Unit 1 Fundamental Accounting Assumptions

The IASB's Conceptual Framework sets out one important underlying assumptions for financial statements, the going concern concept.

1.1 Going Concern

持續經營

The financial statements are normally prepared on the assumption that an entity will continue in operation for the foreseeable future. In other words, the entity has neither the intention or the need to liquidate or curtail materially the scale of its operations.

The main significance of the going concern concept is that the assets should not be values at their‘break-up'value.

持續經營最重要的意義就是資產不能使用清算價值計價。

For example, a retailer commences business on 1 January and buys inventory of 200 T-shirts, each costing $10. During the year he sells 140 T-shirts at $20 each.

·If the business is regarded as a going concern, the inventory unsold at 31 December will be carried forward into the following year, when the cost of the remaining T-shirts will be matched against the eventual sale proceeds in computing that year's profits. The sixty T-shirts will therefore be valued at $600（60×$10）.

·If the business is to be closed down, the remaining sixty T-shirts must be valued at the amount they will realize in a forced sale, which is $360（60×$6）.

1.2 Accrual Basis

權責發生制

Entities should prepare their financial statements on the basis that transactions are recorded in them, not as the cash is paid or received, but as the revenues or expenses are earned or incurred in the accounting period to which they relate.

The accrual basis is not an underlying assumption. However, the Conceptual Framework makes clear that financial statements should be prepared on an accrual basis.

權責發生制不是會計基本假設。

According to the accrual concept, computing profit revenue earned must match expenditure incurred in earning it. This is also known as the matching convention.

權責發生制下，發生的費用與獲得的收入相配比，并計算利潤。這就是配比原則。

For example, Emma purchases 20 T-shirts in her first month of trading at a cost of $5 each. She then sells all of them for$10 each. Therefore, Emma has made a profit of $100, by matching the revenue（$200）earned against the cost（$100）of acquiring them.

If Emma only sells 18 T-shirts, it is incorrect to charge her statement of profit or loss with the cost of 20 T-shirts, as she still has two T-shirts in inventory. Therefore, only the purchase cost of 18 T-shirts（$90）should be matched her sales revenue（$180）, leaving her with a profit of $90.