(DOC) Managing financial resources and decisions assignment

MANAGING FINANCIAL RESOURCES AND DECISION
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Table of Content
Task 1.........................................................................................................................................3
1.1 identifying the sources of the finance:.................................................................................3
1.2 Implications..........................................................................................................................4
1.3 Appropriate financial sources of Clariton Antiques.............................................................6
Task 2.........................................................................................................................................7
2.1 The cost of capital of the following sources of finance.......................................................7
2.2 Financial planning importance.............................................................................................7
2.3 Information required for making decision on financing......................................................8
2.4 Influence on Financial Statement.........................................................................................8
Task 3.........................................................................................................................................9
3.1 Computation of Budgeted Collections and Payments..........................................................9
3.2 Computation of Unit Cost to Make Pricing Decision........................................................10
3.3 Capital Expenditure Decision............................................................................................11
Task 4.......................................................................................................................................13
4.1 Elements of financial statements........................................................................................13
4.2 Comparing financial statement format used by Clariton Antiques Pvt. Ltd with that of
sole trader.................................................................................................................................16
4.3 Accounting Ratios:.............................................................................................................16
Reference List..........................................................................................................................18
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Task 1
1.1 identifying the sources of the finance:
a) Unincorporated Business:
A business that not legally registered is called unincorporated business. The organisation
does not have a separate legal entity of its own. The owner or owners of the business are fully
responsible for its liabilities and risks. Mostly sole traders and partnership firms are the
unincorporated businesses. Unincorporated businesses have simple operations and are less
expensive to set up as opined by Cassar et al. (2015, p.263). Financing sources of
unincorporated organisations are such as:
 Individual or owners Savings
 Small amount of loans
 Small amount of credits
There are few disadvantages of unincorporated businesses such as it has unlimited liabilities,
taxes are unable to defer, and taxes returns are filled every financial year. In a case of
unincorporated business, shares cannot be issued.
The advantages of unincorporated businesses are:
 Unincorporated businesses are cheap and easy to set up.
 No registration is required for the partners or owners are required.
 It does not require any memorandum of association
 An unincorporated business does not have to file any accounts or other information
with any Financial Authorities
 An unincorporated business has lower cost of compliance
Some disadvantages of unincorporated businesses:
 An unincorporated business has limited liability.
 The owners or the partners are responsible for all the liabilities
 The business does not have any legal identity
 An unincorporated business does not have any statutory liquidation policies
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 An unincorporated business cannot make any formal contract against its business
name
b) Incorporated Business
Incorporated businesses are such business that has its own legal identities and have gone
through all the legal processes that are required to be corporate. An incorporated business can
raise a large amount of money by issuing equity shares, debentures, and bonds to the
investors as opined by Lee et al. (2015, p.372). An incorporated business generally does not
have single ownership it consists of stockholders that have the right to take business
decisions. The business is liable for its taxes, debts, liabilities and any legal consequences as
it has its own legal identity. The federal government or state that recognises the business of
having its own rights, assets and liabilities distinct from its owners and stockholders as stated
by Edwards and J.R (2013) must charter an incorporation business. Sources of finance for
incorporation business are as follows:
 Issuing of debentures helps in expanding the business
 Issuing of equity share helps to raise capital to set up and expand the business
Advantages of incorporation business are as follows:
 Incorporation business can raise its capital by issuing shares and debentures
 It has ease of transfer of ownership. Ownership of the organisation can be easily
transferred through selling of shares
 Incorporation businesses enjoys lower tax rates
 Owners and shareholders have limited amount liability against the business
Disadvantages of incorporation businesses are as follows:
 As corporate business operations are governed by the regulation and rules of the state
or financial authorities thus regular record keeping is necessary which makes the daily
business process complicated
 Double taxation causes in corporation businesses
1.2 Implications
a) Internal sources of finance
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