Craig sold land for $1 200 000.He had initially purchased the land for $1 000 000,when the price index was 100.The price index at the end of the current period is 118.The adjusted cost is $1 180 000.The adjusted profit is $20 000 (compared with an historical cost profit of $200 000).This is an example of:

Question

Quizplus · Accepted Answer

The scenario is an example of the purchasing power maintenance perspective, which accounts for the changes in the general price level. The adjusted cost and profit reflect the changes in the price index. The financial capital maintenance perspective focuses on maintaining the purchasing power of the capital invested, which may not be relevant in this scenario. The physical operating capital maintenance perspective is concerned with maintaining the physical productive capacity of the company, which is not applicable in this context.

Craig Sold Land for $1 200 000