Going Concern Concept:
This concept assumes that the business has a perpetual succession or continued existence.
For example, a business unit makes investments in the form of fixed assets and we book only
depreciation of the assets in our profit & loss account; not the difference of acquisition cost of
assets less net realizable value of the assets. The reason is simple; we assume that we will use
these assets and earn profit in the future while using them. Similarly, we treat deferred revenue
expenditure and prepaid expenditure. The concept of going concern does not work in the
following cases:
If a unit is declared sick (unused or unusable unit).
When a company is going to liquidate and a liquidator is appointed for the same.
When a business unit is passing through severe financial crisis and going to wind up.
This concept assumes that the business has a perpetual succession or continued existence.
For example, a business unit makes investments in the form of fixed assets and we book only
depreciation of the assets in our profit & loss account; not the difference of acquisition cost of
assets less net realizable value of the assets. The reason is simple; we assume that we will use
these assets and earn profit in the future while using them. Similarly, we treat deferred revenue
expenditure and prepaid expenditure. The concept of going concern does not work in the
following cases:
If a unit is declared sick (unused or unusable unit).
When a company is going to liquidate and a liquidator is appointed for the same.
When a business unit is passing through severe financial crisis and going to wind up.
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