The Capital Gains Conundrum: On a Divergence of Green From Traditional Accounting

Understanding the concept of income and recording it correctly are elemental to economic analysis. A controversy about whether capital gains are a form of income has arisen in green accounting. Virtually all economists assume that at each time there is a unique price of capital from which a capital gain can be calculated. If a firm's assets are sunk, however, an inequality governs whether the firm is willing to sell any asset. A capital gain cannot be calculated. Moreover, multiple forms of non‐marketed capital return a positive present value that can be identified as a profit residual. Any increase in returns is confounded in the residual and realised in forward income to the project. Implications of these findings are discussed.