Capital Maintenance

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Future Capital Maintenance

    A term used to account for future expenses that a company expects ...
  3. Net Tangible Assets

    Calculated as the total assets of a company, minus any intangible ...
  4. Return Of Capital

    A return from an investment that is not considered income. The ...
  5. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
  6. International Financial Reporting ...

    A set of international accounting standards stating how particular ...
Related Articles
  1. Spotting Profitability With ROCE
    Fundamental Analysis

    Spotting Profitability With ROCE

  2. Looking Deeper Into Capital Allocation ...
    Investing Basics

    Looking Deeper Into Capital Allocation ...

  3. Efficient Market Hypothesis: Is The ...
    Active Trading Fundamentals

    Efficient Market Hypothesis: Is The ...

  4. Find Quality Investments With ROIC
    Options & Futures

    Find Quality Investments With ROIC

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center