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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Anand Ltd. is a going concern and has prepared its financial statements. Management now learns, after the year-end, that it will have to liquidate within three months because its main licence has been cancelled. The assets are carried at depreciated cost. Which statement is correct as per the Framework?

The financial statements should not be prepared on a going concern basis. When an enterprise must liquidate or materially curtail operations, the Framework requires a different basis of preparation, and that basis must be disclosed, rather than continuing with depreciated cost.

  1. AFinancial statements continue on a going concern basis since the year-end position was normal
  2. BFinancial statements should not be prepared on a going concern basis; a different basis must be used and disclosedCorrect
  3. COnly the liabilities need to be restated to realisable values
  4. DOnly a note on the licence cancellation is needed, with no change to the basis

Explanation

The going concern assumption presumes the enterprise will continue for the foreseeable future. If there is an intention or necessity to liquidate or curtail operations materially, the statements may have to be prepared on a different basis, which must be disclosed. A mere note would leave the going concern basis wrongly applied.

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