Finance

UPOL Style Balance sheet 31 March 2009poundsCash500.00Trade Debtors48,000.00less provision for bad debt-480.00Net receivables47,520.00Work In progress20,500.00Prepayments450.00Total Current assets68,970.00Furniture and fittings18,400.00less accumulated depreciation-12,800.00net furniture and fittings5,600.00Motor Vehicle10,000.00less accumulated depreciation-8,400.00net Motor Vehicle1,600.00Computer Equipment21,000.00less accumulated depreciation-17,000.00Net Computer equipment4,000.00Total non current assets11,200.00Total assets80,170.00Creditors1,400.00Accrued Expenses1,250.00VAT4,700.00long term debt 25,000.00current account3,250.00capital account40,400.00less drawings-15,000.00net income19,170.00total liabilities and equity80,170.00
UPOL Style Income statement 31-Mar-09poundsDesign fee income242,700.00Designers wages-132,000.00opening stock-17,200.00closing stock 20,500.00Gross profit114,000.00ExpensesAdministration wages42,000.00Advertising expenses1,930.00Rent18,000.00Stationary3,100.00Telephone and postages5,000.00Accountancy fees750.00Electricity2,150.00Printing expense1,600.00Motor and Travel1,970.00depreciationFurniture and fittings3,600.00Motor 2,400.00Computer equipment4,000.00Interest expense2,350.00VAT4,700.00bad debt expense1,200.00 Provision for bad debt80.00total 94,830.00Net income19,170.00  The importance and impact of going concern assumption on businesses

Going concern is regarded as a fundamental accounting policy which assumes that the business will run in the foreseeable future (Wood  Sangster, 2004, pp. 97). In other words, the balance sheet of a company prepared on the assumption of going concern, clearly reflects the companys market value as of today assuming that it would exist for a foreseeable time in future.

This concept has been given immense importance because it enables the management to make assumptions and judgments at a specific point in time about the future conditions of the business. In other words, it is the driving force behind the carrying out a sensitivity analysis of the internal and external environment of the company (Wood  Sangster, 2004, pp. 97). The importance of going concern lies in the fact that it declares that the company is able enough to continue its operations in future (for at least next 12 months). Thus it affects the treatment of accounts and items  in financial statements, for e.g. if a company declares that it is no more a going concern, then all its assets would turn current even the plants and machineries. Similarly, asset valuation is another concept which gets highly affected by the going concern assumption (Victor, 2009). For.eg. assets are stated at the cost minus deprecation instead of their scrap value because if the company will operate in future, these assets will add to the total market value of the firm. Lastly, going concern has an important impact on the business, primarily because it works on the premise of separate entity, which states that even if the owner would die, the business will continue its operations.

Hence, it can be said that if management does not hold, the going concern assumption to be true, not only their financial data and asset valuation will be affected but their ability to devise an action for future or take corrective measures will get paralyzed too.