Going concern

Due to the international economic crisis, companies all over the world meet new challenges when preparing the annual financial statements for 2008. In previous years, most companies did not have this challenge as markets were good and stable. Now they have to evaluate if the market/sales value of its assets is less than the value recorded in its accounts and also to evaluate if the company is a going concern. Lithuania companies have this commitment according to Lithuanian Business Accounting Standards. Small and big companies have to follow this commitment.

Management of the company has the responsibility to prepare the annual financial statements and look after that these commitments are fulfilled.

The value of assets.

Assets which have a market value less than said in the accounts have to be written down to market value.

The market value of goods is sales price less sales cost.

To set the market value of properties, buildings, ground plots and machinery might be difficult. There are different ways to calculate the value. But if the market value is obviously less than said in the books, a complicated calculation is not needed. The easiest way to find the value is to ask assistance of a professional on the areas to make evaluation.

The amount of write down is registered in the Balance sheet and the Profit and Loss Statement.
Be aware that the equity might become less than 50 % of the share capital. If such appears, additional capital is needed to fill up.

Going Concern.

Going Concern is about the company’s capacity to survive next year or if next year the management is going to close the company by free will, by other reasons or by bankruptcy.

It is the obligation of the management to make realistic and conclusive evidences if the going concern assumption is satisfied. The assumption on going concern has to be made on hard facts.

The degree on assumption depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt payment schedules and potential sources of financing replacement before it can satisfy itself that the going concern basis is appropriate.

If the conclusion is that the entity is not a going concern, the assets in the annual financial statement 2008 have to be written down to the sales prices less sales cost.

In the management letter, the management has to inform clearly if the company is a going concern or not.