The MPA702 Assignment 1 covers transaction analysis chart, statement of financial position, and forming a Limited Liability Company (LLC) to minimize the risk of unlimited liability. The comprehensive income statement and working notes are also included.
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MPA702 Assignment 1 Name: Student Id: Part A Transaction Analysis Chart AssetsLiabilitiesOwner’s equity FurnitureMortgage repaymentCapital contribution Motor Vehicle Accrued payablesRetained Profits Office space Long term borrowings Debtors Cash and cash equivalents Office equipment Part B:
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MPA702 Assignment 1 $ Revenue: Revenue from Carringvale private hospital Revenue for consulting services performed Revenue for consultation and research Revenue from a range of health providers Total revenue (A) Expenditure Subscription to professional medical journals Payment of mortgage interest Wages to research assistant Telephone and interest bill Drawings for personal use Further drawings for business Consumption of office supplies Payment of indemnity insurance Payment for motor expenses Depreciation on Motor Car Depreciation on Computer Equipment Payment for office stationery Total expenditure (B) Total comprehensive income( A- B) 2000 3500 9800 9200 26700 3600 3600 2200 320 2400 2800 500 600 580 1000 900 260 18760 7940 In the books Of Grace Park Comprehensive Income Statement
MPA702 Assignment 1 Statement of Financial Position $$ Assets Accrued receivables(8400 +5800) Office Space Office equipment(including depreciation) Office furniture Motor Vehicle(including deprrciation) Cash and cash equivalents( Refer Working Notes) Total assets ( A) Liabilities Accrued payables Long term borrowings Mortgage repayment Total liabilities(B) Net assets(A- B) Owner’s Equity Capital Contribution Less: Drawings Retained Profits Total equity 160000 5200 14200 360,000 17100 3000 29000 113100 538300 30860 324000 1600 356460 162470 154800 7940 162470
MPA702 Assignment 1 Working notes- Cash A/C To Bal b/d 16000 0By Office Equipment 1800 0 To Revenue26700BY medical journal3600 By office furniture3000 By insurance600 By office space 3600 0 By drawings5200 By telephone bill320 By Interest3600 By Wages2200 BY office supplies500 By motor vehicle expenses580 1,86,7 00By balc/d 1131 00
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MPA702 Assignment 1 Part C By default, a sole proprietorship has an unlimited liability status. Limited liability implies having a personal stake in your business. The sole proprietor is himself liable for liabilities or debt obligations the business does(Everhart 2018). To minimize the risk of unlimited liability, Park may consider forming a Limited Liability Company or LLC , which is an entity separate from that of its owners. If Park registers his enterprise as a LLC their personal assets remain under protection. Unless the people working for him are found guilty of indulgence ornegligence or doing illegal things, the inherent risk is restricted to the amount of capital invested in the business(Schwarcz 2014). There is also a tax benefit when it comes to registering a LLC. This is due to the fact that the IRS does not consider sole proprietorship as a distinct entity, it considers the earnings of the business a part of personal income. The taxes that form a part of his own business income are considered to be in the same bracket as earned by a traditional employee. LLC tend to function in the same way . If one is the individual proprietor, one can select the treatment of tax as a part of sole proprietorship(Rawhouser, Cummings and Crane 2015). One can select whether he wants to betaxed as a partnership or a corporate. This revision can be made by submitting an IRS form 8832.Bein g registered as a LLC, one can also bring in more members as participating members. Membership is open when it comes to a LLC. Regardless of the treatment for income taxes, LLC must file payroll tax returns if they have employees(McDonnell, 2015). Registering as a LLC, lets say if the corporate is unable to pay their obligations, the creditors associated with this corporation cannot go after the personal assets of the owner, but
MPA702 Assignment 1 only the assets owned by the company. Some of the instances however, where Park ,as a director can be held responsible for corporate debts are as follows: Guaranteeing Business Debts personally If the proprietor cosigns a loan for the business, he shares a similar responsibility with that of the companyto pay the debt back. It is the most ordinary way to be voluntarilyobligated for the debts of the company. Similarly if someone makes a personal guarantee on behalf of the LLC, then the creditor has a right to lay claim to thepersonalassetsifthebusinessmakesadefaultonthepaymentofa obligation(Gordon 2016). Pledging property as part of a collateral If the corporaton does not own too many assets ,a creditor may require some sort of collateral before approving the loan .If the owner agrees to pledge his house or other personal assets as collateral for the business loan, the creditor has a right to lay claim onyourpropertyandsellitinthemarkettosatisfytheobligationsofthe company(Agarwalet al. 2015). Lifting the corporate veil A LLC provides aprotection of limited liability. This is commonly said to be the lifting of corporate veil. The corporate veil is usually lifted if the creditor is able to prove that the LLC was a shell corporation that was created for the purpose of providing liability protection for its proprietors orif the corporation wasnot distinctly separated fromits owners.Courts aremost likely to lift the corporate veil if the formalities of the corporate world such as holding annual general meeting and
MPA702 Assignment 1 the minutes keepingare not adequately maintained,certain proprietors having more than a considerable degree of power over the LLC, owners spending on personal activities with company resourcess or using personal funds to do business activities (Mucha 2017). Fraud The owners of the LLC may be held liable personally if they have been found guilty of commiting fraudulent activities.If the proprietor made an inaccurate portrayal of fraud or made relevant omissions during loan application, the owner can beliable personally for the impending harm that the creditor might face at the risk of surrendering personal assets (Peters 2015). In other words, an LLC is formed to protect business committing fraudulent acts. However a court can penetrate the corporate veil so that they can get to the proprietors.
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MPA702 Assignment 1 References Agarwal, S., Green, R.K., Rosenblatt, E. and Yao, V., 2015. Collateral pledge, sunk- cost fallacy and mortgage default.Journal of Financial Intermediation,24(4), pp.636-652. Everhart, J.R., 2018. Unlimited Tax Liability: A Common Misnomer of Limited Liability Company Taxation in the United States.Small Business Institute Journal,14(1), pp.44-51. Gordon, J.M., 2016. Understanding Business Entities for Entrepreneurs and Managers. McDonnell, B., 2015. Benefit Corporations and Strategic Action Fields or (The Existential Failing of Delaware).Seattle UL Rev.,39, p.263. Mucha, A., 2017. Piercing the corporate veil doctrine under English company law after Prest v Petrodel decision. Peters, C.S., 2015.More than just good deeds: Fraud within religious organizations(Doctoral dissertation, Utica College). Rawhouser, H., Cummings, M. and Crane, A., 2015. Benefit corporation legislation and the emergence of a social hybrid category.California Management Review,57(3), pp.13-35. Schwarcz, S.L., 2014. The Governance Structure of Shadow Banking: Rethinking Assumptions About Limited Liability.Notre Dame L. Rev.,90, p.1.