“Introduction to Business (MGT211)”
Assignment No. 01
Marks: 20
Complete Idea Solution
Scenario:
Moaz Restaurant in Faisalabad offered variety of food items in breakfast, lunch and dinner and was especially famous for Hi-Tea packages. In the beginning
, it was owned and operated by Mr. Bilal who was earning good profit from the restaurant but after few years of successful business he started facing health issues which forced him to sell the entire business to one of his relative Mr. Ali. Although Mr. Ali had capability as well as expertise to manage restaurant business but competition was continuously increasing due to opening of internationally known brands in the city. These restaurants had launched extensive marketing campaigns to increase their sale/profit by focusing good relations with their customers and suppliers.Mr. Ali soon realized that he should spend reasonable amount of capital as well as time on promotional activities in order to survive and there was also a dire need to establish good relations with customers, suppliers and other clients. But it was difficult for him to manage all these activities alone. He shared the problem with his friend Mr. Yasir, who agreed to help him in managing the business affairs on terms & conditions of 50% profit/loss sharing.
Question no 1 (04 Marks)
Keeping in view three forms of business, you are required to identify what was the form of business when it was initially run by Mr. Bilal? Support your answer with logical reasons.
Answer:
It was “Sole Proprietorship” business when it was initially run by Mr. Bilal
Reasons:
Mr. Bilal was the single owner of Moaz Restaurant
He was managing the business individually
He had freedom of operations in running the business affairs
It was easy for him to transfer the ownership of the business to Mr. Ali
Business continuity remained dependent on his health
Question no 2 (10 Marks)
What was the form of business when Mr. Yasir joined the business with Mr. Ali? Which benefits can be obtained from this type of ownership?
Answer:
When Mr. Yasir joined the business with Mr. Ali, the form of business became “Partnership”
Benefits of Partnership:
Following are the benefits which can be obtained from this type of ownership
1. Simplicity in Formation
This type of business of organization can be formed easily without any complex legal formalities. Two or more persons can start the business at any time. Its registration is also very easy.
2. Simplicity in Dissolution
Partnership Business can be dissolved at any time because of no legal restrictions. Its dissolution is easy as compared to Joint Stock Company.
3. Sufficient Capital
Partnership can collect more capital in the business by the joint efforts of the partners as compared to sole proprietorship.
4. Skilled Workers
As there is sufficient capital so a firm is in a better position to hire the services of qualified and skilled workers.
5. Sense of Responsibility
As there is unlimited liability in case of partnership, so every partner performs his duty honestly.
6. Satisfaction of Partners
In this type of business organization each partner is satisfied with the business because he can take part in the management of the business.
7. Secrecy
In partnership it is not compulsory to publish the accounts. So, the business secrecy remains within partners. This factor is very helpful for successful operation of the business.
8. Social Benefit
Two or more partners with their resources can build a strong business. This factor is very helpful in solving social problems like unemployment.
9. Expansion of Business
In this type of business organization, it is very easy to expand business volume by admitting new partners and can borrow money easily.
10. Flexibility
It is flexible business and partners can change their business policies with the mutual consultation at any time.
11. Tax Facility
Every partner pays tax individually. So, a firm is in a better position as compared to Joint Stock Company.
12. Public Factor
Public shows more confidence in partnership as compared to sole proprietorship. If a firm is registered, people feel no risk in creating relations with such business.
13. Prime Credit Standing
The liabilities of partners are unlimited, so the banks and other financial institutions provide them credit easily.
14. Minority Protection
In partnership all policy matters are decided with consent of each partner. This gives protection to minority partners.
15. Moral Promotion
Partnership is the best business for small investors. It promotes moral courage of partners.
16. Distribution of Work
There is distribution of work among the partners according to their ability and experience. This increases the efficiency of a firm.
17. Combined Abilities
Every partner possesses different ability, which helps in running the business effectively, when combined together.
18. Absence of Fraud
In partnership each partner can look after the business activities. He can check the accounts. So, there is no risk of fraud.
Question no 3 (06 Marks)
Suppose the business has total assets worth Rs. 450,000/- and total liabilities of Rs. 800,000/-.
Mr. Ali has the personal property of Rs. 200,000/- and Mr. Yasir has the personal property of
Rs. 125,000/-. In case the business is liquidated and declared as bankrupt, up to what extent
Mr. Ali & Mr. Yasir will pay from their personal property to satisfy the creditors’ claim? You are also required to discuss the possible treatments if any of them is unable to pay from personal property.
Answer:
Total liabilities of partnership = Rs. 800,000
Total assets of partnership = Rs. 450,000
Total personal property of partner (Mr. Ali) = Rs. 200,000
Total personal property of partner (Mr. Yasir) = Rs. 125,000
a) Partnership Bankruptcy/Liquidation:
Remaining liabilities = Partnership Assets – Partnership Liabilities
= 800,000 – 450,000 = Rs. 350,000
Mr. Ali will pay from his personal property = Rs. 200,000
Mr. Yasir will pay from his personal property = Rs. 125,000
Total contribution from personal properties = 200,000 + 125,000 = Rs. 325,000
b) Inability of partner to pay from personal property:
Since partners have unlimited liability in “Partnership” so they have to pay from their personal property to discharge the claims of the creditors.
When business is liquidated and declared as bankrupt and if any of partners is unable to pay from personal property the other partners will have to pay the business liabilities from their personal property.
0 comments:
Post a Comment