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going concern-whether valid??

441 views 1 replies

Pritika Bharti

41 Points Joined January 2010

There is a company whose adudit iam involved in.This company has disconitnued its main objective of manufacturing wires since 2005.Presently its income is from interest and rental income only.It doesnt provide for deprn. on its plant and mahinery as it is not put to use during the year.It has also surrendered the electricity line of its main factory this year.I have two questions to ask

1. The operation of borrowing and lending money and thereby earning interest is not stated in its objective clause as per MOA.So is it not ultravires and if it is so what is the liability? Also what kind of reorting should the auditor do?

2. Whether the going concern assumption is valid in such circumstance?

Replies (1)

Piyush Jain

283 Points Joined July 2008

Prateek, practically(generally) MOA contains each and everything possible under the sun. Hard to digest that company MOA doesnt call the same. if its not mentioned then it is ultravirus and person in charge(BOD, etc) are liable for the same. The auditor will qualify its report.

As far as depn is concerned, no matter u are using the asset or not, u hv to provide for depn.

If the company doesnt continue its basic operation then u hv to do accounting as per non going concern entity.

regards

piyush