Author Topic: A New Old Concept for Bussines Progress: Physical Capital Maintenance  (Read 3233 times)

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Author : Ionel Jianu, Iulia Jianu, Liviu Geambasu
International Journal of Scientific & Engineering Research Volume 2, Issue 6, June-2011
ISSN 2229-5518
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Abstract—This study aims at promoting the physical capital maintenance concept, as a solution for the development of economic entities, by demonstrating the reliability of this concept in obtaining performance at the level of economic entity due to the technological upgrade. Physical capital maintenance is a relatively new concept in the accounting theory and practice. Very fast, convenient and handy indeed, we associate production capacity with technology, devices, networks, with the staff and its knowledge, and it seems that we are not far away from the truth. Physical capital maintenance requires the recognition of the profit only if the entity was able to maintain its current activity level which is measured by production capacity. This article aims to highlight the results that the practical application of the concept of physical capital maintenance strictly related to the technological aspect has in the organizational behavior changing. In this sense, the empirical research will demonstrate the changes in the current forms of business management through the use of the physical capital maintenance concept.
Index Terms— physical capital maintenance, technological upgrade, change management, change in organizational behavior

1   INTRODUCTION                                                                     
Technological advance has marked and will mark the historical evolution of the world's societies and peoples. It was, it is and it will be a factor of development for the human activities, a factor of individual and institutional emancipation, a factor of change on the fly of the ideas to do business and to think economically. It is the domain which has produced and produces the greatest paradigm shifts in business and economic thinking, the domain for whose relaxation energies and egos are compressed in research and development departments.
The world we live in is conditioned and animated by the peoples cultures and histories that are united on civilization aspect. Talking about more cultures and just one civilization, we can say, without the fear of being wrong, that we are witnessing a major cultural dispute, attempts to promote its own culture through everything that one nation or another has  best and most valuable. On this background, we are lately seeing a fierce competition for dominance of technological development, the only capable to assure access, strong presence and to increase all markets for economic entity.
The present work brings into discussion the concept of physical capital maintenance which could be a viable alternative to provide the funding necessary to ensure continuity of the economic entity activity (implicit for investment policy – technological update).

The permanent technological update, at the level of economic entities, is possible by approaching and implementing at their level the concept of physical capital maintenance. Physical capital maintenance is a relatively new concept in accounting theory and practice, not through its origins (the 30s of last century), but through the lack of problematic in the literature, situation that has leaded to the absence of an algorithm to enable the application of the concept in the economical entities practice. Extensive discussions on the physical capital maintenance were in the mid '70s when the U.S. standardization body wanted to improve the conceptual framework [1]. Due to the combined efforts of the international body for issuing International Financial Reporting Standards Board (IASB) on the harmonization of international accounting, physical capital maintenance concept was introduced in 1989 in the IASB's concept as an accounting alternative to finan-cial capital maintenance, but from 1989 until the present there are no scientific papers to explain the consequence of maintaining the physical capital on the performance of the economic entity [2].
Physical capital maintenance requires recognition of the profit only if the production capacity of the entity at the end of the period is higher than the production capacity at the beginning of the period, after excluding any capital contributions or distributions from or to shareholders. The productive capacity is primary provided, at least at present, by the technology of the economic entity. And to recognize the profit (the rationale of any economic entity) it is necessary to increase the productive capacity. In our opinion this thing is possible through innovation, Beach [3] published the results of a study to reflect the results of the measurement technique of physical capital in the U.S. rail industry. The study was based on official data from journals, statistical institutes and different as-sociations in the period 1920-1929. For the valuation of physical capital it was used as measurement unit the number of years of using tangible assets of American railways. The productive capacity involves technology, and the technology, translated into specific terms of accounting (as management science) means tangible assets.
Break [4] believes that physical capital maintenance should be performed only by maintaining the physical characteristics of tangible assets held by the entity to carry out productive work, without trying the monetary evaluation of the physical capital that should be main-tained. According to this concept, any change in the existing tangible assets leads to a real positive or negative result. When an entity acquires or produces a new tangible asset, it is added to the real profit. But changes on monetary assets, that do not affect tangible assets used in the productive activity of the entity, do not affect the physical capital.
Gynther [5] associates physical capital with the pro-duction capacity of an entity which assumes that all assets used in production must be evaluated individually at their current cost, and where no current cost can be determined, then specific price indices must be used.

The paper is based on a positivist research to demon-strate the changes in the current forms of business man-agement through the use of the physical capital maintenance concept (its substantiation on production capacity, discussed here under technological aspect). In our approach to validate the formulated hypothesis, the development of the economic entity will be reflected by the turnover. We will try therefore to establish a relationship between changes in the value of fixed assets and changes in turnover. We believe that there are more objective and representative the considerations related to the involution of the two concepts in question, the reduction of fixed assets, leading to the reduction of turnover. It is a reality of the current economic environment, in which the selling of assets deprives the entity of the technological factor that is so necessary to the development of economic entities. The study will be based on empirical research in order to validate the following hypothesis:
Hypothesis: There is a relationship between the physical capital maintenance and the development of economic entities.
We want to highlight the fact that the decrease of the fixed assets, at the level of an entity, leads to the decrease of the turnover, and consequently to the dependency between the decrease of physical capital and the entity de-capitalization. This confirms the relationship between physical capital maintenance and development of economic entities.
The testing of hypothesis was done using one of the most popular econometrics tools simple regression. The regression analysis shows whether there are relationships or not between the categories in question and how strong they are.

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