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

Which of the following best describes the 'going concern' assumption in preparing financial statements?

Going concern means the enterprise is assumed to continue operating in the foreseeable future without any intention or need to liquidate or materially curtail its operations. This is why assets are carried at unexpired cost rather than at break-up values.

  1. AThe enterprise will continue in operation for the foreseeable future, with no intention or need to liquidate or curtail its scale materiallyCorrect
  2. BThe enterprise records only transactions that can be expressed in money terms
  3. CThe enterprise treats the owner and the business as separate persons
  4. DThe enterprise records revenue only when cash is received

Explanation

Going concern assumes the business will continue operating for the foreseeable future, which is why fixed assets are shown at unexpired cost rather than at forced-sale values. The other options describe money measurement, business entity and cash basis respectively.

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