Academic Skills for Accountants - Assignment Example

TASK 1

a) The most suitable business organization for Becky and Becker

A business can be defined as an organization that involves use of economic resources to provide goods or services to consumers in an effort to make profit. There are many forms of business organizations. They all have their requirements, advantages and disadvantages. The best form of business organization for Becky and Becker would be a general partnership. This is because, they meet the requirements of personnel required for a partnership and have surpassed that required for a sole trader. They are also using their joint contribution to start the business. In the paper is a discussion about the various aspects of a general partnership and also its disadvantages and advantages over other forms of business organization.

Partnership

This form of business organization involves two or more people who invest in a business and later share the profits from the business. It is easy to start up and run since it does not have much legalities and forms to fill. Partnership act, in many countries regulate this form of organization (Wilson 2005). It not an obligation to register the business but many are advised to create a formal agreement in case things don’t go as planned, and they have to decide what happens to the business. Partners agree to start the business and that is it, since there are no legal fillings that are mandatory (Dash 2008). The partners make the management of the business and decisions and liabilities of the business are a responsibility of the partners. It is considered a very flexible business organization while comparing it with other forms, such as company organization.

It is suitable for entrepreneurs who find a niche in the market and work to exploit and earn from solving the problem. Similar to Becker and Becky’s case there is a joint contribution of economic resources to start up the business. Depending on the managerial skills of the partners, a business may thrive or remain stagnant. More partners mean more capital to expand the business. There is a provision to include interested parties as partners even after the business has excelled. A large number of partners offer more skill set that ultimately results to a successful business. There is varying number of partners allowed in a partnership. In some countries, it is at twenty and others up to a hundred members.

Advantages of general partnerships

The first being the way the partnership business is started. There are no legal obligations. This makes it one of the simplest businesses to start. If the people agree to start, the business all they need is to find capital and set up the business. This is encouraging since it takes only a short time to start or end the business. This is in contrast to a company organization that has its own legal entity. Legal procedures to start and stop a business can be time consuming.

In comparison to another form of organization, such as sole proprietorship, it is advantageous in raising of funds and management. The raising of capital is through the partners. The more the partners the more start up and expansion. The borrowing capacity and contribution from each member leads to a quick rise in the business (Dash, 2008). In management, also there are more people to contribute ideas. This results to the best option, after all partners have given their view. This is also an advantage over companies that rely on board meetings for decisions to be reached. In a partnership if all members agree, decisions are fast and easy.

Since only partners are involved in starting and managing the business. When the business finally remits profit, they are shared among the partners. This is contrary to other forms of business that have tax obligation. Partnerships have not tax obligation. There is no double taxation as in companies (Dash, 2008). The only obligation is to the partners who have to file tax returns and indicate the profit of loss from the business. Combination of skills from different specialization is another plus for partnerships. Combination of these skills creates a strong team that can better handle obstacles as they come. This is an advantage over sole trader organization (Wilson et al, 2005)

Disadvantages of general partnerships

Anything that has advantages always has its disadvantages. This is no exception; there are very significant faults to this form of organization. The lack of legal obligations results to many forgetting to make a formal agreement, to help if the business goes sour, they are able to split as decided. This results to struggles of the business ownership if the partners disagree on how the business needs to be run. This may result to breaking of longtime friendship and loss of the initial capital since a business with poor management definitely falls.

In other cases, if one partner decides to leave the business over insecurity and instability, it leads to dissolving the business. Another way the business can be dissolved is if the one of the partners dies and the other is unable to buy out the partner’s portion of the partnership. There are also other cases where one partner decides to break the partnership and use the business to enrich himself without considering the other party.

The partners are responsible for the company’s liabilities. This means that if the business is in debt, creditors can pursue a single general partner for the obligation of the entire business. If the business fails to go as expected, then that creates doom for the partners since they are individually responsible for the business. Lack of legal responsibility leads to unlimited liability. In companies, the board members are not liable but the company is and it has its legal wing to represent it.

The other type of partnership is limited partnership. In a partnership, there is one general partner while the others are limited partners that are not directly liable to the business. They only invest in the business and that is the only liability they have to the business.

b) Difference between public organization and general partnerships

Public organization is another form of business structure. It is mainly defined by its ownership is dispersed among the public and those with the largest shares, are in charge. It can be traded freely in a stock exchange market. This makes it liquid. Above aspects, make up the major differences between public organization and partnerships.

As discussed, a partnership is a business meant to offer goods and services to the customers in turn get profit. A company is an incorporated association having separate identity, common seal, and perpetual succession. The profit is re-invested to expand the company (Boyne, 2002). Some of these aspects are lacking in partnerships. In a partnership, there are no legal obligations. In a public organization, the owners are not, liable to the business rather the organization has its own legal obligations and it is liable to itself.

There is also the aspect of succession. In a partnership, the entrepreneurs own the business until; they are old and pass it on to their family members or dissolved, if there are no agreements. In a public organization, succession is dependent on the stakeholders (Ricketts, 2002). It is owned by those in the public who have bought company shares. The more the shares the more influence in company decisions.

In the formation of public organization, there are many legal procedures to be adhered to before a company becomes active. These legal procedures are according to the company act, which is functional in many countries across the globe (Boyne, 2002). It is to ensure that the company can represent itself if sued in the course of its transactions. In the area of management, decisions take longer time to be reached since there is always a board of governors that dictate how the company activities are run (Osborne, 2002).

A public company has to have a great accounting transparency. This is why; annually they release financial statements to the public. In partnerships, privacy is paramount and they are not accountable to the public. Due to these facts, public organizations are most likely to be offered loans compared to partnerships that are more private (Berger, 2002). The discussion contains the main differences between public organizations and partnerships. In terms of legality start-up and privacy.

TASK 2

a) Discuss marginal utility

Utility is the benefit or the satisfaction value of goods or service. It is not similar to happiness or pleasure, although these aspects are part of utility. Marginal utility can be defined as the additional satisfaction that a consumers gain from continuously consuming units of a good or service. Economists use it to determine the optimum number of goods or service a consumer needs use it. When marginal utility is positive then, one more unit of a commodity increases the total utility, while negative marginal utility takes place when additional units of a commodity results to a decrease in total utility (Pine et al 2009.)

b) Law of diminishing marginal utility

The law states that as a consumer continues to consume more and more of a commodity, the marginal utility of the commodity to the consumer continues to decrease, if certain things remain constant, although the total utility continues to increase (Brewer, 2010). This takes place until a point called the saturation point. At this point, the marginal utility is at zero. There is also dis-utility when there is negative marginal utility. This is when the customer has had enough, and feels the pinch of taking more units of the product. It is useful in influencing the level of production for companies that deal in production of goods (Easterlin 2005).

There are certain conditions that should remain constant. One of the conditions is that the quality of the goods or service should remain constant. If a consumer is drinking sprite, he or she should not change to a different product of Coca-Cola industries. The consumer should stick to the same product the whole time. If the consumer changed the product, then the perception of the product may be different and that would increase marginal utility.

The consumption should be continuous. A time lapse would make it null since the desire of the product will have increased affecting the marginal utility. Therefore, consumption should not stop at any given point. The mental outlook of the product should not change as the consumer takes the product. The case of the consumer-taking sprite, there should be no form of advertisements that would change the customer’s perception of the product. If there is an advertisement, then the consumer may suddenly like the product more and hence an increase in marginal utility. Also the unit of the product should not be less. If the consumer knows that the product is less, then there will be no change in marginal utility as the consumer takes the products.

Oranges consumed

marginal utility

1

100

2

80

3

60

4

40

5

20

6

0

7

-20

8

-40

9

-60

10

-80

The above table clearly shows the marginal utility curve. In the table, the consumer is eating oranges. On the horizontal axis is the number of oranges the customer is taking and on the vertical axis is the marginal utility. The first orange has a very high marginal utility since he or she was longing to take the orange. Increase in the number of oranges eaten results to a decrease in marginal utility. At the sixth orange, the consumer is at saturation point. The negative marginal utility afterwards indicates dis-utility.

The price elasticity demand

It measures the extent by which the quantity of any product demand shifts in response to changes in prices (Griffin, 2006). Companies use it to estimate the most efficient price for their products and services.

P.E.D = % Δ in price/ % Δ in quantity demanded

From the answer obtained, one can really tell the different measures of elasticity. If the answer is zero, then the product has an inelastic demand change to the price change. This means that price change does not affect the demand of the product. When the answer is between o and 1 then the product has an inelastic demand change to price change. This means that the good or service has a percentage change in its demand that is lower than the percentage change of its price. If the answer is one, then the product has a unitary elasticity to price change, meaning that a price change by a certain amount result to demand change by the same amount of price change. Alternatively, if the result is above one then the percentage demand change is perfectly elastic to the percentage change in price. A slight change in the product price, results to a higher shift in the demand of the products.

This concept is used to understand the influence of products in the market (Long, 2010). It helps people in business set the right price. That price will generate income and increase the revenue. Businesses will mostly charge high prices for products that have a high demand in the market. Vice versa, products with a low demand are mostly cheap (Melitz, 2008).

If the price of the Samsung s8 was reduced by 20 percent and the resulting percentage increase in demand was 40 percent. Then the price elasticity of demand would be two. This would mean that the Samsung s8 demand is perfectly elastic to the price change. Answer is above one.