Fixed assets and Current assets are categorized as per concept of:a)Se...
The concept of going concern treats the life of the business as indefinite i.e. the business life will consist of many accounting periods. Those assets benefit of which is received in one accounting year itself are current assets and those whose benefit extends to more than one accounting period are called fixed assets. Existence of more than one accounting period is supported by going concern concept only.
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Fixed assets and Current assets are categorized as per concept of:a)Se...
As per this concept it is assumed that the business will continue to exist for long periods in the future . The transaction are recorded in the book of the business on the assumption that it is continuing enterprises.
Fixed assets and Current assets are categorized as per concept of:a)Se...
Introduction:
The categorization of fixed assets and current assets is based on the concept of going concern. The going concern concept assumes that a business will continue to operate indefinitely unless there is significant evidence to the contrary. This concept forms the basis for classifying assets into fixed and current categories.
Explanation:
1. Fixed Assets:
Fixed assets are long-term assets that are held by a company for use in its operations and are not intended for sale. These assets have a useful life of more than one accounting period and are expected to provide future economic benefits to the company. Examples of fixed assets include land, buildings, machinery, equipment, vehicles, and furniture.
The categorization of fixed assets is based on the going concern concept because these assets are expected to be used in the company's operations for an extended period of time. The going concern concept assumes that the company will continue its operations in the foreseeable future, and therefore, the company needs to classify and record fixed assets on its balance sheet.
2. Current Assets:
Current assets are short-term assets that are expected to be converted into cash or used up within one year or the normal operating cycle of the business, whichever is longer. These assets are held for the purpose of trading, selling, or consuming. Examples of current assets include cash, accounts receivable, inventory, prepaid expenses, and short-term investments.
The categorization of current assets is also based on the going concern concept. Since current assets are expected to be converted into cash or used up within a relatively short period, they are necessary for the continuity of the company's operations. By classifying and recording current assets separately, the company can assess its liquidity position and determine its ability to meet short-term obligations.
Conclusion:
In conclusion, fixed assets and current assets are categorized as per the concept of going concern. This concept assumes that a business will continue to operate indefinitely unless there is significant evidence to the contrary. By classifying fixed assets and current assets separately, companies can effectively manage their long-term and short-term resources and make informed decisions about their operations and financial positions.