Going Concern

In making up a set of accounts, it is usual to assume that the business is going to continue to operate as a going concern. If the business does go into liquidation or is expected to when the accounts are being prepared, the financial statements ought to be prepared on the break up basis.

Areas Of Difference

1. Asset Valuation

Under the going concern assumption, business assets are recorded using usual methods. When the break up basis assumption applies, assets are valued at their net realisable value. For example, when a business buys a piece of machinery, it records the cost as a fixed asset and depreciates that asset over its useful economic life.

2. Closure Costs

Upon closure of a business, certain liabilities associated with the closure should be included in the balance sheet. For example, there may be costs associated such as redundancy, decontamination and administrator's fees.