Commercial Applications
Assertion (A): The Going Concern Principle assumes that a company will continue its operations for the foreseeable future.
Reason (R): This principle allows fixed assets and liabilities to be reported at their historical cost rather than their liquidation value.
- A is true but R is false
- A is false but R is true
- Both A and R are true and R explains A.
- Both A and R are true but R does not explain A.
GAAP
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Answer
Both A and R are true and R explains A.
Reason — Both statements are true. The Going Concern Principle assumes that the business will continue indefinitely, and it is precisely because of this assumption that fixed assets are recorded at their original (historical) cost less depreciation rather than at liquidation/market value, since the assets are not meant to be sold in the near future. Reason (R) correctly explains Assertion (A).
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