Treatment of capital gains and losses, Business Economics

Capital gains and losses are regarded as wind falls. Fluctuation in the stock market prices in one of the most common sources of the wind falls. In a progressive society according to Dean, capital losses are, on balance greater than capital gains. Many of the capital losses are of insurable nature, and when a business man over insures, the excess becomes eventually a capital gain. Profit is also affected by the way capital gains and losses are treated in accounting. As Dean suggested, "A sound accounting policy to follow concerning wind falls is never to record them until they are tuned into cash by a purchase or sales of the assists, since it is never clear until then exactly how large they are but, in practise some companies do not record capital gains until it is realized in memory terms, but they do not write off capital losses from the current capital losses from the current profit. If sound accounting policy is followed there will be one profit, and if the other method is followed, there will be another figure of the profit. An economist is not concerned with what accounting practice or principle is followed in recording the past events. He is concerned mainly with what happens in future. What an economist would suggest is that the management should be aware of the approximate magnitude of such wind falls long before they become precise enough to be acceptable to accountants. This would be helpful in taking the right decision in respect of affected assets. 

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