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Define Going concern concept in accounting?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 rakkesh asked over 2 years ago

Hi, Explain me about the Going concern concept in accounting?

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6 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Surbhi answered almost 2 years ago

Hi, Going concern is a basic underlying assumption in accounting. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 acharya answered about 2 years ago

Going concern is a basic underlying assumption in accounting. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 2 years ago

Going concern is one the fundamental assumptions in accounting on the basis of which financial statements are prepared. Financial statements are prepared assuming that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the entity or to significantly curtail its operational activities. Therefore, it is assumed that the entity will realize its assets and settle its obligations in the normal course of the business.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered over 2 years ago

> Going concern concept in accounting --Going concern is one the fundamental assumptions in accounting on the basis of which financial statements are prepared. Financial statements are prepared assuming that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the entity or to significantly curtail its operational activities. Therefore, it is assumed that the entity will realize its assets and settle its obligations in the normal course of the business. --It is the responsibility of the management of a company to determine whether the going concern assumption is appropriate in the preparation of financial statements. If the going concern assumption is considered by the management to be invalid, the financial statements of the entity would need to be prepared on break up basis. This means that assets will be recognized at amount which is expected to be realized from its sale (net of selling costs) rather than from its continuing use in the ordinary course of the business. Assets are valued for their individual worth rather than their value as a combined unit. Liabilities shall be recognized at amounts that are likely to be settled. > --What are possible indications of going concern problems? --Deteriorating liquidity position of a company not backed by sufficient financing arrangements. --High financial risk arising from increased gearing level rendering the company vulnerable to delays in payment of interest and loan principle. --Significant trading losses bieng incurred for several years. Profitability of a company is essential for its survival in the long term. --Aggressive growth strategy not backed by sufficient finance which ultimately leads to over trading. --Increasing level of short term borrowing and overdraft not supported by increase in business. --Inability of the company to maintain liquidity ratios as defined in the loan covenants. --Serious litigations faced by a company which does not have the financial strength to pay the possible settlement. --Inability of a company to develop a new range of commercially successful products. Innovation is often said to be the key to the -long-term stability of any company. --Bankruptcy of a major customer of the company.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 2 years ago

Going concern is a basic underlying assumption in accounting. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on. In other words, the company will not have to liquidate or be forced out of business in the foreseeable future.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 jitendra etikala answered over 2 years ago

Going concern is a basic underlying assumption in accounting. The assumption is that a company or other entity will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, objectives, and so on. In other words, the company will not have to liquidate or be forced out of business in the foreseeable future. The going concern provides some logic for the cost principle: If a company is a going concern, it is not planning to liquidate, so why report the current value of its long term assets? However, if an asset's value has been impaired, the asset's carrying amount might be reduced to an amount lower than its carrying value.

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