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If a company tough has no intention of liquidating itself (going concern) ,but have the intention of selling a particular assest in next couple of months, in that case can that particular asset be shown at break-up basis on the balance sheet rather than on historical cost.
IAS 2- states inventory should be valued on the basis of absorption costing (including fixed manufacturing o/h). In financial accounting do we still use the pre-determined o/h absorption rate to value the goods or we use actual o/h cost?
First question:
No. Non-current assets must be shown at original cost less depreciation, unless the choose to revalue in which case they must revalue all assets of the same type (so if it is a machine then they must revalue all their machines).
Second question:
No – you must use the full cost including all factory overheads, but for financial accounts you absorb based on the actual cost and the actual production.
In future please start a new thread for questions on different topics, so that everyone can benefit from the answers.
i got the answer of 2nd question that is inventories are valued at (prime cost + manufacturing O/H), but in financial accounting the inventories/goods are valued at actual cost (material,labour) and they absorb o/h based on actual o/h and actual production volume and not thru pre-determined absorption rate like in cost accounting.
please tell me if im right?
another query related to the first question ,
in bpp book it states that
Going Concern concept assumes that, when preparing a normal set of accounts, the business will continue to operate in approximately the same manner for the foreseeable future (at least the next 12 months). In particular, the entity will not go into liquidation or scale down its operations in a material way. So the assets should not be valued at their ‘break-up’ value unless they are shutting their business.
my question – is this that apart from shutting down, can a business also show its assets on break-up basis if they choose to revalue them even tough they don’t have any intention of stopping the business and will be a going concern?
please kindly give ur reply to these question
thanks sir………….
i want to know can a company revalue there assets even when they are not shutting down cause showing the assets at fair value means its opposing the going concern concept which states that asset should not be shown at break-up value unless we are stopping the operation .
First question:
You are right (and that is what I wrote in my previous reply!!
Second question:
I answered this in my previous reply – please read it again!
Third question:
Yes – a company can revalue whenever they want. Please watch my free lectures and read the free lecture notes.
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