It is not possible to determine in
advance the life-span of business unit. Accounting is based on the assumption that
the business unit will be operating for long. When business is started, it is
assumed that business will not be dissolved in the near future.
Profit & loss, balance sheet is
drawn up on the assumption that the business will continue functioning in the foreseeable
future.
Accounting system provides the continuous
record of business unit.
Business unit will continue its
operations under same economic conditions.
It is not assumed that business unit
will be profitable as long as it exists.
FACTOR TO
DETERMINE BUSINESS UNIT AS GOING CONCERN
a. Business must have sufficient liquid
assets i.e (cash, stock, bonds etc)
b. Shortage of liquid assets may lead to
the risk of insolvency.
Capital Structure
a. Business must have sound capital
structure.
b. Long term funds and short term
financing to overcome difficulties.
Market
a. Business unit must have strong market demand
product.
b. Goods, services or trading products
should have market demand.
Management Ability
a. Business unit should be managed
efficiently, effectively.
b. Must have clear objective to increase
the wealth of owners.
c. Plan, procedure, policies and practices
should be used.
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