Capital Maintenance

What is 'Capital Maintenance'

An accounting concept based on the principle that income is only recognized after capital has been maintained or there has been a full recovery of costs. Capital maintenance has been reached if the amount of a company's capital at the end of a period is unchanged from that at the beginning of the period, with any excess amount treated as profit.


As capital maintenance is mainly concerned with an enterprise's definition of the capital sought to be maintained by it, the concept distinguishes between the enterprise's return on capital and its return of capital.


The two basic definitions of capital maintenance are financial capital maintenance and physical capital maintenance.

BREAKING DOWN 'Capital Maintenance'

According to International Financial Reporting Standards (IFRS), under the definition of financial capital maintenance, a profit is earned only if the amount of net assets at the end of a period exceeds the amount at the beginning of the period, excluding any inflows from or outflows to owners, such as contributions and distributions. It can be measured either in nominal monetary units or constant purchasing power units.


The definition of physical capital maintenance, according to the IFRS, implies that a profit is earned only if the enterprise's productive or operating capacity at the end of a period exceeds the capacity at the beginning of the period, excluding any owners' contributions or distributions.

RELATED TERMS
  1. House Maintenance Requirement

    The minimum amount of equity that an account holder must maintain ...
  2. Future Capital Maintenance

    A term used to account for future expenses that a company expects ...
  3. Maintenance Expenses

    The costs incurred to keep an item in good condition and/or good ...
  4. Capital Formation

    A term used to describe net capital accumulation during an accounting ...
  5. Return on Average Capital Employed ...

    A financial ratio that shows profitability compared to investments ...
  6. Working Capital

    Working capital is a measure of both a company's efficiency and ...
Related Articles
  1. Investing

    Don't Ignore Maintenance Fees When Buying Real Estate

    Buying an apartment or condo costs more then the price of the unit. There are also unavoidable monthly maintenance fees that can vary greatly.
  2. Economics

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  3. Economics

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  4. Options & Futures

    Margin Trading: The Dreaded Margin Call

    In the previous section, we discussed the two restrictions imposed on the amount you can borrow. First, the initial margin, which is the initial amount you can borrow. Second, the maintenance ...
  5. Professionals

    Introduction To Capital Investment Decisions

    Capital investments are funds invested in a firm or enterprise for the purposes of furthering its business objectives
  6. Fundamental Analysis

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  7. Economics

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
  8. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  9. Fundamental Analysis

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  10. Investing Basics

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
RELATED FAQS
  1. How is working capital different from fixed capital?

    Understand the differences between working capital and fixed capital, including definitions and examples of how businesses ... Read Answer >>
  2. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  3. What is the difference between financial capital and economic capital?

    Read about the differences between types of financial capital, which companies use to raise money, and economic capital models ... Read Answer >>
  4. Why is working capital management important to a company?

    Learn about a company's working capital; good working capital management is essential to maintaining a company's liquidity ... Read Answer >>
  5. What does a high capital employed imply about risk?

    Learn what capital employed indicates about a company's operational risk level, and how the return on capital employed can ... Read Answer >>
  6. Why might two companies calculate capital employed differently?

    See why not every company defines and measures capital employed in the same manner, and which methods are most common in ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center