Continuity

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CASE 2-4 CONTINUITY 1 Case 2-4 Continuity ACCT 632 School of MS: Accounting: Taxation, Liberty University January 21, 2024 Author Note I have no known conflict of interest to disclose. Correspondence concerning this article should be addressed to.

CASE 2-4 CONTINUITY 2 Abstract This paper pertains to continuity, a fundamental accounting principle influencing how a company presents information in its published financial statements. The Accounting Act improves the understanding of financial statements for various stakeholders. An analysis of corporate operations can be conducted by studying the data presented in publicly available financial statements accessible from the authorized electronic database dedicated to financial statements (Martin & Veres, 2021). This paper discusses continuity as the concept of a growing concern. It is a vital accounting theory that significantly influences the preparation and presentation of a company's financial statements in the accounting field. In addition, some sections discuss the description of continuity by Sprouse and Moonitz, the values of the assets which are important considerations for an investment choice, and it is essential to consider how the absence of continuity impacts the measurement of assets that are presented in the balance sheet of a corporation. Keywords : Continuity, investment, financial statement

CASE 2-4 CONTINUITY 3 Case 2-4 Continuity Sprouse and Moonitz described continuity in accounting as an expectation that a corporation would operate without interruption. It acts as the basis for the creation of financial statements with the premise that the organization will keep operating for an extended period. Continuity is a core principle in accounting that often affects how a corporation presents information in its published financial statements. According to Sprouse and Moonitz, continuity refers to the assumption that an entity will continue to function indefinitely until evidence suggests otherwise. If there is information indicating that the entity has a finite lifespan, it should not be perceived as continuing to operate endlessly (Cathey et al., 2022). Continuity can help us deal with disruption by enhancing our understanding of how individuals can form patterns that restore interrupted patterns and establish new work patterns and innovative methods to service organizations (Feldman et al., 2022). As for the assumption that the firm will continue to operate as it has in the past, the previous cost of the company's assets would impact the decision about making investments; historically, cost becomes irrelevant, as only the fair market value is significant. Bankruptcy serves as evidence that the business will not sustain its operations. No investment decision would be made without considering the company's fair market value, presuming that the company will continue to exist and create future cash flows. This assumption is essential for accurately reporting financial statements and provides stakeholders with a basis for understanding the company's financial situation and performance. The textbook states that the primary purpose of financial statements is to furnish information that is valuable for the process of making predictions. Financial projections should be presented when they can improve the dependability of users' predictions. Assuming the business's ongoing operation and its assets' utilization to

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CASE 2-4 CONTINUITY 4 generate future value enables stability in financial reporting. The significance of asset values in an investment decision stems from their capacity to align with the buyer's strategic objectives, current market value, and potential for future income generation (Cathey et al., 2022). The fact that the organization filed for bankruptcy proves it cannot continue operating in its current form. In this circumstance, the net realizable value should be used to measure the assets on a corporation's balance sheet. If a company is liquidating its assets and declaring bankruptcy, it is impossible to maintain the presumption of continuity. Under these circumstances, it is quite improbable that the company will continue to operate for a long time. Accounting shifts its focus from a going concern basis to a liquidation basis as the primary focus of the discipline. Without continuity, the assets listed on the company's balance sheet would no longer be valued at their historical cost or considered a going concern. In their place, assets would most likely be valued according to their estimated net realizable value, also called the liquidation value. This value represents the amount of money the company anticipates receiving from the sale of the assets through a methodical liquidation process. This transition to liquidation values frequently results in adjustments representing the predicted amounts that could be realized in a forced sale scenario. These adjustments can significantly impact the reported values of assets, which can be a significant factor in determining the worth of assets. This indicates that the stated values of the assets may be lower than their historical cost, which would represent a more realistic evaluation of the revenues from the sale of the assets when they are in a precarious position. (Cathey et al., 2022). In conclusion, when individuals or organizations cannot handle their financial obligations, it provides them with a structured approach to dealing with their financial issues. Filing a bankruptcy petition is an option for any individual or organization that cannot repay its

CASE 2-4 CONTINUITY 5 outstanding debts. Furthermore, assessing the assets' earning ability, growth potential, and future cash flows is more relevant when making judgments. When considering the purchase of a business, the previous price paid for its assets may not be the sole relevant factor in making an investment decision. While previous expenditures provide information on the initial capital invested in assets, they cannot adequately reflect the current market value or potential future value of the assets. The Bible is a source of great wisdom that serves as a guide for making decisions in our lives. When faced with a significant choice, the description suggests that one should put one's trust in the direction that God provides. In the biblical aspect of decision-making in various areas, the book of Psalms states that God should instruct us in his ways so that we may rely on His faithfulness and grant us undivided hearts to honor His name ( Psalms 86: 11 NIV).

CASE 2-4 CONTINUITY 6 References Bible Gate Way (n.d), Psalms 86: 11 NIV. Retrieved January 2, 2024, from https://www.biblegateway.com/passage/?search=+Psalms+86%3A+11&version=NIV Cathey, R.G.S.M.W.C.J. M. (2022). Financial Accounting Theory and Analysis: Text and Cases (14th ed.). Wiley Global Education US. https://mbsdirect.vitalsource.com/books/9781119881162 Feldman, M. S., Worline, M., Baker, N., & Lowerson Bredow, V. (2022). Continuity as patterning: A process perspective on continuity. Strategic Organization., 20(1), 80–109. https://doi.org/10.1177/14761270211046878 Martin, K., & Veres, T. (2021). The Past, Present, and Future of Financial Statement-Based Research in Higher Education. Annals of the University of Petro ş ani Economics, 21(2), 67-78. https://go.openathens.net/redirector/liberty.edu?url=https://www.proquest.com/scholarly- journals/past-present-future-financial-statement-based/docview/2767253427/se-2

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