Identify the type of capital maintained when the measuring unit is (a) nominal dollars, (b) constant dollars, and (c) current costs. When would nominal cost and constant dollar measurements provide equivalent results?
A classic definition of income states that income is the amount one could consume at the end of a period and still be as well off as at the beginning of the period. Embedded in this definition of income is the concept of capital maintenance. Conceptually, income can occur only after the beginning capital has been recovered. When accountants adopt different measuring units, they are attempting to maintain different concepts of capital.
Answer must be between 300-350 words.
Answer can be referenced from:
Reading Assignment:
Intermediate accounting (7th ed.).
Spiceland, Sepe & Nelson.
McGraw-Hill Publishing.