ACCOUNTING HOMEWORK WEEK 2

3.5 You are a friend of Lucy Lu who is thinking about starting a business to sell her handmade
quilts. Advise Lucy on the 4 factors that should be considered before deciding what form of
business structure to operate under.
Lucy should reconsider factors such as time, investment responsibility and skill. Lucy should
consider if she has time in her hands to run this Handmade quilts and if she is going to make the
quilts by hand and operate a business or if she is going to outsource her handmade quilts and run
the business, this needs to be considered as Lucy would need a lot of time in her hands to do both
if she's planning to do it by herself. Investment is another major factor ignorer to decide what form
of business structure she wants to operate in due to the fact if she has money to invest in her
company or if she needs another hand from someone else ignorer to invest in her company and
became a partner. She needs to considered the investment sides of a company in order to start up
the company and run it successfully. Responsibility is also an factor due to the fact that if anything
happened to Lucy can she keep maintaining the store, if she chooses to be a sole trader then it will
be hard for her to manage her store maybe due to her injuries or health rated problems which she
would then have to either hire another manager who she might have trained or the store is closes
and makes no revenue and profit until it reopens. Lucy also needs the skills in order to open a
store, she needs to realise her potential and what she can do such as can she run a business?
does she have the skills in running a business or does she need someone else who has the ability
on running a business. These are all factors Lucy needs to considered before deciding what form
of business structure to operate under.
3.7 What are 2 major advantages and disadvantages of a company structure? Provide an
illustration with a company listed on the ASX( such as JB HI-FI Ltd, CSL Ltd, BHP Billion Ltd)
Advantages:
Business expansion networks are easier due to its legal structure this can be seen through JB HIFI within their expanded range of products with the use of their legal firm and strong legal structure
they can be successful as they can build and expand their company and their products
Another advantage is that companies like JB Hi-FI can raise additional equity (capital) through
public share offerings, during the time when the company started they were seeking capital gain
and after some progress jb hi-fi started to expand their range due to the capital the company
gained
Disadvantages:
Jb hi-fi has must comply with complex rules rules and regulations for their company and other legal
requirements to gain capital and revenue in the most effective way and also to not have any
problems which might decrease the companies value and sale
Due to JB-HIFI being purchased by private equity bankers and senior management they need to
have the right operation of ownership and control within the banks and the right up the right control
in case of disputes.
Illustrate with an example with the difference of the format of the equity section of the balance
sheet between sole trade, partnership and company
Sole trader balance sheet has only one capital account and profit( loss) assed to ( subtracted from)
the capital account in the balance sheet. Where as Partnership balance sheet consists of a capital
account and often a current account for each partner which a sole traders balance sheet doesn't
consist of. Companys balance sheet has a shared capital as opposed to owners or partners
capital account and retained earnings.
Illustrate with an example of how sole traders and partners are taxed in australia? What are the
advantages and disadvantages compared to paying company tax?
Sole traders are taxed in Australia by their individual income, therefore the individual owner is
responsible for paying tax on the business income so they therefore need an tax file number and
they need to register and have an ABN number. Partnerships have no seperate taxation payable

but they need to lodge a income tax return with ATO because partners are liable of tac for their
share of the partnerships profits.
An advantage of a company her sole trader and partnerships are that the company taxation rate is
now at 30% lower the the top personal tax rate which means that the sole trade and partnership
businesses need to pay more in tax.A disadvantage is that companies are taxed from the first
dollar of profit.
3.12
(a) PAYG- Pay as you go is a system for businesses and individuals to pay installments of their
expected tax liability on their income from employment, business, or investment for the current
income year.
(b) CGT- (capital gains tax) is a type of tax levied on capital gains incurred by individuals and
corporations.
(c) GST-A goods and services tax (GST) is a value-added tax levied on most goods and services
sold for domestic consumption. The tax is levied in order to provide revenue for the federal
government.
(d) TFN- A tax file number (TFN) is a nine digit number issued by he Australian Taxation Office
(ATO) that individuals or organisations use for tax purposes
(e) WET- (Wine equalisation tax) It's designed to be paid on the last wholesale sale of wine, which
is usually between the wholesaler and retailer. But it may apply in other circumstances such
as cellar door sales or tastings where there hasn't been a wholesale sale. WET is also
payable on imports of wine (whether or not you are registered for GST).
3.19 (b)
3.26( c)
3.28
(a) Partnership because they are opening a internet business together and are concerned legal
issues such as their personal liabilities for the company due to their split profits and assests.
(b) Gregory is going to be a sole trader as he already has his own trusts from his rich aunt to open
the business and his not willing to have a partnership due to the fact his only employing his
wife as a book keeper not a partner
(c) Partnership as all three of them are opening up the business together
(d) Partnership has they are combining their business together to share resources and take more
holidays
(e) Company because they want to list their business on the ASX
(f) Trust because its a family type of business
3.47
(a) Yes because they have the initial skills such as building and renovating the spa and also her
sister being an marketing consultant she can market the business in order to gain profits and
customers, Lou lou is a sales representative so she could teach the skills she's learnt for her
previous experiences but however they still need to know the basics of the business.
(b) Cash movements and sales
(c)Yes because its a family partnership where if their in debt or something it will still be easier to
pay the banks back due to all of them combining and paying the bank back and also because each
partner gets their own share of their companies assets and income.