Oundjian Corp. recently sold inventory for $ 140,000. The goods had originally cost $ 94,000. Inflation during the period was 5%. The goods could be replaced from their long- time supplier for $ 115,000. For simplicity, assume that there are no other costs of doing business.

1. Calculate a measure of accounting income, consistent with:
a. Nominal dollar financial capital maintenance.
b. Constant dollar financial capital maintenance.
c. Physical capital maintenance, in nominal dollars.
2. Assume in each case in requirement 1 that the company collected revenue in cash and paid out 100% of net income in dividends to owners. Calculate the remaining cash balance. Explain the significance of the remaining cash flow in each case.
3. If the company were planning to replace the inventory, which capital maintenance concept allows it to keep enough money to accomplish this with no further investment or borrowing?
4. Which capital maintenance concept is dominant in Canada? Which one( s) is( are) accept-able under IFRS?

  • CreatedFebruary 17, 2015
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