The Qualitative Characteristics of Financial Information — ACCA Practice Question 20

How to approach this question

Assess the going concern assumption. If management intends to liquidate the entity, the going concern basis is not appropriate. The break-up basis must be used.

Full Answer

B.On a break-up basis, with assets valued at net realizable value.✓ Correct

Under IAS 1, if management intends to liquidate the entity or cease trading, the financial statements must not be prepared on a going concern basis. Instead, they are prepared on an alternative basis (often called the break-up basis), where assets are written down to their net realizable values and liabilities are reclassified as current.

Common mistakes

Thinking that a disclosure note is sufficient while keeping the going concern basis.

Section A

A retail chain has suffered massive losses and the directors have decided to liquidate the company shortly after the year-end.

How should the financial statements for the year-end be prepared?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam

Section A A retail chain has suffered massive losses and the directors have decided to liquidate the company shortly after the year-end. How should the financial statements for the year-end be prepared?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam

Section A

A retail chain has suffered massive losses and the directors have decided to liquidate the company shortly after the year-end.

How should the financial statements for the year-end be prepared?