IGC-L30 — Going Concern & Consistency
Understanding key accounting principles that ensure continuity and comparability of financial information.
Learning Objectives
- define the going concern principle
- define the consistency principle
- explain the importance of these principles
- apply these principles in accounting scenarios
- answer examination-style questions
Concept Framework
Going Concern Principle
The going concern principle assumes that:
This means the business is not expected to close or liquidate in the near future.
Importance
Because of this assumption:
• assets are valued at cost (not liquidation value)
• depreciation is charged over useful life
• long-term decisions can be made
Example
A machine purchased for £10,000 is depreciated over several years instead of being valued at resale value.
Consistency Principle
The consistency principle states that:
Importance
Consistency ensures:
• financial statements are comparable
• trends can be analysed
• users can make reliable decisions
Example
If a business uses FIFO for inventory valuation, it should continue using FIFO in future periods.
Comparison of Principles
Going Concern Consistency
Assumes business continues Uses same methods each year
Focus on future operations Focus on comparability
Affects asset valuation Affects accounting methods
Impact on Financial Statements
Going Concern
Ensures:
• assets are recorded at cost
• depreciation is applied
• financial statements reflect ongoing operations
Consistency
Ensures:
• results can be compared
• reliable analysis is possible
• accounting methods remain stable
Worked Examples
A business values inventory using FIFO in Year 1 and continues the same method in Year 2.
This follows the consistency principle.
A business records assets at cost rather than resale value because it assumes it will continue operating.
This follows the going concern principle.
📌 Additional theory-based questions are available in the
🎯 Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly.
Structured Practice
Level 1 – Concept Check
Define going concern.
Define consistency.
Level 2 – Application Practice
Explain why consistency is important in accounting.
Level 3 – Examination Style Question
Explain the importance of the going concern principle.
(4 marks)
📌 Additional structured adjustment questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise journal corrections and Suspense Account preparation regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Students who believe they understand this topic should attempt:
- Explain how going concern affects asset valuation.
- Explain why consistency is important for users of financial statements.
- State one limitation of consistency.
If unsure, review the lesson.
Detailed Activity Solutions
Solution
Consistency ensures that the same accounting methods are used each year.
This allows users to compare financial performance and make reliable decisions.
How This Topic Appears in the Examination
This topic commonly appears through:
• definition questions
• explanation questions (2–4 marks)
• application to scenarios
Examiners frequently assess:
• correct definitions
• clear explanation
• application of principles
Students should practise regularly and review video explanations.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Self-Assessment Checklist
- I understand going concern
- I understand consistency
- I can apply both principles
- I can answer theory questions clearly
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