Page "International Financial Reporting Standards" Paragraph 77

Par.

108.

Under the concept of financial capital maintenance where capital is defined in terms of nominal monetary units, profit represents the increase in nominal money capital over the period.

Thus, increases in the prices of assets held over the period, conventionally referred to as holding gains, are, conceptually, profits.

They may not be recognised as such, however, until the assets are disposed of in an exchange transaction.

When the concept of financial capital maintenance is defined in terms of constant purchasing power units, profit represents the increase in invested purchasing power over the period.

Thus, only that part of the increase in the prices of assets that exceeds the increase in the general level of prices is regarded as profit.

The rest of the increase is treated as a capital maintenance adjustment and, hence, as part of equity.