The going concern concept assumes that an enterprise or the accounting entity has an indefinite or unlimited life or existence. It means that the intention of the business is to carry for a sufficiently long period of time to carry out its existing activities and commitments. It will not be liquidated or dissolved in the immediate future unless there is clear evidence or a specific instruction to the contrary.
For Example: - where the venture is for a specific purpose like setting up a stall in an exhibition or fair or the construction of a building or bridge etc. under a contract, the business comes to an end on the completion of the project.
Experience indicates that in spite of several business failures, enterprises have a fairly high continuance rate; certain entities have been in existence for more than a century even though the owners have changed. The business entities are therefore going concerns in the majority of the cases and it has proved useful to adopt continuity assumption for accounting purposes.
Advantages
1. It provides a sound basis for the income or profit measurement. It means that the items which provide future economic benefit or which are used for more than one year are recorded a fixed assets rather than as expenses only because of the going concern assumption.
2. The going concern assumption facilitates the classification of assets and liabilities into short-term and long-term respectively
3. It is due to the going concern concept that the assets and liabilities appear in the books at cost or book value, as the case may be and not at the market price since the assets are not intended for sale.
4. This assumption is of great help to the investors because they are assured that the business enterprise will continue to function in the expected manner performing all the business activities in
