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]

SOLUTION

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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.

2020 SMSS 3N POA EOY P2 Q1

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