What is an explanation of going concern concepts?

Answer 1

This concept simply implies that the business will continue to operate for the foreseeable future and that it isn't suddenly going to cease trading. The significance of this concept is that the assets of the business are not valued at their "break-up" value, which is the amount that they would sell for if they were sold off piecemeal.

The concept assumes that the owners of a company intend to continue its trading over the long term (at least 12 more months). It that is not the case, they will need to disclose that fact and present slightly different financial statements.

For example:

Suppose Jo Bloggs acquired a widget making machine at $100,000 and this machine has an estimated life of 5 years. Let us also assume that the machine has no other use outside Jo Bloggs' business and could only be sold for scrap at $15,000 after one year.

It is normal to write-off the cost of this asset to the profit and loss account, over this timeframe. That is, depreciation of $20,000 per annum would be charged to the profit and loss account. So, at the end of the first year, the value of the machine in the books, would be $80,000, rather than the $15,000 scrap value.

Although it doesn't seem very prudent, because Jo Bloggs will continue to trade and the machine will therefore be used in the business. It is the "Going Concern" concept that allows the higher valuation.

Answer 2

This is the first concept of Accountancy Concepts And Assumptions.

GOING CONCERN CONCEPT

In this the accountant makes the accounts thinking in his mind that the company is not going to liquidate or end in the coming future.

And all the account and transaction are made keeping this in mind.

And because of this concept the outside parties enter in contract with the company,banks and financial institutions provide them loans,people purchase there shares and debentures.

Answer 3

The going concern concept is important because it determines whether a company should continue to function as a business entity. It is the responsibility of the directors to assess whether the going concern assumption is appropriate while preparing the financial statements. This will then determine whether or not they will continue to operate in the foreseeable future and will then be able to realize assets and discharge liabilities in the normaloperations.

Answer 4

The 'going concern' concept in accounting is an assumption that the business will continue to exist for the foreseeable future. Accountants adopt the 'going concern' concept so they can prepare realistic financial reports. Without the 'going concern' concept, accountants would have to write off all assets in the current period including long term assets that still have an economic benefit for future periods.

Answer 5

Financial statements are prepared assuming that the company is a going concern which means that the company intends to continue its business and is able to do so.