accouting concepts
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a)
b) Accounting Principles/concepts to be used in dealing with the cases, stating reasons:
i) The most appropriate concept is Going Concern. This concept assumes that the company will operate at a profit for an indefinite period of time. The idea behind this principle is that for most companies or firms, it is not possible to determine in advance the length of time in which it will operate, unless there are reasons to. The 'going concern' concept provides for justification of recording assets at acquisition and depreciating them in an orderly manner.
In the illustrated case, there is doubt on the continued existence of the hotel, due to the non- -availability of foreign exchange, which is making importations difficult, and also the fact that bankers have refused to consider future overdrafts, thus presenting a situation where the hotel may face shortage of cash to meet its short-term financial obligations. The Directors of the hotel may believe that sale of the assets may realize a good return to satisfy liabilities and maybe return to profitability. However, in the view of this hotel's current weakened financial condition and uncertainties on its future, the firm seems to have a limited life. Hence, the accountant should apply the appropriate Going Concern procedure to determine the value of the assets i.e. prepare from 'Quitting Concern' or liquidation point of view...