2020 SMSS 3N POA EOY P2 Q1

2020 SMSS 3N POA EOY P2 Q1

1 Ariel is thinking to being a sole proprietor and setting up a pet grooming business.

a. List two features of a sole proprietorship.

[2]

b. State one internal and one external stakeholder who would be interested in Ariel’s business and explain a reason for each of their interest

[2]

Ariel needs advice on the use of the various source documents when carrying out the business transactions.

c. Copy the following table onto your ledger paper. Complete the table by naming the source document used to record each transaction.

[4]

 

Transactions

Source document

(i)

Selling inventory on credit to a customer

 

(ii)

When a credit customer returns faulty goods to the business

 

(iii)

When the business undercharge a credit customer

 

(iv)

Purchasing non-current assets by cash

 

d. Explain the use of source documents in a business.

[2]

[TOTAL 10]

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[Any 2]

  • It is owned by one person who contributes capital to set up the SP;
  • It is less likely for banks and other lenders to lend money to SP;
  • When the SP incurs debts and losses, the sole owner is obliged to pay them using his or her personal assets
  • The sole owner usually runs the business by himself or herself and has absolute control over it. 
  • The SP exists as long as the owner is alive and desires to continue operation.
  • The sole owner can easily update the particulars of the new owner to notify the corporate regulatory authority of any transfer of ownership.
  • SP has minimal administrative duties to adhere to.

 

 

Internal Stakeholders

Decision stakeholder may make

The Owner

Whether to continue to invest in the business or sell the business, depending on the risks and returns related to the business

Managers

Whether to consider ways to improve the performance of the business

 

External Stakeholders

Decision stakeholder may make

Lenders

Whether to grant loans to the business, depending on the business’ ability to repay the loan principal and pay interest

Suppliers

Whether to sell to the business on credit, depending on its ability to pay

Customers

Whether to buy from the business, depending on the business’ ability to provide the goods and/or services that they need and good after-sales service

Government

Whether the business complies with the tax regulations and decides the amount of tax to collect from the business

Competitors

Whether they are comparable to the business and how to improve their own performance

 

 

Transactions

Source document

(i)

Selling inventory on credit to a customer

Invoice 

(ii)

When a credit customer returns faulty goods to Ariel

Credit note

(iii)

When the business undercharge a credit customer

Debit note

(iv)

Purchasing of non-current assets by cash

Receipt 

Source documents provide reliable and verifiable information that can be used as evidence and they contain the details of a business transaction needed for recording.

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