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Question
Assets in the balance sheet are shown at cost less depreciation rather than their replacement cost because of which accounting convention?
Assets in the balance sheet are shown at cost less depreciation rather than their replacement cost because of which accounting convention?
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Solution
The correct option is C Going concern
The
concept of going concern assumes that a business firm would continue to carry
out its operations indefinitely, i.e., for a fairly long period of time and
would not be liquidated in the foreseeable future. This is an important
assumption of accounting as it provides the very basis for showing the value of
assets in the balance sheet.
Conversely, this means the
entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
This the reason why, assets in the balance sheet are shown at cost less depreciation rather than their replacement cost.
The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e., for a fairly long period of time and would not be liquidated in the foreseeable future. This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet.
Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
This the reason why, assets in the balance sheet are shown at cost less depreciation rather than their replacement cost.
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