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in bpp book it says as per going concern concept asset should not be values at break-up values. What does this break-up value mean and in going concern concept how we show the asset value then?
and is this break up value different from the net book value of asset at which we show the asset in balance sheet.another question do we also have to show fixed asset at net realisable value just as closing inventory.
another thing is break up value is based on net reliasable value. if so, then while preparing financial st. we show closing inventory as per NRV even when the entity is a going concern .Thwn why its being said we shouldn’t value asset on break up value under going concern concept.
“break-up value’ is what we could sell assets for if the business was to close down.
The going concern concept means that we are not thinking of the business as about to close down, and therefore we value non-current assets in the SOFP at the net book value (the carrying value) as usual.
For the same reasons, we value inventory at the lower of the original cost and the NRV as usual.
All of the questions are explained in my free lectures. The lectures are a complete free course for Paper F3, and if you are watching them then you do not really need the study text. The book that you do need is a Revision Kit from one of the ACCA approved publishers, because they contain lots of exam standard question to practice on, and practice is vital if you are to pass the exam.
ok so in other way we show closing stock at break up values/NRV as we will sell it as per going concern concept but we show f.asset at net book value as we have no intention of closing the business under going concern concept.Am i right?
No!
Inventory is valued at the lower of cost and NRV and usually cost will be the lower (because as a going concern we normally expect to see at a price higher than cost – it is only when (for example) and item of inventory is damaged, that the NRV will be lower.)
If the company was not a going concern then it is likely that inventory would be sold off cheap – but we assume it is a going concern and therefore will normally be sold for more than cost.
(And we stopped calling it ‘stock’ many years ago. It is now called inventory.)
Again, I suggest that you watch my free lectures where all of this is explained.
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