CIMA F1 Syllabus B. Financial Statements - Chapter 8: Concept of capital maintenance - Notes ^{10 / 10}

The capital maintenance concept states that a profit should not be recognised unless a business has at least maintained the amount of its net assets during an accounting period.
This means that profit is essentially the increase in net assets during a period.

Technically, the capital maintenance concept means that the amount of net assets should be reviewed for changes before determining the profit generated during an accounting period.

From a practical perspective, this is rarely done - controllers simply calculate the amount of profit and do not review for compliance with the capital maintenance concept at all.

The capital maintenance idea is concerned with the net change in account balances during an accounting period; it is not concerned with the proper maintenance of the actual physical equipment owned or operated by a business.