Q2. Rajiv is the sole owner of a shirt manufacturing factory. He took loan of Rs. 30 lakh
from Jain finance company for expansion of his business. In beginning business was
running well but later on he started facing losses and due to continuous losses he was
not able to repay the loan. After receiving many reminders from finance company,
Rajiv planned to close the business. He sold all his machines and other assets and
Collected Rs. 20 lakh. He requested the finance Co. to settle the accounts by takingRs.
20 lakh. The finance company refused and plans to file a case against him in court. In
court, Mr. Rajiv gave the argument that he has sold all his business assets and loan
was taken by him for business and not for personal use. So finance company must
settle the account by taking Rs.20 lakh. The court did not agree with the argument of
Rajiv and gave the decision in favour of finance company and order Rajiv to pay full
loan amount by selling his personal asset.
(a) Name and define the form of business carried by Rajiv.
(b) Identify and explain the feature of business which is kept in mindby court while taking decision.
(c) is rajiv's argument of saying that he and business are separate entity is correct
Answers
Answer:
a) Sole proprietorship
b) unlimited liability
lack of managerial skills
C) no his argument was in incorrect because according to features of sole proprietorship, owner has unlimited liability. This means in case of loss owner has to give up even his personal assets to repay the loan.
Hope it will help u.
Sole Proprietorship
Explanation:
(a) The form of business carried by Rajiv is Sole Proprietorship. The word “sole” notes to “only” and “proprietor” means “owner”. A Sole proprietorship refers to that kind of business that is owned, controlled and operated by a single individual. The sole proprietor has full control over its business’s profits and losses. Also, he is solely responsible for all the risks.
(b) The feature of business which is kept in mind by court while taking decision id Unlimited Liability. In this type of business venture, the owner has unlimited liability. This means that the owner is obligated to pay all the liabilities himself. A disadvantage of this feature is that when there is a shortage of funds then it can settle by selling personal assets of the owner.
(c) No, Rajiv's argument of saying that he and business are separate entity is not correct. As according to the accounting standards, the owner and the business are two separate legal entities. But since the owner is carrying out all the business activities, therefore in the eyes of law there is no distinction between the sole owner and its business.