Why is it necessary for accountants to assume that business entity will remain a going concern?
It is necessary for accountants to assume that business entity will remain a going concern, because it helps to bifurcate revenue expenditure (i.e. expenditure related to current year), and capital expenditure (i.e. expenditure whose benefits accrue over a period of time)and also It is assumed that the business will continue to exist for a long period in the future..
For example, a machinery that costs Rs 2,00,000, having an expected life of 20 years, will be treated as a capital expenditure, as its benefit can be availed for more than one year; whereas, the per year depreciation of the machinery, say Rs 20,000, will be regarded as a revenue expenditure.
0 Comments