Concepts of capital
You'll learn the distinction between financial capital and physical capital, and why capital maintenance matters when calculating profit.
This lesson is part of a paid course
Buy the course to unlock every video lesson and the AI Tutor, plus mock exams with feedback on CIMA courses.
Already bought? Sign in
Ask the AI tutor anything about this lesson
It knows every lesson in the course — explanations, clarifications, practice questions.
In this lesson
- 0:00 Introduction to concepts of capital
- 1:14 Physical capital and profit measurement
- 2:03 Capital maintenance and inflation adjustment
- 3:04 Financial capital maintenance with inflation
- 4:07 Physical capital maintenance explained
- 5:22 Session summary and key takeaways
About this lesson
This session covers how profit is measured as the change in net assets, how owner contributions and distributions affect capital, and crucially, how inflation and price changes can distort profit figures if capital isn't properly adjusted. Understanding these concepts is essential for Financial Reporting and Strategic Business Reporting papers, where the conceptual framework underpins how financial statements are prepared and interpreted. By the end, you'll see why maintaining a realistic opening capital value—whether adjusted for general inflation or specific price increases—gives you a more meaningful profit figure and ensures your business's true financial position is reflected accurately.
Duration: 6m
Transcript
Every lesson comes with a full searchable transcript - included with the course.
Get the Financial Reporting course
All 66 video lessons, an AI Tutor in every lesson and lifetime access.
Already bought? Sign in