Course: Bachelor of Science in Management (Sri Lanka) (Jan) PT

Module: Financial & Management Accounting (ACC2002L)

Assignment Title: Fundamental Concepts in Financial Accounting and

Management Accounting

Submitted by: A R Ponnamperuma

Student Number: 16-210-152

Lecturer: Dr. Ming Yen Tan

Submission Date: 6th January 2017

Word Count: 792
 Assignment 1

Question 1

Explain the strengths and weaknesses of these kinds of business ownership: sole proprietorship,
partnership and limited company.

Sole Proprietorship

Strengths

 All the decisions of the business can be taken by the owner such as the target market,
opening hours, employee recruitments, expansions of the business and the profit
margins.
 Sole proprietors are the sole owners of their businesses and do not split profits with
other owners. Owner can choose to reinvest the money back into the business to expand
the company, start another business or use it for personal reasons.
 Minimum legal requirements to be fulfilled such as, complying with licensing
requirements within the states in which they do business and paying attention to local
regulations.

Weaknesses

 Due to the unlimited liability, the proprietor of a business need only to be liable
personally for the debts and obligations of the business.
 All responsibilities and business decisions fall on the shoulders of the sole proprietor
and there will be lack of guidance and getting feedback from others.
 Unstable business life due to the owner’s lack of interest, commitment, health issues,
bankruptcy and death.

Partnership

Strengths

 As in a partnership there are more than one person, partners can raise more funds easily.
This means if there are more partners, obviously more capital will be available for the
business and allow better flexibility and more potential for growth.
  Diversity of skills and expertise allow the partners to make the best of their abilities for
the betterment of the business.
 Partners can share the responsibility and the decision making of the business to make it
more efficient and effective.

Weaknesses

 Disagreements between the partners such as in decision making, recruitments,

assigning duties and responsibilities and expansion of the business lead to disputes
which harm the business.
 Complexity of profit- sharing as if one or more partners do not put a fair share of
effort into the running or management of the business, but still reaping the rewards.
 Each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each
partner is liable for their share of the partnership debts as well as being liable for all
the debts.

Limited Company

Strengths

 Limited liability which means if a company is unable to pay debts, the shareholder will
only have to contribute according to the nominal value of their shareholding. This can
provide a comfortable feeling of security for investors in the Company.
 A limited company is deemed to be a separate legal entity from its owners. This has
several advantages, including the fact that the company will exist beyond the life of its
members. If they retire or die, the company will continue to exist and operate. This
ensures security for employees and other members.
 A professional and corporate image is created by a limited company, which boost the
value of business. More corporations and industries like to do business with limited
companies, instead of sole traders. This is because limited companies are considered to
be more established, credible and committed.

Weaknesses

 More legal regulations are to be followed under Company Act such as during the
incorporation and presenting the articles of association.
  All the decisions and the management of the business are be taken by the board of
directors therefore the ideas of shareholders which have minor shares’ are not
considered.
 There are more complex and restrictive rules in maintaining accounts and auditing of
Limited Companies. It is expected to produce year’s accounts incorporating financial
statements and other notes.

Question 2

Discuss 4 main distinctions/ differences between Financial Accounting and Management

Accounting.

 Management accounting is presented internally, whereas financial accounting is meant

for external stakeholders such as suppliers, customers, society, government and etc.
Although financial management is of great importance to current and potential
investors, management accounting is necessary for managers to make current and future
decisions.
 Financial accounting is precise and must adhere to Generally Accepted Accounting
Principles which assures the external parties that the reports have been prepared in
accordance with some common set of ground rules that enhances comparability and
help reduce fraud and misrepresentations, but management accounting is very detailed
and there is no specific format or principle to be followed .Management accounting
assist to take decisions for managers.
 Usually financial accounts are prepared annually or bi-annually but management
accounts are prepared in several times according to the requirement of the managers. It
will not only annually or bi-annually maybe monthly, weekly, twice a week and etc.
 Financial accounting concerns only on historical information which primarily provides
summaries of past financial transactions whereas management accounting concerns on
both historical as well as the estimated information of a company since planning is such
an important part of a manager’s job, managerial accounting has a strong future
orientation.
References

 McLaney E. and Atrill P. (2012): Accounting- An Introduction. 6th edi. FT-Prentice-

Hall
 ALLBUSINESS EDITORS (n.d.): Advantages and Disadvantages of Sole
Proprietorship [Online] AllBusiness.com. Available from:
https://www.allbusiness.com/advantages-and-disadvantages-of-sole-proprietorships-
3-875-1.html [Accessed 01-01-17].
 DEPARTMENT OF STATE GROWTH (15-02-16): Partnership – advantages and
disadvantages [Online] business.tas.gov.au. Available from:
https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-
intro/partnership-advantages-and-disadvantages [Accessed 02-01-17]
 PARFREY MURPHY CHARTERED ACCOUNTANTS (03-12-12) :
ADVANTAGES AND DISADVANTAGES OF A LIMITED COMPANY [Online]
parfreymurphy.ie. Available from: http://parfreymurphy.ie/advantages-and-
disadvantages-of-a-limited-company/ [Accessed 04-01-17]
 Confirmation Certificate

Congratulations!

You have successfully completed the Library Plagiarism Quiz.

Student Name: A R Ponnamperuma

Student Number: 16-210-152

Date: 06th January 2017

THIS IS TO CERTIFY THAT (signature)……………………… HAS

COMPLETED THE PLAGIARISM QUIZ

Remember that the confirmation certificate is a statement by you that

you understand plagiarism and know how to avoid it. If you think that you
do not understand plagiarism and how to avoid it after working through
this tutorial, you should confer with your module coordinator, no matter
what score you have obtained on the test.
Please print out this page and attach a copy of the certificate to the final page in all assignments
you submit on each module as part of your programme

(It is your responsibility to print the certificate, complete the information, sign it, and keep a copy of it for
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