Going concern basis – meaning and explanation

Going concern basis means that financial statements are prepared on the assumption that the entity will continue to operate for the foreseeable future, and does not intend to go into nor will be forced into liquidation. In other words going concern basis means that the business operate as if it will be there in the coming years therefore there is no expectation of going out of business.

The going concern basis of accounting is that all the items of value owned by a business, such as inventory and property, plant and equipment, should be valued on the assumption that the business will continue in operation for the foreseeable future. The business will not close down or be forced to close down and sell of all the items (assets). This assumption affects the value of assets and liabilities of an entity as reported in the financial statements.
If the business entity is not a going concern, and is about to be closed down and liquidated, the value of its assets would be their estimated value in the liquidation process. Also if the entity cease to be going concern the categorization of assets in the statement of financial position also change as all assets and liabilities becomes current. 

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