Master the CIMA Financial Reporting (F1) Exam 2026 – Your Path to Success Starts Here!

Capital maintenance is a fundamental idea IFRS uses to think about wealth and profits. The Conceptual Framework discusses two ways to define capital: financial capital maintenance and physical (or real) capital maintenance. These concepts determine when earnings are recognized—profit is earned only if wealth has increased beyond the starting position under the chosen concept. Because capital maintenance directly relates to how wealth and income are defined and measured, it sits at the heart of fundamental accounting concepts in the IFRS framework.

The objective of financial statements is also a core element of IFRS, but the question points to the broader idea that underpins how wealth is viewed and profits are measured, which is captured most directly by capital maintenance. Tax treatment of losses, by contrast, falls outside IFRS accounting concepts.