Question

Explain the meaning and significance of going concern concept.

Answer 1

Answer:

Explanation:

The going concern concept is a fundamental principle of accounting. It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets and continue to meet its financial obligations. Simply put, it is an assumption that the company will stay in business and that the value of its assets will endure.

Importance:The going concern concept is extremely important to generally accepted accounting principles. Without the going concern assumption, companies wouldn't have the ability to prepay or accrue expenses. If we didn't assume companies would keep operating, why would be prepay or accrue anything? The company might not be there long enough to realize the future expenses.

One of the most significant contributions that the going concern makes to GAAP is in the area of assets. The entire concept of depreciating and amortizing assets is based on the idea that businesses will continue to operate well into the future. Assets are also reported on the balance sheet at historical costs because of the going concern assumption. If we disregard the going concern and assume the business could be closed within the next year, a liquidation approach to valuing assets would be more appropriate. Assets would be recorded at net realizable values and all assets would be considered current assets rather than being segregated into current and long-term categories.

Answer 2

Meaning and significance of going concern concept

Explanation:

• Going concern is an accounting concept which states that the business will continue it's business operation for indefinite future period of time until it is liquidated. it does not mean that the business will never liquidate rather it means that it will continue it's business for long run in future.
• This concept is very important as it gives the stakeholders including the shareholders of the company a sense of security due to long run operation of the business.
• this concept is also important because the concept of depreciation etc is based on it.
• It also allows cost as well as revenue to be allocated to future accounting period.
• It helps in identifying more realistic value of business assets.

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Meaning and significance of going concern concept.

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