GCEFinancial AccountingAccounting Concepts and Conventions2020

Adaeze Trading Company has current assets of ₦960,000, current liabilities of ₦640,000, and a long-term loan of ₦400,000. The accountant prepares the financial statements on the assumption that the business will continue to operate for the foreseeable future. If this assumption is removed and the business is to be wound up immediately, which concept would NO LONGER apply, and what would be the immediate implication for asset valuation?

AAccrual concept; assets would be valued at replacement cost
BGoing concern concept; assets would be valued at realisable (break-up) valuesCORRECT
CPrudence concept; assets would be valued at historical cost
DConsistency concept; assets would be revalued at market price annually
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Why the answer is B, and why the others tempt you.
The going concern concept assumes the business will continue to operate indefinitely, allowing assets to be valued at cost less depreciation. If this concept no longer applies (i.e., the business is to be wound up), assets must be valued at their net realisable (break-up) values, which are often lower than book values. This change in basis significantly affects the financial position of the business as presented in the balance sheet.
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