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BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

(a) Land. (d) Inventory.

(b) Unamortized bond premium. (e) Prepaid insurance.(c) Depreciation expense on equipment.

Short Answer

Expert verified

(a) Net realizable value

(b)Would not be disclosed

(c)Would not be disclosed

(d) Net realizable value

(e) Net realizable value

Step by step solution

01

Going concern assumption or concept

The main meaning of the going concern concept is that business runs for a longer period.

02

An explanation for part (a)

Land – The term land means any building or other constructed asset on the property. The value received by selling the asset by deducting the selling costs is called the net realizable value. The net realizable cost is determined by deducting the selling costs, such as transportation costs. When there is no going concern concept, the value of the land is recorded at the net realizable value in the books of accounts.

03

An explanation for part (b)

Unamortized bond premium –It means the net difference in the bond's price when the bond issuer sells the bond less than the face value at maturity. The unamortized bond premium is considered the liability of the issuer. When there is no going concern concept, the company or the issuer will not disclose the amount in the books of accounts.

04

An explanation for part (c)

Depreciation expense on equipment – The asset's value decreases over time because the asset is used for a long period, the technology change, or many other reasons is termed depreciation. There is no need to write the depreciation amount on equipment in the accounts when the going concern concept is not followed.

05

An explanation for part (d)

Inventory – It means the goods are in various production stages and ready for sale. It can be finished goods, work-in-progress, and raw materials. Net realizable value is the amount that a business entity will receive after paying or deducting the total selling cost from the selling price of the inventory. When there is no going concern concept, the net realizable value of the inventory is recorded

06

An explanation for part (e)

Prepaid insurance – Prepaid insurance means the individuals or businesses pay the insurance company in advance for insurance services or coverage. When there is no going concern concept, then the net realizable value of the prepaid insurance is recorded in the books of accounts.

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