Going Concern Concept and its Impact on Financial Statements

Going Concern Concept is a fundamental accounting principle that assumes that a business will continue to operate in the foreseeable future. It is essential for preparing financial statements as it affects the valuation and presentation of assets and liabilities. However, if the Going Concern Concept is no longer valid, some changes will occur in the financial statements.

Valuation of Assets and Liabilities

When the Going Concern Concept is no longer valid, the valuation of assets and liabilities will change. The assets and liabilities will be valued based on their realizable value rather than their historical cost. The realizable value is the amount that the asset or liability could be sold for in the market.

Effect on Prepaid Assets

Prepaid assets are the amounts paid in advance for goods or services that are expected to be consumed or used in the future. If the Going Concern Concept is no longer valid, all prepaid assets would not be completely written off immediately. Instead, they will be valued based on their realizable value.

Effect on Allowance for Uncollectible Accounts

Allowance for uncollectible accounts is the amount set aside by a company to cover the potential losses from uncollectible accounts receivable. If the Going Concern Concept is no longer valid, the allowance for uncollectible accounts would not be eliminated. Instead, it will be valued based on the realizable value of the accounts receivable.

Effect on Intangible Assets

Intangible assets are the non-physical assets such as patents, copyrights, and trademarks. If the Going Concern Concept is no longer valid, intangible assets would continue to be carried at net amortized historical cost. However, if the asset's carrying value exceeds its realizable value, the company must recognize an impairment loss.

Effect on Land Held as an Investment

Land held as an investment is the land purchased by a company with the intention of holding it for capital appreciation or future development. If the Going Concern Concept is no longer valid, land held as an investment would be valued at its realizable value. The realizable value of the land is the amount it could be sold for in the market.

Conclusion

In conclusion, the Going Concern Concept is a fundamental accounting principle that affects the valuation and presentation of assets and liabilities in financial statements. If the Going Concern Concept is no longer valid, the valuation of assets and liabilities will change, and they will be valued based on their realizable value. In this scenario, land held as an investment would be valued at its realizable value.