Going Concern Convention of Accounting

According to this concept it is assumed that a company would continue to carry out its operations for a fairly long period of time and would not be liquidated in the near future. This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet. Hence the significance of this concept is that the assets of the business are not valued at their liquidation value.

For example suppose if one has bought machinery for $60000 and depreciation on it is $12000 per year and its liquidation value is $5000 then at the end of the year it will be shown in the books of accounts as $48000(60000-12000) and not $5000 because of going concern concept

Hence the assumption regarding continuity of business allows to charge from the revenues for a particular period of the company only that part of the asset which has been consumed or used to earn that revenue in that period and carry forward the remaining amount to the next years, over the estimated life of the asset.

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