Continuity

Case 2-4 Continuity

Continuity is often cited as a basic accounting postulate that affects how a company presents information in published financial statements.
Required:
a. How did Sprouse and Moonitz describe continuity?
b. Given the presumption of continuity, if you are planning to buy a business, would the historical cost of the company’s assets be relevant to your decision to invest? Explain. If your answer is no, what asset values would be relevant to your decision to invest?
c. If a company is bankrupt and plans to liquidate its assets can continuity still be presumed? Explain. If you answer is no, how do you think the lack of continuity should affect the measurement of assets reported in a company’s balance sheet?Continuity is often cited as a basic accounting postulate that affects how a company presents information in published financial statements.
Required:
a. How did Sprouse and Moonitz describe continuity?
b. Given the presumption of continuity, if you are planning to buy a business, would the historical cost of the company’s assets be relevant to your decision to invest? Explain. If your answer is no, what asset values would be relevant to your decision to invest?
c. If a company is bankrupt and plans to liquidate its assets can continuity still be presumed? Explain. If you answer is no, how do you think the lack of continuity should affect the measurement of assets reported in a company’s balance sheet?