Credit gives the word to pay either by repaying it or returning those resources later. In other words, this credit is the method of making the reciprocity formal, legally enforceable, and of course, extensible to a vast group of people who are not related.
However, the resources provided may be financial or have goods or services, like consumer credit. The credit covers any form of deferred payment. Credit generally gets extended by the creditor, the debtor or lender, and sometimes the borrower.
Going Concern is specifically an accounting term that refers to a situation when a corporation is considered a going concern if it has the resources to operate indefinitely unless it can prove otherwise. This phrase also describes a business capacity to run for a minimum of the upcoming twelve months, continue generating sufficient revenue to stay afloat and avert bankruptcy. For as long as there is no reason to believe that a company will shutter down, it is assumed to be a going concern. However, if a company cannot continue as it was, it files for bankruptcy and have its assets sold.
The going concern sums up the liquidation value and the value of the company’s goodwill. The goodwill includes all the intangible assets held by the company may include patents, copyrights, trademarks and customer loyalty. A company that is being acquired, but will continue to run the business, can be valued as per the going concern valuation. This would fetch a far higher value than the liquidation method, as a going concern includes the intangible assets and customer loyalty too.
This is where it contradicts the Liquidation value.
● The liquidation value of a company is evaluated keeping in mind the value of the business if it closes down and all its assets get sold.
● It comprises the market value of all the tangible assets such as inventory, vehicles, land and buildings or any other real estate properties and equipment that are owned by the company.
● A company that is going to shut down the business is valued as per the liquidation method.
● However, a point to be kept in mind here is that the liquidation method is just an accounting method to find out an estimated value that can be realised if all the assets of a company are sold.
● But, it can never fetch an exact figure as the chances are very likely that the company would sell a major part of its assets at a discount, realising a value much lower than the liquidation value.
There are specified methods to calculate the value of the intangible assets and the goodwill of a company. But it all goes down to nil as soon as a company goes into liquidation.
