Accounting Multiple Choice Question – 6 May 2019

When preparing the financial statements of an entity, the going concern concept should be applied, only if the entity concerned…?

Select ONE answer:

1. is not expected to incur losses in the foreseeable future.
2. will never be wound up.
3. is expected to continue in operational existence for the foreseeable future at a level of activity not significantly less than its current level of activity.
4. is not expected to be able to continue operating.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 3

1. The going concern concept is concerned with the existence (survival) of a firm, not its profitability. Obviously, a firm will not survive if it repeatedly incurs losses over the long- term. However, many firms incur losses on an occasional basis but remain in business because of the more frequent years in which they earn profits.
2. The going concern concept is concerned with the foreseeable future. not with eternity.
3. Correct
4. A firm which is not expected to be able to continue operating is not a going concern. and therefore, the going concern concept should not be applied in this case.

 

This work is licensed under a Creative Commons Attribution 4.0 International License.