2) Explain the differences between: Going concern and Cost concept.
Answers
Answer:
Going concern concept
Going concern idea is one of the accounting principles that express that a business element will keep running its tasks soon and won't be exchanged or compelled to cease activities under any condition.
COST CONCEPT
Under the authentic cost idea, resources are evaluated at their unique cost.
Explanation:
Going concern concept
Importance of Going Concern Concept in Accounting
- Going concern idea is vital for the proper accounting rules (GAAP) and International Financial Reporting Standards (IFRS). The idea of going concern assumes a huge part in the manner resources is dealt with.
- The idea of deterioration and amortization depends on the understanding that a business will keep on playing out its tasks sooner rather than later (this period is the following year after an accounting period).
Benefits of Going Concern Concept
1. Companies during the development years will buy fixed resources that will require use forthright, however, such resources will give the advantages spread over a long haul, that is clearly past one accounting period. Consequently, the going concern idea gives a method for recording the worth of such resources.
2. It is the premise on which the benefits and misfortunes of the business are recorded for the year in which it has a place.
Disadvantages of Going Concern Concept
1. Fiscal summaries are ready at cost and not based on current market esteem. In such a case, assuming the organization in an occasion of liquidation will have resources esteemed at the market esteem, and as such these qualities will be not the same as not entirely settled at cost.
2. In case of the business being exchanged, the financial reports will be determined on the ongoing concern premise, which can be misdirecting for the partners.
COST CONCEPT
Under the authentic cost idea, resources are evaluated at their unique cost. Assuming your organization buys land at $300,000, such resource will be at first kept in your accounting books at the first cost or exchange cost. Along these lines, at each revealing period, that land is accounted for and estimated at a similar sum in your organization's monetary record. Obviously, we realize that the worth of land increases in value over the long run. Notwithstanding, we don't perceive increments and diminishes in values under this idea of accounting.
Importance of cost concept
Your accounting report is steady: Using the authentic cost rule guarantees that your monetary record is predictable from one period to another. This is significantly more significant while sharing that monetary record with outside elements, like financial backers and loan specialists.
Benefits of cost concept
1. Objectivity and dependability of accounting data
The utilization of this idea keeps up with the objectivity of accounting data. The sums in your budget summaries are not obfuscated with abstract increments and diminish in values. There's no space for information control since there is generally an objective premise of recording deals. This cost idea likewise improves the unwavering quality of accounting data. Revealed sums are effectively undeniable. You can just return to the source records of the deals, for example, solicitations, official receipts, contracts, work orders, and so forth, to check the precision of the revealed sums in your budget reports.
2. Effortlessness and comfort
This idea is essentially basic. Exchanges are recorded at their unique sums. You don't need to rehash your fiscal summaries consistently to mirror the progressions in values or the impact of changes in buying influence of cash and expansion. Subsequently, you keep away from the monotonous course of rehashing sums in your budget reports as well as the extra costs related to resource revaluation, similar to the recruiting of appraisers, and so on.
Disadvantages of cost concept
- It is Expensive:
Many individuals bring up the criticism against cost accounting on the premise that it includes a lot of use in the presentation stage.
- It is Unnecessary:
It is contended that costing is as of late begun and that numerous businesses have flourished well and are as yet succeeding without cost accounting. Subsequently, the framework is pointless.