Day: September 3, 2024

Alex plc is a retailer that owns no properties and only has fixtures and fittings as non-current assets, all of which were purchased within the last six months.

The company has been experiencing trading problems for some time.

The directors have concluded that the company is no longer a going concern and have changed the basis of preparing the financial statements to a break-up (gone concern) basis.

Which ONE of the following will be the immediate effect of changing the accounting concept of Going Concern now to the break-up basis?

Select ONE answer:

1. All fixtures and fittings are transferred from non-current to current liabilities
2. The company ceases to trade
3. Fixtures and fittings are valued at their resale value
4. A liquidator is appointed

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. Not correct
2. Not correct
3. Correct – All assets are valued at their resale or break-up value, which is the expected selling price in a forced sale position. This is likely to be a substantially lower value than carrying amount for assets such as fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which Alex plc has no such asset class.
4. Not correct

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