Going Concern Concept

This concept assumes the enterprise will continue to exist in the foreseeable future. This is
in contrast with another view that the enterprise will be liquidated. According to A.S. –1 relating
to disclosure of accounting policies, going concern concept is a fundamental accounting
assumption underlying the preparation of financial statements. Under this assumption, “the
enterprise is normally viewed as a going concern, that is, as continuing in operation for the
foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity
of liquidation or of curtailing materially the scale of its operations”.
This assumption implies the following :
(i) Assets will be valued on the basis of going concern assumption. In other words,
accountants do not record the values of goods and assets which will be fetched if

a sale is forced. Certain assets which are specific to the particular enterprise may
have a very low market value. However, the value of such machines to the business
is very great because of its productive potential and contribution to profits.
In spite of this accountants prefer to record assets at historical cost rather than adopt
‘value-in-use’ approach which is favoured by economists. This is because historical
cost approach satisfies the test of objectivity and verifiability.
(ii) Assets are depreciated on the basis of expected life rather than on the basis of market
value. This facilitates the allocation of the cost of the asset over the expected
period of the life of the asset and dispenses with the periodic consideration of market
values. This concept strengthen and support the view that ‘depreciaiton’ is a
process of allocation, not of valuation.
Thus, the ‘going concern’ concept is the basic to the valuation of assets and the provision
of depreciation thereon.