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RSV Co. reports only current assets and current liabilities on its balance sheet. Property, plant and...

RSV Co. reports only current assets and current liabilities on its balance sheet. Property, plant and equipment and bonds payable are reported as current assets and current liabilities, respectively. Liquidation of the company is unlikely. Which of the following principle, assumption or constraint is violated? a. Entity b. Periodicity c. Going concern d. Materiality

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Answer #1

RSV Co., volated the going concern assumption.

Going concern is fundamental accounting assumption according to which the entity has both the intention and capacity to continue the operations of the entity till foreseeable future.

In the given situation, Property, Plant and Equipment and bonds payable are non-current items in nature (since the benefits are derived and the settlements is made over a period which is greater than the operating cycle of immediate financial year end). While the company presents the PPE and bonds payable as current assets and liabilities, it is assuming that these will be realised with in the coming operation cycle or financial year. As it is mentioned that the liquidation of the company is unlikely, the company is expected to continue operations till foreseeable future and hence it is a viloation of going concern assumption

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