Which accounting concept assumes that a business firm would continue to carry out its operations indefinitely and would not be liquidated in the foreseeable future?

Going Concern Concept

The correct answer is option 3- Going Concern Concept.

The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e. for a fairly long period of time and would not be liquidated in the foreseeable future. This is an important assumption of accounting as it provides the very basis for showing the value of assets in the balance sheet. An asset may be defined as a bundle of services. When we purchase an asset, for example, a personal computer, for a sum of 50,000, what we are buying really is the services of the computer that we shall be getting over its estimated life span, say 5 years. It will not be fair to charge the whole amount of 50,000, from the revenue of the year in which the asset is purchased. Instead, that part of the asset which has been consumed or used during a period should be charged from the revenue of that period. The assumption regarding continuity of business allows us to charge from the revenues of a period only that part of the asset which has been consumed or used to earn that revenue in that period and carry forward the remaining amount to the next years, over the estimated life of the asset. Thus, we may charge 10,000 every year for 5 years from the profit and loss account. In case the continuity assumption is not there, the whole cost (50,000 in the present example) will need to be charged from the revenue of the year in which the asset was purchased.