Question

Which of the following definitions for the going concern concept in accounting is the closest to the definition given in IAS 1, Presentation of Financial Statements?

A The directors do not intend to liquidate the entity or to cease trading in the foreseeable future.
B The entity is able to pay its debts as and when they fall due.
C The directors expect the entity's assets to yield future economic benefits.
D Financial statements have been prepared on the assumption that the entity is solvent and would be able to pay all creditors in full in the event of being wound up.

Answer 1

The 'going concern concept' assumes a company will continue operating in the foreseeable future, with no plans to liquidate, as per IAS 1.

the correct option is

A. The directors do not intend to liquidate the entity or to cease trading in the foreseeable future.

Step-by-step explanation:

The going concern concept in accounting refers to the assumption that a company will continue its operations in the foreseeable future and has no intention to liquidate or significantly curtail its operations.

Based on the definition given in IAS 1, Presentation of Financial Statements, the closest definition is A: The directors do not intend to liquidate the entity or to cease trading in the foreseeable future.

This concept is fundamental in financial reporting as it affects how assets and liabilities are recorded; assets are not listed at their liquidation value, and obligations are recorded as if the company will fulfill them in the normal business course.