Course partners for the debts is unlimited

Course
– Bachelor of Science (Sri Lanka)

Module
– ACC2002L Financial & Management Accounting

 

 

Assignment
Title – Fundamental Concepts of Financial Accounting and Management Accounting

 

Submitted
by: Sajith Shivantha Perera

Student
Number: 17207202

 

 

Lecturer
– Dr. Ming Yen Tan

Submission
Date: 25.01.2018

 

 

 

 

 

 

 

 

 

Question
01

 

Partnership

“A
business formed by two or more people to carry on a business together, with shared
capital investment and, usually, shared responsibilities.”

(Peter
Stimpson and Farquharson –Cambridge International AS and A Level Business
coursebook -third edition)

The
Partnership represents the relationship that two or more individuals share with
the main purpose of generating financial income/gain for the business. Each
partner should contribute to each activity in the business. In a partnership
the owners must share the profits, decision making process and the liability.

 

 

Strengths of
Partnership

 

1.      Startup
Cost- Partnerships are less costly and simpler to startup and perform comparing
to the corporations. Easy to establish when startup cost is low.

2.      Formality-
Partnership business is lack of formality (less formal) compared to limited
companies.

3.      Management-
A limited company needs to hire manages from outside while partnerships have
its own Management.It gives better management and flexibility within the organization.

4.      Regulations-
Subject to fewer regulations as compared to a limited company. And also less
paper works to complete.

 

 

 

Weaknesses
of Partnership

1.      Capital-
Difficult to raise capital compared to a limited company

2.      Liability-
The liability of all  the partners for
the debts  is unlimited (unlimited
liability)

3.      Ownership-
Transferring ownership cannot be done as Limited companies.

4.      Join
or leave- If anyone need to join or leave, probably need to have value all the
assets of partnership, and it will be costly.

5.      Lack
of continuity –Partnership need to be reformed when one of the partner die.

6.      Risk-
In partnership, decisions made by partners. So the owners are at a serious
trouble and there can be lots of arguments when taking decisions.

 

Limited company

It
provides limited liability and fully responsible for its debts.

Strengths
of a limited company

1.      Liability-
Shareholders have limited liability (amount they invested )

2.      Capital-
Can raise more capital than partnerships by selling shares of stock.
Shareholders can buy and sell assets.

3.      Continuity-
Even one of an owner, shareholder dies the business does not cease to exist.

4.      Ownership-
Transferable ownership compared to partnerships. Usually directors are one of
the main shareholders of the company. It helps to make decisions accurately and
properly.

5.      Taxation-
In limited companies relatively less tax than partnerships. Because of startup
cost is very high than partnerships. So taxation rates are more favorable in
limited companies.

 

 

 

            Weaknesses of a limited company

1.      Start
up – Legal formalities and start up cost is higher than starting a partnership.
And also time consuming.

2.      Regulations-
Government regulations, legal requirements and lots of additional paperwork to
create than partnerships.

3.      Auditing
and Accounting- Complex and more costly auditing and accounting system in
limited companies than partnerships.

4.      Decision
making- When taking decisions about the business it may arise conflicts between
shareholders and the directors.

 

 

 

 

Recommendations

When comparing with the strengths and weaknesses of
partnerships and limited companies I think Mr. Perera and Mr. Fernando should
start restaurant as a partnership is better.

Because it is easy to start up. And also there is
relatively low cost and few regulations in partnerships.

Partnerships does not having a complex bookkeeping
method for accounting and auditing.

Partnerships no need to hire managers from outside.
So the additional cost for the managers would be saved.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 02

Financial
Accounting

Financial
accounting can be defined as the process of recording, summarizing and
reporting the transactions resulting from an organization on a periodic basis
to interested people outside the organization. Financial accounting reports
preparing for check the profitability and efficiency of the business.                                                                                                            
                            

Management
accounting

Management accounting can
be defined as the process of identifying, measuring, analyzing, interpreting
and communicating information to achieve organizational objectives and goals
for the internal users. Management accounting reports created for solve
business problems and fix them.

 

 

 

 

 

 

 

 

 

                 

   Differences between financial accounting and
management accounting

 

 

Financial Accounting

Management Accounting

 Users

In financial accounting both internal and external
users (stakeholders) to make decisions properly.

In management accounting, information helps
managers to make decisions    correctly
and efficiently within the business.

Accounting standards

Financial accounting requires establishing
according to the accounting standards and regulations.

In management accounting is not required to follow
any accounting standards.

Time orientation and frequency of reports

Financial accounting use historical information to
prepare financial statements annually, quarterly or monthly basis

Management accounting use current and future
information to prepare financial statements according to the needs of the management.
There is no any special requirement to prepare statements.