Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the primary goal of administration for a financially troubled business?

1. To liquidate all assets immediately

2. To cease operations permanently

3. To continue operations as a going concern

4. To distribute profits to shareholders

The correct answer is: To continue operations as a going concern

The primary goal of administration for a financially troubled business is to continue operations as a going concern. This approach focuses on finding a viable solution that allows the business to stabilize and ultimately recover from its financial difficulties, rather than shutting down or liquidating its assets immediately. When a company enters administration, it is typically under the guidance of an appointed administrator who aims to restructure the business, negotiate with creditors, and implement changes that will improve its financial health. The intention is not just to preserve the business itself but also to protect jobs and maintain ongoing relationships with customers and suppliers. In contrast, liquidating assets or ceasing operations permanently would indicate that the business has no feasible path to recovery, while distributing profits to shareholders is not applicable during financially troubled times, as the focus should be on stabilizing the business and addressing outstanding debts rather than rewarding shareholders. Therefore, maintaining operations as a going concern is crucial for reviving the business and ensuring that it can operate successfully in the future.