112 Accounting: Business Reporting for Decision Making
Goods and services tax (GST) A broad-based indirect tax levied on supplies of goods and services.
Legal entity Entity that is separate from its owners and recognised at law.
Limited liability Shareholder liability is limited to the extent of the value of their shares or guarantee.
Mutual agency Each partner is seen as an agent for the entity and has a right to enter into contracts
for that entity.
Ordinary shares The most commonly traded type of shares in Australia. Holders of ordinary shares
are part-owners of a company and may receive payments in cash (called dividends). This class of
shares has no preferential rights to dividends or capital on winding up.Partnership Group of people who come together in business with a common goal of making a profit.
Partnership agreement Agreement between business partners that contains the details of that partnership.
Preference shares Shares with characteristics of both debt and equity. They rank before ordinary
shares in the event of liquidation of the company and usually receive a fixed rate of return.
Retained earnings Cumulative profits made by the entity that have not been distributed as dividends
or transferred to reserve accounts.
Shareholders Part-owners of a company.
Sole trader Individual who controls and manages a business and is solely liable for all the business debts.
Trust A business structure in which a person holds property for others who are intended to benefit
from the property or income of that property.
Trustee A person or persons, or a proprietary limited company, personally liable for all debts and
other liabilities incurred on behalf of the trust.
Unit trust A business structure that is established for the benefit of various parties rather than family members.
Unlimited companies Companies characterised by members who have no limit placed on their
liability (and are usually restricted to investment-type entities).
Unlimited liability When the individual or partnership is fully liable for all the debts of the entity.
APPLY YOUR KNOWLEDGE 50 marks
PART A
a. Explain the advantages and disadvantages of the sole trader form of business structure
compared to the partnership form of business structure. 4 marks
b. Summarise the differences between a service and a manufacturing company. 2 marks
c. Compare the liability requirements of members of a no-liability company and
shareholders of a public company. 4 marks
d. Illustrate the difference between a family trust and a unit trust. What are the tax
advantages of the trust form of business structure? 6 marks
e. Define limited liability. Provide an illustration of the term in relation to public companies. 2 marks
f. What are the implications of the reduced disclosure regime for smaller companies
(1) to the entity, and (2) to other stakeholders? 4 marks
PART B
Samuel and Isabelle decided to form a partnership on 30 June 2017. They secured the services of
Costigan Legal to draw up their partnership agreement as follows:
- Samuel is to contribute the following:
- his car, the fair value of which is $32 000
- property with a book value of $120 000, but revalued to $150 000
- a mortgage of $80 000. This was secured over the property and the partnership agreed to assume
this liability.
- Isabelle is to contribute the following:
- cash totalling $25 000
- office equipment with a market value of $45 000.