(a) Distinguish between nominal financial capital maintenance, general purchasing power maintenance and physical capital maintenance.
(b) A company began trading on 1 August with capital of £400,000, all of which was immediately spent on acquiring inventory. On 31 August, three-quarters of this inventory was sold for £475,000 in cash. There were no other transactions during the month of August.
The index of general prices was 100.0 on 1 August and 105.0 on 31 August. The specific price index applicable to the company’s inventories was 100.0 on 1 August and 107.0 on 31 August.
Calculate the company’s profit for the month of August using each of the three capital maintenance concepts listed in part (a) of this exercise.
