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P2 C6 Conventions, Assumption. Concepts and Principles ofAccounting — Account STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C6 Conventions, Assumption. Concepts and Principles ofAccounting3 Marks
Question
Write short-note on: $(1)$ Going Concern Concept :
✓

Answer

When business is started, it is assumed that the same will continuefor very long period in future. This is known as Going Concern Concept. Fixed assets areshown in the balance sheet at their depreciated values. In other words, realisable or marketvalue of fixed assets are not shown in the balance sheet. As the fixed assets are for use inbusiness for long period and not meant for sale, their market values are not shown in theB/S based on going concern assumption. Prepaid exp.are also shown on the asset side ofbalance sheet because of the assumption that the business will continue for a long time.Deffered revenue expenditures are also show on the asset side of balance sheet. Based onthis concept expenses are divided into two parts: Capital expenses and Revenue expenses.From the following circumstances going concern concept should not be followed (will nottake in mind). $(1)$ When the object for which a business was established is achieved or is likely to beaccomplished in very short period. $(2)$ When an industrial unit is declared sick. $(3)$ When a business is passing through severe financial crises and is likely to be liquidatedvery shortly. $(4)$ When a liquidator is appointed for liquidation of a company/entity.

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