The correct answer is: C. Statement I is correct, but Statement II is incorrect.
The going concern concept is a fundamental accounting principle that assumes that an entity will continue to operate for the foreseeable future. If this concept is no longer valid, then the entity’s assets and liabilities must be revalued to reflect their fair values. This may result in the complete write-off of prepaid assets, as they may no longer have any value to the entity.
However, land held as an investment is not a current asset and is not subject to the same valuation requirements as current assets. Therefore, even if the going concern concept is no longer valid, land held as an investment would not be written off immediately. Instead, it would be valued at its fair value, which may be different from its historical cost.
Here is a more detailed explanation of each statement:
Statement I: If the going concern concept is no longer valid, then all prepaid assets would be completely written-off immediately.
This statement is correct. If the going concern concept is no longer valid, then the entity’s assets and liabilities must be revalued to reflect their fair values. This may result in the complete write-off of prepaid assets, as they may no longer have any value to the entity.
For example, if an entity has prepaid rent for the next year, but it is no longer expected to continue operating for the next year, then the prepaid rent would be written off immediately. This is because the entity would no longer be able to benefit from the use of the rented property.
Statement II: Also land held as an investment would be valued at its realisable value.
This statement is incorrect. Land held as an investment is not a current asset and is not subject to the same valuation requirements as current assets. Therefore, even if the going concern concept is no longer valid, land held as an investment would not be written off immediately. Instead, it would be valued at its fair value, which may be different from its historical cost.
For example, if an entity owns land that it has been holding as an investment for several years, and the fair value of the land has increased significantly, then the entity would not be required to write off the land. Instead, it would be required to recognize the increase in the fair value of the land as an unrealized gain in its income statement.
In conclusion, Statement I is correct, but Statement II is incorrect.