1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

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