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Going concern
Home Level 1 1.1 Financial Accounting Archive by Category "Going concern"

Category: Going concern

1.1 Financial AccountingAccounting conceptsGoing concernLevel 1

Nov 2018 Q5 a.

The financial controller of Kantanka Ltd,(Kantanka) a technology company has asked you, a trainee financial accountant within the company for an explanation of some accounting terminologies and, for advice on how to account for various transactions that occurred after the financial year end date of 31 December 2016.

Required:

Explain TWO (2) reasons why a company would not prepare its financial statements on a going concern basis.           (4 marks)

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Per paragraph 14 of IAS 10, a company would not prepare its financial statements on a going concern basis if management determines after the reporting period either that

  • it intends to liquidate the company or
  • to cease trading or that it has no realistic alternative but to do so.

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1.1 Financial AccountingAccounting conceptsGoing concernLevel 1

Nov 2018 Q4 a.

The Conceptual Framework for Financial Reporting is a set of principles which underpin the foundation of financial accounting. The Conceptual Framework sets out the going concern concept as one of the important underlying assumption for the preparation of financial statements.

Required:

Explain the going concern concept, illustrating your answer with suitable examples.                                                      (5 marks)

View Solution

The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

The main significance of the going concern concept is that the assets should not be valued at their ‘break-up’ value (the amount they would sell for if they were sold off piecemeal and the business were broken up).

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