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Act 101(Going Concern)

'Definition of the 'going concern' concept
The 'going concern' concept directs accountants to prepare financial statements on the assumption that the business is not about to go broke or be liquidated (i.e. where the business closes and sells all the assets for whatever price they can get).

So, unless there is significant evidence to the contrary, accountants will base their valuations and their reporting of financial data on the assumption that the business will remain in existence for an indefinite period.

An indefinite period means the foreseeable future or long enough for the business to meet its objectives and to fulfill its commitments. It is important to note that the 'going concern' concept does not imply or guarantee that the business is profitable and will remain so for the foreseeable future.

So, the 'going concern' concept assumes that the business will remain in existence long enough for all the assets of the business to be fully utilized. Utilized assets means obtaining the complete benefit from their earning potential. (i.e. if you recently purchased equipment costing $5,000 that had 5 years of productive/useful life, then under the going concern assumption, the accountant would only write off one year's value $1,000 (1/5th) this year, leaving $4,000 to be treated as a fixed asset with future economic value for the business). The 'going concern' concept supports the assumption that when a business buys assets like land, equipment, and buildings, it does so with the intent that these assets will produce income over a number of years. In other words, the business did not purchase these assets with the intention to close operations soon after and then resell these assets.

The opposite view to this 'going concern' assumption is that the business will cease trading shortly and that all the assets will be sold off

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