Going concern is a fundamental principle in preparing financial reports and a vital assumption applied by the reporting entity. When going concern is claimed, the business necessarily means to continue operations for the foreseeable future with no indication to cease trade, liquidate, or seek protection from creditors to pay obligations. It also indicates the strength of financial statements and components that are being reported such as realizing assets and discharging liabilities. Going concern assumption undergoes auditing procedures to test if the assumption is appropriate and subsequently protect the decision-making implications of investors, creditor, suppliers, regulators and other users of financial statements.
The three-year cash flow shows that the firm has the capability to survive over the long-term. It has a net year end cash of £154,000; £137,000; and £377,000 for the first, second and third year respectively. This is the result despite the company estimated a net loss for 2009 and 2010. However, as several balance sheet contra-assets are non-cash transactions, the accountants of the company has minimizes and even eradicate the impact of net losses. Depreciation, amortization, goodwill and asset impairment are drawn back to the cash flow of the firm. These clearly suggest that the firm requires the use of its new and top-shaped non-current assets to bounce back in the going-concern trail. To do this, the firm must invest heavily in expanding its property in the second year as well as short-term investments while continually paying its debts when they fall due.
Credit:ivythesis.typepad.com
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