1102AFE ACCOUNTING FOR DECISION MAKING

WORKSHOP 2 – BUSINESS STRUCTURES

Question 1 - Complete the following table:

Sole Trader Partnership Private Company Public Company

Identify any particular title
required
Shares sold to public? (Yes/No)
Identify particular legislation
Type of liability
(Limited/Unlimited)
Separate legal entity?
Separate accounting entity?

Question 2 From the scenarios described below, indicate which business structure each is likely to take. (The
question would indicate if the owners are concerned about legal liability.)

Question Answer
(a)Sarah and Michaela wish to start an internet business, marketing cosmetics. They
are concerned about the legal issues (e.g. their personal liabilities) for this business
once they start trading.

(b)Dean has just commenced a home maintenance business by himself, with the help
of $2,000 inherited from a rich aunt. He wishes to employ his wife as bookkeeper.

(c)As friends at university, Jean-Pierre, Janto and Nigel studied commerce. They are
now setting up a small accounting business specialising in taxation returns and
investment advice.

(d)Two married brothers (Edmund and Sam), who are both trained and practising
plumbers, wish to combine their businesses into one so that they can share resources
and take more holidays.

(e)Three engineers (Kwong, Mukesh and Binh) wish to set up a gold prospecting
business, and they want to list their business on the Australian Securities Exchange.

Question 3 Multiple choice questions

Answer
1. A business organised as a separate legal entity that is owned by shareholders is
a:
a. family trust
b. company
c. sole trader
d. legal partnership

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 2. The shareholders’ equity section of the balance sheet for a public company
includes:
a. share capital (contributed equity)
b. retained earnings
c. reserves
d. all of the above
3. Retained earnings represent a part of shareholders’ equity resulting from profit
that:
a. was paid in by the original shareholders
b. has not been distributed as a dividend
c. must be paid to the government in the form of GST
d. must be used when a company makes a call on capital
4. The equity accounts for a sole trader include:
a. Capital account
b. Drawings account
c. Owner’s accounts
d. Capital account and drawings account
5. The equity accounts for a partnership include:
a. Capital account for each partner
b. Drawings account for each partner
c. Cash account
d. Capital account for each partner and drawings account for each partner

Question 4 - The following selected data relate to a corporation. Use relevant items to complete (a) and (b) below.

Balance Sheet items (1/7/15)
Total assets $500,000
Total liabilities $200,000
Retained Earnings?
Share capital $250,000
Balance Sheet items (30/6/16)
Total assets $523,000
Total liabilities $210,000
Retained Earnings?
Share capital $250,000
Other items
Profit for year $40,000
Dividends paid $27,000

(a) Complete the following table from the information given

1/7/15 30/6/16
Assets
-Liabilities
= Owners Equity
-Share Capital
=Retained Earnings

(b) Calculate the closing balance of retained earnings using the following table
Opening balance Retained Earnings
+/- Net profit (loss)

-Dividends paid
Closing balance Retained Earnings

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Question 5 Select from the account balances at 30 September of sole trader Aaron Kent, trading as Golden Bike
Hire, and calculate the items identified below:

Capital $87,500; hire revenue $35,000; bike maintenance expense $8,000; administrative expenses $4,000; rent
expense $2,200; wages expense $8,000; interest expense $18,000; cash at bank $3,000; cash on hand $1,000; office
equipment $14,000; bicycles $100,000; gas and electricity expense $2,800; drawings $3,500; accounts payable
$7,000; loan from bank $35,000.

Profit for period ended 30 September Total Assets as at 30 September

Total Liabilities as at 30 September Total Owners Equity as at 30 September

Opening balance of capital

+/_ net profit (loss)

-drawings

Closing balance of capital

Verify that your answer here is correct.