Accounting Historians Journal - Volume 14 No 2
Capital Maintenance: A Neglected Notion
RETIRED MEMBER, FINANCIAL ACCOUNTING STANDARDS BOARD
Capital maintenance concerns the division of the aggregate return into its two components: return of and on investment.
The Statement offers an interesting comment on the proprietary/entity view of an enterprise by illustrating how a proprietary result would be calculated, together with the fol-lowing comment:
The International Accounting Standards Committee, in is-suing IAS 15, Information Reflecting the Effects of Changing Prices , referred to two approaches to the determination of income:
(a) income after the general purchasing power of shareholders’ equity has been maintained, and
(b) income after the operating capacity of the enterprise has been maintained, which may or may not include a general price level adjustment [p.x].
Neglect of Capital Maintenance — Consequences
Neglect of capital maintenance as the conceptual twin of income led to some developments in financial reporting that might be characterized as instinctive reactions to symptoms, rather than reasoned analysis with an anchor.
Netherlands,” Abacus (December 1972), pp. xx. Financial Accounting Standards Board, Conceptual Framework for Financial
Accounting and Reporting: Elements of Financial Statements and Their
Measurement (Discussion Memorandum), Stamford, CN: 1976. Sterling, R. R. and K. W. Lemke, Maintenance of Capital, (papers from the
Clarkson Gordon Symposium, University of Alberta), Houston: Scholars
Book Co. 1982. Van Sloten, P. J., “Dutch Contribution to Replacement Value Accounting
Theory and Practice,” University of Manchester, U.K., Occasional Paper
No. 21, International Centre for Research in Accounting, 1981.