1.8 going concern
TRANSCRIPT
1.8
GOING CONCERN
PRINCIPLE
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© Michael Allison. Author’s permission required for external use.
The Rules of Accounting
Relevance
Reliability
Comparability
Understandability
Entity
Historical cost
Going concern
Reporting period
Monetary unit
Conservatism
Consistency
Qualitative Characteristics Accounting Principles
1.8 GOING CONCERN PRINCIPLE
© Michael Allison. Author’s permission required for external use.
Going Concern Principle
1.8 GOING CONCERN PRINCIPLE
Definition:
The business is assumed to go on and exist forever.
The business will continue as a “going concern” for an indefinite or
infinite period
© Michael Allison. Author’s permission required for external use.
Going Concern Principle
What is the purpose of this principal? It al lows the fi rm to spl i t i ts Assets
into:
Current: will be converted to cash or consumed within the next 12 months
Non-Current: will be converted to cash or consumed after the next 12 months
Today
1.8 GOING CONCERN PRINCIPLE
© Michael Allison. Author’s permission required for external use.
Going Concern Principle
Even if the owner intends to sell the business in 6 months time, it is
sti l l assumed that the firm will go on forever
That way items like premises, vehicles and machinery are classified as non-
current assets
Today
Owner intends to sell the business
in 6 months time…
6 months
from today
1.8 GOING CONCERN PRINCIPLE
© Michael Allison. Author’s permission required for external use.
Going Concern Principle
E.g . a bus iness p lans to cease
operat ions w ith in the next year
Even though i t i s c los ing, some
Assets are a lways c lass if ied as
Non-Current :
Premises
Vehicles
Machinery
Equipment
Computers
Mausy’s Motors: Balance Sheet as at 30 June 2015
Current Assets $
Cash at bank 10,000
Stock 20,000
Premises 500,000
Office equipment 40,000
Vehicles 80,000
Mausy’s Motors: Balance Sheet as at 30 June 2015
Current Assets $
Cash at bank 10,000
Stock 20,000
Premises 500,000
Office equipment 40,000
Vehicles 80,000
Mausy’s Motors: Balance Sheet as at 30 June 2015
Current Assets $
Cash at bank 10,000
Stock 20,000
Non-Current Assets
Premises 500,000
Office equipment 40,000
Vehicles 80,000
1.8 GOING CONCERN PRINCIPLE
© Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
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