Question

Which of the following demonstrates the going concern concept?a) AQG Industries sold $20,000 of product on credit to SSA Manufacturing. SSA did not pay on time. AQG decides that it is fruitless to pursue collection so they write off the receivable from SSA.b) Gail's Garments has been in business for 20 years and during that period the company has gained a good reputation. Gail would like the Controller to acknowledge the value of that reputation by including it as an asset worth $100,000 but the controller says she cannot do it.c) AQG Industries purchases $20,000 of product on credit from RSI Manufacturing. AQG records the purchase as an increase in inventory and an increase in accounts payable. AQG feels that they will be able to realize the value from the inventory and settle the obligation to RSI in the weeks to come.

Answer 1

b) Gail's Garments has been in business for 20 years and during that period the company has gained a good reputation. Gail would like the Controller to acknowledge the value of that reputation by including it as an asset worth $100,000 but the controller says she cannot do it.

Step-by-step explanation:

Going concern is a concept in accounting which holds that a company is a going concern when it has the resources to continue in operation indefinitely and that it will not go bankrupt.

Applying the above meaning of 'going concern' to the given scenario, it can be seen that Gail's Garment has been in business for 20 years and has a good reputation to the point that it wants to reflect some value for 'goodwill' in its balance sheet.

Having operated successfully for 20 years, then the company has been a going concern. Generally, going concern issues are those that pertain to more than a period of 12 months.