CHAPTER 3 Business structures 1173.13 Refer to the reality check ‘Is it time to get tough on the tax benefits of family trusts?’.
The article discusses the tax ‘loopholes’ associated with family/discretionary trusts.
What are the tax benefits associated with family trusts? What are the differences in the
treatment of trust assets between family law and tax law? LO9, 103.14 What are the major differences in equity funding between a partnership and
a public company? LO4, 5, 6, 7
3.15 What do the following terms mean? LO3, 6, 7, 9
a. Unlimited liability
b. Mutual agency
c. Dividend
d. Preference shares
e. Unit trustExercises
BASIC | MODERATE | CHALLENGING
Exercises 3.16 to 3.25 are multiple-choice questions. Select the correct answer for each.
3.16 LO2, 4, 6, 8
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.3.17 LO6, 7
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.3.18 LO6, 7
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.3.19 LO2
Equity finance for a sole trader comes from:
a. the issue of shares to the public such as an IPO (Initial Public Offering).
b. borrowings from the government.
c. the owner and profit retained in the business.
d. bank loans.3.20 LO4
Partnerships are most common among:
a. doctors.
b. accountants.
c. lawyers.
d. all of the above.