Chapter 2 Textbook Solutions
Question 1
1.1 A sole proprietor or sole trader is a business that is owned by one person (called the owner). Such
a business does not enjoy limited liability.
1.2 A partnership is a business that is owned by between 2 and 20 people (called partners). Such a
business does not enjoy limited liability.
1.3 A close corporation is a business that is owned by between 1 and 10 people (members). A close
corporation is also known as a CC, and no new close corporations may be created under South
African law. Existing CCs may continue to trade. Such a business enjoys limited liability.
1.4 A private company is a business that is owned by between 1 and 50 people (shareholders). A
private company is characterised by ‘(Pty) Ltd’ at the end of a business’s name. Such a business
enjoys limited liability.
1.5 A public company is a business that is owned by at least 7 people (shareholders). A private
company is characterised by ‘Ltd’ at the end of the business’s name. Such a business enjoys limited
liability.
1.6 A non-profit company is set up for the public benefit of a cultural or social cause. These business
entities can be started and/or owned by one or more people, but should not strive to make a profit in
the foreseeable future. They are regarded as legal entities and enjoy limited liability.
Question 2
2.1 An entity that owes money to us as a result of a credit sale(s).
2.2 The right-hand side of an account.
2.3 An entity that we owe money to as a result of a credit sale(s).
2.4 Income less expenses.
2.5 When assets are greater than liabilities.
2.6 Longer than or equal to 12 months
2.7 A period comprising 12 months in which a business entity conducted its business.
Question 3
3.1 A present obligation resulting from a past event that will result in a future outflow of economic
benefits. It also has a cost/value and a probability of an economic outflow.
3.2 Total assets less total liabilities. Equity comprises capital, income, drawings and expenses.
3.3 A resource that is controlled resulting from a past event that will result in a future inflow of
economic benefits. It also has a cost/value and a probability of an economic inflow.
Question 4
Resource:
Control:
Past event:
Future inflow of economic benefits:
Cost/value:
Probability of inflow:
Resource of accommodation (luxury).
Control vests in ownership.
Purchased on 1 January 20X1
Yes, from wealthy travellers (rent income).
R500 000 000.00
Yes, wealthy travellers have been renting it since 1 March 20X1
Question 5
5.1 R40 000
5.2 R0
5.3 R120 000
5.4 R60 000
5.5 R200 000
Question 6
Present obligation:
Past event:
Future outflow of economic benefits:
Cost/value:
Yes, owed money since 15 February 20X1.
Yes, purchased goods on credit on 15 February 20X1
Yes, interest is payable and money needs to be paid
back by 15 May 20X1.
R1 000 000.00
© Oxford University Press Southern Africa 2016. This material may not be reproduced or distributed,
in whole or in part, without prior written permission of Oxford University Press Southern Africa.
Probability of outflow:
Yes, interest is payable and money needs to be paid
back by 15 May 20X1.
Question 7
7.1 Asset
7.2 Expense
7.3 Asset
7.4 Liability
7.5 Asset
7.6 Asset
7.7 Liability
7.8 Asset
7.9 Expense
7.10 Equity
© Oxford University Press Southern Africa 2016. This material may not be reproduced or distributed,
in whole or in part, without prior written permission of Oxford University Press Southern Africa.