At the end of the year a firm sells an item of inventory for €180.The item was bought for €120 at the start of the year & replacement cost is €150.General inflation has been 5%.What is the real financial capital maintenance adjustment?
A)€0
B)€6
C)€24
D)€30

Question

Quizplus · Accepted Answer

The real financial capital maintenance adjustment is calculated by adjusting the historical cost for inflation to maintain the purchasing power of the firm's capital. The item's historical cost is €120, and with a 5% inflation rate, the adjustment is €120 * 0.05 = €6.

At the End of the Year a Firm Sells an Item