasing power or fair value. Continuously Contemporary Accounting, on the other hand, is a theoretical model that is not widely adopted in practice.
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