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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

A firm shows its plant at cost less depreciation each year, without considering what the plant could fetch if sold today, because it expects to keep using the plant in its business. Which accounting concept is mainly being followed?

The going concern concept is being followed. The firm assumes it will keep operating for the foreseeable future, so it carries plant at cost less depreciation instead of its current resale or liquidation value, since it intends to use the plant rather than sell it.

  1. AGoing concern conceptCorrect
  2. BMoney measurement concept
  3. CAccrual concept
  4. DDual aspect concept

Explanation

Under the going concern concept, the business is assumed to continue operating for the foreseeable future. So assets are carried at cost less depreciation rather than at expected sale (realisable) values. Money measurement only limits records to items expressible in money, and accrual concerns timing of income and expense.

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