Question 1

 

Partnership Companies

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Partnership business means any
kind of business which is owned by two or more people who are agreed to share all
the gains losses profits and benefits, this kind of company is called as a
partnership. Partnership Company can be started by shake hand or oral or
written. But, for every each partner’s protection, the most suitable way is to
have a written or printed partnership agreement that including all the
necessary agreements. This written or printed agreement should include the percentage
of dividing profits and losses, and what are the rights of each partner, what
are the responsibilities of each partner, and what happens if a partner leaves
from the business or what happens when a partner newly joined to the business and
amount of capital that each partner is investing to the business, and how the
assets and capital should be divided among partners if the business is closed.
All the things are changing at every second, so it is good that having signed
document that including all of these things.

 

Strengths of business partnership

 

·        
Capital – If there are more number of partners
they can invest more capital to the business.

·        
Flexible – Partnership businesses are easier to
form and easier to run. Owners can decide the way that how the business should
run.

·        
Easy to make Decisions – Partners can easily
take decisions according to the situation of the business.

·        
Limited external regulations- When compared to
the other types of businesses partnerships has less regulations.

·        
Responsibility is shared – Partners can share
the responsibilities among them. It will allow to partners to make their
abilities better.

 

Weaknesses of business partnerships

 

·        
Disagreements – There can be disagreements
between partners. It will be a disadvantage when making decisions.

·        
Unlimited liability – Partners are subjects to
unlimited liability which means each partners shares liability and all the
risks including financial risks of the business.

·        
Taxation – This is one of a major disadvantage
of partnerships. Partners must pay tax each year.

·        
Profits should be shared – All the earned
profits should equally share among partners.

 

 

Limited Companies

 

Limited company
is an one of a legal business company type. In these limited companies the
control of the companies and the ownership of the companies are in the hands of
different kind of people. The owners of these limited companies are called as shareholders
and members of the company. Simply the liability is limited to this type of
companies. Limited companies allow their entrepreneurs to keep finances and assets
separate from the business. This means the shareholders who have invested money
to the company are only responsible for the money which they have invested to
the business. They are no more responsible than they invested. This is good way
to do investment without risk to the personal wealth.

 

 

Strengths of limited companies

 

 

·        
Limited liability for shareholders – As earlier
mentioned the shareholders are liable only for their invested money.

·        
Tax advantage and tax – These limited companies
are only taxed on their profits.

·        
Great Security – The limited Companies are totally
separate from the directors and shareholders. Because of that their personal assets
are not at any risk.

·        
Respect – Setting up a ‘Limited ‘company it gives
the directors an air of respect.

·        
Pensions – Limited companies can fund their employees
a legitimate expense.

 

 

Weaknesses of limited companies

 

 

·        
Cost is high – Limited companies are expensive
to establish.

·        
Financial status are public – Company accounts
and records are can be accessed by any person.

·        
Restrictions – There should be restrictions
regarding company name.

 

 

Recommendation

 

As my point of
view I suggest to Fernando and Perera to establish a Limited company. As earlier
mentioned they can have better advantages like limited liability, tax
advantages, low risk, respect and better professional status by establishing a
limited liability company. If they establish a partnership business they will
have to face many disadvantages.

 

  

 

Question 2

 

Distinctions/Differences between Financial Accounting and Management
Accounting

 

Both of financial and management
accounting are important for businesses. But those are served for different
purposes of business. Accounting is used to determine the future plans and
review past performances of companies.

Financial accounting is using to
present company finance health to the outsider people such as stake holders.
The audience of the financial accounting is stake holders, board of directors
and other investors. Financial accounting is showing the how the company has
performed in exact time period. And financial accounting must be made under annual
basis.

Management accounting is using by
managers to make decision by concerning company day to day transactions. Management
accounts are based on current and future trends of company. Management accounts
are presented internally and financial accounts are presented externally.

Financial accounting needs kept
records and it is needed to prove that financial accounts are correct.
Management accounts are deals with estimates and verifications.