ICAEW AF · Chapter 1 · Question 4 of 11
A trader has decided to close the business and sell off all of its assets within the next few months. On what basis should its financial statements now be prepared?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The break-up basis, with assets stated at the amounts expected to be realised
Explanation
Financial statements are normally prepared on the assumption that the entity is a going concern. Where the entity intends to cease trading, that assumption no longer holds, so the break-up basis is used. Assets are then measured at the amounts they are expected to realise on sale, and any extra liabilities caused by closure are recognised.
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