Question

It is summer of 2021, you have not been able to find work, however a vaccine for COVID – 19 is now in widespread use, yourself included. As a clever forward-looking business student, you have decided to get experience by starting and operating your own business, a lemonade stand you have named “bora bora”. In your planning you have identified that there is potential to build a sustaining company, and as such you set up an accounting system and formal business structure. You have no business partners.

You decide the first tasks are as follows.

Set up all the required Financial Statements, with proper formatting, so they can be used later

Clearly show the equation structure for each,

Give examples of items (Accounts) that will likely be included on each statement.

Discuss the different types of business structures “Bora bora” could adopt. Pick an option for the business and support your reasoning for why it is most appropriate.

Identify if you will have to follow IFRS or ASPE, explain why.

Answer 1

Types of Business structures are as follows,

1) Business partnership

(a) General partnership,(b) Limited partnership (c) Limited Liability Company

2) Sole proprietorship

3) Corporation/Company

(a) C- corporation (b) S-corporation.(c) Nonprofit corporation.

To choose type of business structure it all depends on the goal, objective

In the given case as by not finding job if someone is shifting to do business then job it means the person is new in doing business that person don’t have experience in doing any kind of business. This also becomes important factor in deciding the type of the structure.

Business Partnership cannot be chosen as there are no partners

Corporation should not be chosen as one will have to go through many regulations

Sole proprietorship is the type of structure needs to be chosen as this can be formed easily and it is good form of structure for individual.

Financial statements are as follows

Financial statements are Income statements, Stock holders equity, Cash flows, Balance sheet.

Equiation of financial structure

Total Assets=Total liability + Stock holders equity

IFRS orASPE any one can be followed by the sole proprietorship IFRS is compulsory when the stocks are traded in public stocks exchange.If the companies stock's do not trade on public stock exchange then ASPE will be followed but for sole proprietorship there is an chocie to follow any of then.