Under financial capital maintenance a profit is considered earned when:
A)the financial amount of the net assets at the end of the period exceeds the financial amount of net assets at the beginning
B)the physical productive capacity of the entity at the end of the period exceeds the physical productive capacity at the beginning of the period
C)the net present value of future expected asset inflows exceeds the net present value of future expected liability outflows
D)the directors consider that sufficient assets are on hand to pay a dividend without affecting the ability to pay creditor commitments as and when they fall due

Question

Quizplus · Accepted Answer

Under financial capital maintenance, profit is considered earned when the financial amount of the net assets at the end of the period exceeds the financial amount of net assets at the beginning. This approach focuses on maintaining the financial amount of capital, which means that the company must generate enough profit to cover the cost of capital and maintain the same level of financial worth. Therefore, option A is the correct choice. Options B, C, and D are not relevant to the concept of financial capital maintenance.

Under Financial Capital Maintenance a Profit Is Considered Earned When