Amanda and Sam want to start a business together; their business will be providing loans to people who have been rejected for a loan by their local bank. They will charge a higher interest rate than the local banks as a result of the higher risk. Amanda will provide the office for the business and Sam will furnish the office and provide vehicles for them both.

They will both work in the business once it has commenced. They will need to raise a significant amount of money in order to make the loans and will require access to a large amount of capital. Sam is nearing retirement age and has a large amount of income that he earns from other sources such as investments in shares and properties. Amanda is also an owner in another business which she earns income from and is keen to minimise tax. 

 

 a) Would the business be a "reporting entity"? Explain why or why not. 

b) Based on your answer to part a), is the business required to apply the Conceptual Framework? 

c) They have decided to setup the business as a partnership. What sources of funding would the business have access to? (Hint: think about the liabilities and equity) 

d) Is the partnership the most appropriate business structure? Explain why or why not?

e) After the business commences operations, Sam wants the business to apply for a loan to provide funds to open a second office. Sam is concerned that based on the current financial data for the business they will not be approved for a loan. Sam has suggested that some investing cash flows could be reported as operating cash flows on the Statement of Cash Flows in order to make operating cash flow appear stronger and improve their chances of getting the loan.

Identify and Describe: 

i. The ethical issue in this situation 

ii. One stakeholder affected by this ethical issue and explain why they are a stakeholder. 

Answer rating: 100% (QA)

a Yes the business would be a reporting entity as it is engaged in economic activities and provides ... View the full answer