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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Rajesh Traders purchases a delivery van for use in its business for ₹6,00,000. Although the van could be sold for only ₹4,50,000 immediately, the accountant continues to show it in the books at cost less depreciation, assuming the firm will keep operating. Which accounting assumption supports this treatment?

The going concern concept supports the treatment. The business is presumed to continue operating, so the van is shown at cost less depreciation and not at its immediate sale value, because it will be used and not sold.

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

Explanation

Under the going concern assumption, the business is expected to continue for the foreseeable future, so assets are carried at cost less depreciation rather than at forced-sale (realisable) values. Conservatism would relate to anticipating losses, not to ignoring the sale value of a fixed asset in use.

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