Under the going concern assumption, which practice is justified in asset valuation and liability recognition?

Under the going concern assumption, which practice is justified in asset valuation and liability recognition?

• A. Valuing assets at liquidation value; recognizing all contingent liabilities immediately.
• B. Valuing assets at current market values regardless of use.
• C. Using historical cost and depreciation; recognizing normal liabilities unless there is doubt about continued operation.
• D. Deferring all liabilities to the end of the business life.

Answer: (C)

Under going concern, the business is assumed to continue operating, so assets are valued for their ongoing use rather than for liquidation. This supports using historical cost and allocating its value over the asset’s useful life through depreciation, reflecting the consumption of the asset in normal operations. Liabilities are recognized in the ordinary course as obligations arise, rather than being postponed; only if there were substantial doubt about continued operation would you adjust recognition or disclose different concerns. The approach described aligns with these ideas: assets are kept at their historical cost with depreciation, and normal liabilities are recognized unless there’s doubt about the entity’s ability to continue. Valuing assets at liquidation value or at current market values regardless of use, or deferring liabilities to the end, would not fit the going‑concern framework.

Under going concern, the business is assumed to continue operating, so assets are valued for their ongoing use rather than for liquidation. This supports using historical cost and allocating its value over the asset’s useful life through depreciation, reflecting the consumption of the asset in normal operations. Liabilities are recognized in the ordinary course as obligations arise, rather than being postponed; only if there were substantial doubt about continued operation would you adjust recognition or disclose different concerns. The approach described aligns with these ideas: assets are kept at their historical cost with depreciation, and normal liabilities are recognized unless there’s doubt about the entity’s ability to continue. Valuing assets at liquidation value or at current market values regardless of use, or deferring liabilities to the end, would not fit the going‑concern framework.