Vivid Textiles Ltd. prepares its financial statements on the assumption that it will continue its operations for the foreseeable future, with…

CA Intermediate · Advanced Accounting · MTP · September 2026
Vivid Textiles Ltd. prepares its financial statements on the assumption that it will continue its operations for the foreseeable future, with neither the intention nor the necessity to liquidate or materially curtail the scale of its operations. The company does not make any specific mention of this assumption anywhere in its financial statements. Is this acceptable under AS 1?
(A) (i) No, every fundamental accounting assumption must always be explicitly disclosed, regardless of whether it has been followed.
(B) (ii) Yes — where the fundamental accounting assumptions (going concern, consistency, and accrual) are followed in the preparation and presentation of financial statements, specific disclosure of this fact is not required, since their acceptance and use are assumed; disclosure is necessary only if a fundamental accounting assumption is NOT followed.
(C) (iii) No, disclosure is required annually regardless of whether the assumptions are followed, as a matter of good governance.
(D) (iv) Yes, but only if the company's auditor certifies in writing that the assumptions have been followed

Suggested Answer and Working Notes:

Correct Answer: Option (B)

(ii) Yes — where the fundamental accounting assumptions (going concern, consistency, and accrual) are followed in the preparation and presentation of financial statements, specific disclosure of this fact is not required, since their acceptance and use are assumed; disclosure is necessary only if a fundamental accounting assumption is NOT followed.

Topics: AS 1, Preparation of Financial Statements, Applicability of AS

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