Going Concern Concept | Accounting | Examples - YouTube

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clicking the Pelikan that's going below let's begin with the concept of going

concern concept now what this concept is all about we'll try and get into a very

detailed format now first you know what is going concern see going concern

concept means that you know that is an ability of any business to run in the

most profitable for any indefinite period of time then until the concern is

stopped due to some bankruptcy and its assets were going for liquidation so

when a business stops trading and deviates from its going concern

principle business and there is a highest possibility that the concern

would likely to stop delivering the profits in terms of near future so those

a business cannot you can say Bare losses for a longer period of time in a

road the shareholders will so a healthy business shows what we call as the

revenue growth and profitability grows with the so called margins improvements

and growth in the product sales now only going concern assumptions the primary

going concern assumption is that the business will run forever until the

business stops due to the bankruptcy so there are some assumptions that it is

involved in here the primary going concern assumption is that the business

will run ok we'll start with the first one is the acceptability of the core

products now a business runs on the going concern basis of the products and

services they offer to the consumer the pulse of the business starting from the

fruit seller to an MNC multinational company selling IT services would be the

same so the owner or the top management has found new customers and maintain its

existing customers so as to maintain the organic or inner organic growth of the

company retension of old customers and expansion

through new customer acquisition would help to make the business more

profitable and it aids towards the volume growth of the product now the

product should be reasonably prized and innovative in nature so that it can beat

its peers and retains going concern value of its customers okay now there's

a thing called second is called the margins the growth and the volumes now

see the financials of the business should speak about the sustainability of

the business through top line and the bottom line growth along with their

higher operating unit profit margin so and an idle growing concern should have

a higher number of product sales compared to the last year so now there

is a thing called cyclically revenue growth and profitability now see another

instance where there might be not be you know constant top line in the bottom

line growth along the increased margin is when the the demand of the product is

cyclically in nature so for example there is a rise

and fall of volume in the steel products may absolutely affect the revenue and

due to its fixed cost the profitability may get hinder but the interesting part

of the business is that it still is following the basic

a fundamental and due to the nature of the business is getting much more a hit

now we'll start with an example here to get a much more deeper understanding on

this concept this is the snapshot of a going concern example wherein you know

the company has robust margins and growth as you can see there is the data

of revenues and margins and all detail that has given to us and from the above

financial we can derive that the revenue growth or and the net profit it's quite

consistent for the page industry manufacturers with apples for jockey

brands during financially or 14 financially the 17 and the revenue has

increased significantly from 1194 to 2152 that's 1 billion dollar to

closely around 2 billion dollar that's completely 50% growth revenue has

increased significantly the net profit grew from 153.78 this is not 1 billion

it's 11 billion and it has grew to 21 billion and in case of net profit it is

the one point five three billion to two point six six billion during the period

so the gross profit margins has been around 50 to six percent following by

the health healthy a bit margin and which is more than twenty percent in

robust net profit margin that is around 12 to 30 percent so this shows that the

business sustainability due to a higher product acceptability and the vivid from

the revenue growth and the operational efficiency that is visible from the

sustainable ebit margins the next that you can see is the going concern example

of for Tata Steel here if you see for Tata Steel

this snapshort due to the cyclically demand of the steel across the globe the revenue has

gone down from 1491.30 that is as you can see the amount has significantly

declined like anything 212 in financially is 17 and so is the

profitability from 3663 that is 36 billion to negative I mean that is far

fetched amount but you do higher finance cost you can see the finance cost has

been increasing and the sudden increase significantly has screwed up the whole

thing and certain exceptional losses and the bottom line has got slashed so when

does this going concern concept turns out to be dead okay see yes for the

going concern concept is basically the accounting standard financial statement

that reveals it true and the fair fair value of the business again when the

sale of the asset does not questions the capability of the business and shutdown

of the unprofitable businesses or the branches units and does not imply that

the concern has stopped performing well until the unless there has been the net

loss from the overall business and reduction in the shareholder fund so

does the red flags can be summed up as follows you know that inability of the

business concern to be it's what we call as the obligations and inspite of the

sufficient or restructuring and inspite of several steps that have been taken by

the management so if the business fails to deprive or derive profits there has

been the exclusion of the top management then the shareholders might think of

what we called as the exit and the next is you know the ordered reports with

the full financial statements okay that are published yearly whereas only income

statements data are published quarterly so when an accountant and auditors when

they question is about the operational efficiency of its

long-term assets while to meet its dues the assets are being sold and when they

are unable to report the financials with instability a time frame is a matter of

a question for the management so there must be CB some instances where the

management has not given any true and fair view or the failure of the business

to the auditors now on the if you see that when the continuous losses when

the other firms are generating profits in the same segment loan defaults

lawsuits against the company that raises questions regarding you know the

performances of the company which can be really be hazardous thing so on the

final conclusion note you see the prime aspects of the business remains the

capability and the integrity of the management and proper business foresight

you know and the operation efficiencies are required for a business to sustain

and remain profitable for a longer term and the cycle of the business during the

economic recession is crucial when it determines the ability of the management

when major firms fail to generate that level of profit so that's it for this

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