Characteristics of Going Concern Principle

Characteristics of Going Concern Principle

Going concern principle deals with the assumption of continuity of business for long time. The characteristics of going concern assumption have been explained below.

Important Characteristics of Going Concern Principle

Some important characteristics of going concern assumption includes the continuity of business, management responsibility of making assumption, impact on financial statement and circumstance under which going concern assumption is not valid have been briefly explained below.

1.   Continuity of Business

In going concern, it is assumed that business will continue for foreseeable future and neither management has intention or circumstance suggest the cession of business.

2.   Management make Assessment

Going concern assessment is made by the management and this assessment is made at least for 12 month from the balance sheet date.

3.   Entity is not Going Concern

There are two circumstance under which entity is considered to be not going concern i.e. management intends to cease trading and automatic.

4.   Impact on Financial statement

If the going concern assumption is not valid, then financial statements are prepared under the special circumstances and asset and liabilities are shown at recoverable amount.

5.   Circumstance of Going Concern

Following is the list of circumstance under which management may suggest that going concern assumption is not valid.

a)    Heavy losses.

b)   License cancellation.

c)    Bane on nature of business.

d)   Sale major operations.