Академический Документы
Профессиональный Документы
Культура Документы
1) Business entity
=>
=>
3) Accounting period
=>
4) Money measurement
=>
5) Historical cost
=>
Original costs
6) Matching
=>
7) Accrual
=>
8) Realisation
=>
9) Conservatism / Prudence
=>
Anticipated losses should be recognised, but not profit ( unless reasonably certain )
Assets and income should not be overstated.
=>
Liabilities and expenses should not be understated.
=>
10) Materiality
=>
11) Objectivity
=>
Objective evidence
Original source of documents
=>
12) Consistency
=>
=>
=>
Example : Financial Lease => Lessee is not the owner of the leased property, but required to
record the asset as being owned by the lessee, based on the underlying economic reality.
a)
The business unit is separate and distinct from its owner. Thus, transactions affecting the business are recorded from the view point of the business and
recorded in the books of the business. They should not be mixed up with the private affairs of the owner.
Although the owner is separated from its business but the sole proprietor is personally liable for all the liabilities of the business. Therefore, the banker
b) will need to know the amount and nature of the personal assets and liabilities of the sole proprietor, in order to assess the ability to repay the business
loan.
QUESTION 2 :
a) Advantages of operating as limited companies are:
i)
Limited liabilities As a separate legal entity, a company is responsible for its action and liabilities, separate from its owners;
ii)
Broad source of capital Ownership rights in companies are represented by transferable shares, more investors are able to participate in the
ownership of the business;
iii)
Continuity of existence The transfer of shares from one owner to another has no effect on the continuity of a company;
iv)
v)
Ready transferability of shares Company shares may be transferred easily without disrupting the activities of the company, hence, a
shareholder can readily convert his/her investment into cash when the need arises;
Use of professional management Shareholders elect a board of directors, which has overall responsibility for the business decisions and the
board then hires professional managers to manage the business.
Separation of ownership from management The use of professional managers may prove to be a disadvantage because managers may
sometimes operate companies for their own benefits rather than for the benefit of the shareholders.
b) A supplier would conduct business with a limited company despite knowing that the shareholders have only limited liabilities because:
Page 1 of 2
i)
The limited company is normally the bigger-size business, therefore, having the financial muscle to command a higher market share of business.
As a result, the supplier has confidence in the financial strength of the limited company.
ii)
The supplier is able to investigate the financial status and background of the limited company before transacting business;
=>
=>
iii)
The supplier is assured that there is a greater degree of governmental control and supervision on the limited company;
=>
QUESTION 3 :
a) The two main types of share capital are:
i)
Preference shares holders of these shares get an agreed percentage rate of dividend before the ordinary shareholders receive anything.
Ordinary shares holders of these shares receive the remainder of the total profits available for dividends. There is no upper limit to the amount
ii)
of dividends they can receive.
b)
Preference shares are sometimes referred as loan capital rather than equity capital because the characteristics of preference shares are closer to loan
capital:
i)
Fixed rate of return as indicated by the percentage;
ii)
Preference shares usually do not carry voting rights.
Page 2 of 2