The financial statements have been prepared on a going concern basis which assumes that the company will continue in operational existence for the foreseeable future.
The validity of this assumption depends on the company being able to trade profitably in the future and the continued support of the company's director who is also a shareholder and the company's creditors. The financial statements do not include any adjustments that would result if the company continued to make losses and such support were withdrawn. If the company was unable to continue to trade, adjustments would have to be made to reduce the value of assets to their recoverable amounts, provide for further liabilities that may arise and to reclassify fixed assets and long term liabilities as current assets and liabilities. The shareholder, director and the company's creditors have expressed their willingness to continue supporting the company for the forseeable future and hence it is appropriate for the financial statements to be prepared on a going concern basis.