Past paper questions

Question 1

3 advantages of forming a partnership rather than a limited liability company

3 cons + 2 general cons
[2018]

Answer 1

1. Can raise more capital & easier to start, as no need to issue shares to raise capital
2. Access to more skills and knowledge
3. Share burden of work
4. Joint, unlimited liability - each partner is liable to the entire debt of the business
5. Disagreements can occur
6. No continuity - if partners retire/die and no one to continue biz, the biz ends
   More generally,
7. Profits must be shared
8. Partners cannot act independently

Question 2

2 pros + 2 cons of forming a limited liability company rather than a partnership
[2018]

Answer 2

1. Limited liability - directors only liable for the amount of shares they own in the company
2. Can raise lots of capital
3. May be difficult to issue shares to raise capital
4. Must pay corporation tax

Question 3

6 benefits & 3 problems of having uniform accounting standards around the world
[2020, 5m]

Answer 3

IFRS are a set of international acct. standards issued by the IASB; principle-based
*GAAP (generally accepted acct. principles) is based in the US; rule-based

1. Accounts and businesses can be understood from company to company and country to country
2. Maintain stability {consistency} & transparency around the world
3. Easier to do business internationally
4. More accessible for international investors {b/c eases understandability}
5. Easier to monitor and control subsidiaries from foreign countries.
6. Reduce the time, effort, and expense of preparing multiple reports (for biz.s that operate in diff. locations)
7. Challenging to enforce global consistency & differences in political and economic systems do reduce comparability
8. Requires changes in education, eg. IFRS is not regularly taught in the US
9. Require a complete revision of the domestic accounting processes and strategies, {ie. hard to implement}

Question 4

Explain how inflation can benefit borrowers, using a numerical example (ignore).

[2019, 5m]

Answer 4

Money borrowed and used has more PURCHASING POWER and more VALUE than the money you owe.
The money paid back s worth less than the money you owe.

Disadvantage for lenders b/c the money they get paid back has less purchasing power than the money they loaned out.
- get same amount but can buy fewer goods

Question 5

5 factors that determines the decision to issue dividends

[2019]

Answer 5

1. Keep shareholders happy, if expected dividends. If don’t pay, may cause more harm to company through decrease in stock price
2. Depends on cash availability - can only be paid out of retained earnings, not from revaluation reserve
3. Out of law? (David’s answer) But dividends are not a legal requirement.
4. Depends on company’s financial state, eg. if highly geared, preferable not to pay dividends first but focus on loan repayments & building cash stock
5. Related to firm’s future commitments