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what does this mean and why do we adjust the statements if it happened after the reporting date?
On 13 December 20X8 a fire destroyed all inventory on the premises and the directors
consider that Brakes Co is no longer a going concern.(kaplan exam kit)
You have not written what the reporting date is.
(And have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.)
i have watched your lectures i’m not sure what “no longer a going concern” means and what its ramifications are
I do actually mention the going concern concept in my lectures.
We normally assume that a business is a going concern i.e. that it is able to continue in business in the future. So (for example) we normally value inventory at cost on the basis that the business will continue to operate and will sell the inventory for more than cost.
If it is not a going concern, then it means that we do not think that the business can continue. We must report this as a note to the accounts, but it also affects the valuation of assets – inventory here has no sale value and so will be valued at zero (and even if it had not been destroyed, if the business is not going to continue then it would likely have to be sold off cheaply which would also mean showing a lower value for inventory).
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