In organizations, financial statements are prepared following an important assumption i.e. Going concern Assumption. This assumption states that financial statements are prepared assuming that a business entity will continue to operate its activities in the future and it (business entity) will not liquidate or discontinue its operations due to any reason. With regard to Going concern Assumption, answer the following:

1. Dohfar Electric Company has just reported a net loss of OMR 50,000. At the same time, its net working capital is also unfavorable. Due to a recent agreement with a foreign partner with new foreign investment the company is projecting profit in the years to come.

Should the company prepare its financial statements under the going concern assumption. Give reasons.

2. Give your opinions what difficulties the business entity may face if this assumption is considered by the management as invalid.