A-level Accounting Year 12 2.2 The associated benefits and risks and the impact on business reporting Revision State and explain the key differences between a sole trader, partnership, private limited company and public limited company End Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12 Learning Outcomes From exploring this topic students should be able to: Identify the advantages and disadvantages of each type of ownership (Must) Illustrate an understanding of the benefits/ risks and the impact on business reporting (Should) Evaluate each ownership model based on a give scenario and suggest the best model to choose based on benefits, risks and reporting (Could) Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12 A sole trader Benefits Disadvantages In pairs now discuss some potential benefits and disadvantages of a sole trader 3 minutes Evaluate Illustrate Explain End Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12 A sole trader Benefits Cheap and easy to set up All profits go to the sole trader Autonomy in decision making Financial records remain private Motivation is high as the success of the individual and the business are one and the same Disadvantages Unlimited liability Limited capital for investment Little specialist skills as the owner is a ‘jack of all trades’ or will have to buy in specialists Difficult to find cover when ill – although sole traders often do employ people Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12 Partnership Benefits Specialised skills and knowledge Share responsibilities of management Share ideas Accounts remain private More access to capital Disadvantages Unlimited liability Decision making can be more difficult Partnerships can be relatively short lived- partner can die or retire Hard to acquire huge amounts of finance for expansion Requires additional control of capital accounts Quick recap What is meant by the term capital? How is it different between a partnership and a limited/ public company? Mr. Barry A-level Accounting Year 12

A-level Accounting Year 12 Limited companies Benefits Disadvantages In groups now discuss some potential benefits and disadvantages of a limited company both private and public? 5 minutes Tips Limited liability Share Capital Profits Dividend Control End Mr. Barry A-level Accounting Year 12

Private Limited Companies Benefits Limited Liability Separate legal identity More flexible than a Plc. Financial records remain relatively private More capital can be raised through the sale of shares Disadvantages More complex to set up due to increased legal requirements Some loss of control as shareholders have voting rights Unable to sell shares to the public Mr. Barry A-level Accounting Year 12

Public Limited Companies Benefits Limited Liability Separate legal identity Management accounting records remain relatively private More capital can be raised through the sale of shares and in particular through shares on stock exchange Disadvantages Lack of privacy as financial performance is available for all to view More complex to set up due to increased legal requirements and ongoing administrative costs Some loss of control as shareholders have voting rights Risk of hostile takeovers Mr. Barry A-level Accounting Year 12

Impact on business reporting Sole trader Partnership Private limited Public limited Not required to complete full set of accounts Full set of financial statements usually required Prepare financial statement for internal use Prepare financial statement for publication Send profit statement and income to HMRC Send income statement and balance sheet to HMRC Accounts sent to HMRC & Companies Offices Accounts sent to HMRC, Companies Offices & published online No auditing required Auditing required Internal & External auditing required Bookkeepers usually employed only Accountant usually employed to prepare accounts e.g. capital accounts Bookkeepers and accountants employed to record each and every transaction Bookkeepers, accountants and auditors employed to record and verify records Mr. Barry A-level Accounting Year 12

Impact on business reporting Financial accounting for a limited company is completely governed by International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) Sole traders do not need to produce detailed accounts so rely mostly on accounting concepts and GAAP Recap What is an IAS? What does GAAP stand for? Mr. Barry A-level Accounting Year 12

Complete the following case study 10 minutes End Mr. Barry A-level Accounting Year 12