The government and tax authorities play a crucial role in ensuring financial transparency and accountability within businesses. Their primary role is to establish and enforce regulations related to financial reporting and taxation. This involves setting out rules for how businesses must prepare their financial statements (e.g., adhering to accounting standards like IFRS or UK GAAP), and defining the taxes that businesses are liable to pay (e.g., Corporation Tax, VAT).

Impact on Financial Reporting and Record-keeping:

• Compliance with Accounting Standards: Businesses must prepare their financial statements in accordance with the accounting standards mandated by the government and regulatory bodies. This ensures comparability and reliability of financial information.
• Tax Legislation: Businesses must comply with all relevant tax laws, including accurate record-keeping for tax purposes. This includes maintaining detailed records of income, expenses, assets, and liabilities.
• Reporting Requirements: Businesses are often required to submit regular financial reports to the tax authorities (e.g., Corporation Tax returns, VAT returns). These reports must be accurate and complete.
• Auditing Requirements: Government regulations may mandate that certain businesses undergo audits by independent auditors to verify the accuracy of their financial statements.
• Legal Consequences of Non-Compliance: Failure to comply with government and tax authority regulations can result in penalties, fines, and even legal action.

In summary, the government and tax authorities ensure that businesses operate fairly and transparently, and that they contribute their fair share of taxes. Their regulations directly influence how businesses record transactions, prepare financial statements, and report to external stakeholders.

Answer 3:

a) Change in Capital Calculation:

• Alice: £25,000 (Closing Capital) - £20,000 (Opening Capital) = £5,000
• Bob: £17,000 (Closing Capital) - £15,000 (Opening Capital) = £2,000

b) Financial Performance of the Partnership: The statement of capital shows the changes in the partners' individual capital accounts during the year. An increase in capital indicates that the partner has benefited from the partnership's profits, while a decrease indicates that the partner has drawn money out of the business or suffered a loss. In this case, both partners experienced an increase in their capital, indicating that the partnership made a profit of £7,000 (£5,000 + £2,000).

Answer 2:

Advantages of Sole Trader:

• Easy to set up: Requires minimal legal formalities and paperwork.
• Full control: The owner makes all the decisions and retains all the profits.
• Simple tax system: Profits are taxed as personal income.
• Low start-up costs: Generally requires less capital to start compared to other business structures.

Disadvantages of Sole Trader:

• Unlimited liability: The owner is personally liable for all business debts. Personal assets are at risk.
• Limited capital: Raising capital can be difficult as the owner relies on personal funds or loans.
• No legal separation: The business and the owner are legally the same entity.
• Limited growth potential: Growth can be restricted by the owner's personal resources and time.