Going concern concept

This is a slide showing the GOING CONCERN CONCEPT...
What it is?
Why it matters?
and some examples of it

1. GOING CONCERN CONCEPT

2. INTRODUCTION B usiness entity will continue to operate in the foreseeable future. One of the fundamental assumptions in accounting on the basis of which financial statements are prepared. I t is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

3. WHY IT MATTERS ? To uphold the integrity of financial market,  financial statements must be prepared to reflect the most accurate value of firms and their assets . P eople use financial statements. Company has to ensure that financial information is presented in a fair and useful way.

4. POSSIBLE INDICATIONS OF GOING CONCERN PROBLEMS Deteriorating liquidity position of a company not backed by sufficient financial arrangements . High financial risk arising from delays in payment of interest and loan principle. Significant trading losses being incurred for several years. Profitability of a company is essential for its survival in the long term . Bankruptcy of a major customer of the company .

5. EXAMPLES GENERAL MOTORS General motors went into bankruptcy in early 2000. Federal govt. stepped in and gave GM a bailout and a guarantee Hence GM is considered to be a going concern. GIBSON GUITAR FACTORY It was raided by the federal govt. for illegally smuggling of an endangered wood into the country. It took them more than $250,000 worth of Gibson’s inventory and slapped with large fines. Gibson is still considered a going concern.