In this question, reader could come to a final conclusion by analyzing that
which business type more suits for a restaurant business in Colombo between
partnership and limited company. This is divided into 3 broad sections. In the
first section it describes on partnership and its strengths and weaknesses.
Then in 2nd paragraph it narrates on limited liability companies and
its strengths and weaknesses. Third section which is more important outlines
the recommendations to best solution. By considering the restaurant industry in
Sri Lanka, it has been increasing which proves by Sri Lanka Tourism in hospitality.lk
as 3.5% from October 2016 to October 2017. It was achieved mainly due to hotel companies
but cannot neglect the contribution of sole traders and partnerships which
provides more nature friendly experiences for visitors. So when engaging in
restaurant industry, it is significant to choose right business type for
An arrangement between two or more people (max 20) with the purpose of earning
profits by continuing a business according to business partnership commandment
of 1890 in Sri Lanka. Those individuals share profits and liabilities of
business venture according to agreement. Some partners have the right to
involve in management decisions. Partnership Ordinance of 1890, Fraud
Prevention Ordinance of 1840 no 7, 2007 no 7 Company Act, Business Names
Ordinance 1918 no 6 and 1907 Limited Partnership Commandment are the laws
affecting to partnership in Sri Lanka. Special characteristics of partnerships
are there is a business and agreement, arrangement to profit sharing and mutual
Strengths of partnerships are easy to start, one partner can invest a low
capital, loss is shared, profit is shared among few people, legislations impact
is low, taking collective decisions and not essential for accounting and
auditing. Weaknesses are unlimited liability, less continuity, no legal
personality, difficult to disband, no confide, risk is high, time taken to take
decisions, conflicts among partners could affect to business.
This is the business form that has legal personality, liability of shareholders
limited only for the capital they have invested and having perpetual succession
capacity. Company Act 2007 no 7 is the legislation in Sri Lanka for companies.
Management of the company is done by a director board and for those positions,
talented employees could be recruited whom are not owners, is a special
character of limited company.
Strengths are having legal personality which business can represent as independent
entity, limited liability that investors only liable to his capital not has to
sacrifice personal assets, perpetual succession capacity is there which is
continuity, can transfer shares, can gain huge capital, there might be tax
advantage, can recruit highly talented human resources, can achieve macro
turnover benefits because of macro investment. Weaknesses are costs of
establishing the company is high, having a complex process for registration,
legislation impact is high, management is complicated, loss is confluence in
the company, small shareholders have a disadvantage as voting rights are vary
according to share owners.
Starting a restaurant in Colombo and competing with reputed brands like Hilton,
Cinnamon, Galle Face Hotel, Jetwing Hotels, Aitken Spence, Amaya Hotels, John
Keells hotels etc.. always challenging. So it should be differentiated and for
Fernando, Perera-it is more beneficial to start as a partnership. Because they
can start with a small capital. If need more investment, can invite some
friends to join with them. Starting will be simple rather than complicated
which limited company could lead to exhaustion from beginning. If they do not
have accounting knowledge, it will not be an issue as accounting and auditing
not compulsory in partnership. Costs for formation will be low. When friends
are in partnership, there will not be much conflicts and it will lead to take
quick right decisions. When starting a business there will be losses up to some
period though it can bear by partners. Coercion of laws and regulations are
pretty low than a company. With the bond issue problem in Central Bank of Sri Lanka
(CBSL), investors not interesting for a company and due to that bank loan rates
have been increased drastically so it is not a good time for loans as well.
Therefore more productive to start as a partnership with a small capital.
End of the day, it is easy to decide that partnership is having simple
structure which suits to restaurant than a complex circumstances of a company.
After stability of the business then they can come to decision where to launch
next level like widening to a company. That is what ODEL did (great clothing
business in Sri Lanka- previously it was a partnership now it is a company). By
differentiated as providing Sri Lankan traditional village life experience
instead those luxury experience in skyscrapers will make a great calmness in
hectic Colombo for visitors as a partnership business.
In this essay, has to identify the differences between Financial Accounting and
Management Accounting. In the first 3 paragraphs it includes explanation of
Accounting, Financial Accounting (FA) and Management Accounting (MA)
respectively. Then describes the differences between FA and MA. Main purpose is
to recognize differences and elaborate them deeply.
Accounting is a formal process of cognizing, recording, serving, categorizing,
verifying, summarizing, interpreting and communicating financial information to
users for decision making purpose. Users are stakeholders whom owners,
creditors, managers, employees, competitors, government, professional bodies,
media, public, investors and customers. It unveils profits or loss for a
period, worth and situation of the business’s assets, liabilities, equity.
According to necessity of stakeholders it is divided into 2 categories as FA
Financial Accounting (FA)
FA is the branch that specializing on keeping a summarized track record of
financial transactions based on historical data preserving in financial
statements which income statement or a balance sheet. It has common rules and
accounting standards known as Generally Accepted Accounting Principles (GAAP)
as it deals with outside parties.
Management Accounting (MA)
According to cimaglobal.lk MA induce and preserve worth for organizations by
sourcing, analyzing, communicating and using it for relevant decision makers
through financial and non-financial information. It helps managers to take
decisions, reduce risk and fulfill business strategy.
Differences between FA and MA
Throughout this discussion, differences between FA and MA is considered. FA
reports information to internal and especially for outside parties whom are
stakeholders. Outsiders are customers, suppliers, competitors, potential
investors, producers of substitute goods, media and special interest groups.
Stakeholders get information by Income Statements, Balance Sheet, Changes in
Equity sheet etc… which are published quarterly or annually. On the other hand
MA only deals with inside parties like owners, managers, employees etc… They
take decisions based on manufacturing accounts, stock controlling accounts,
overhead costing, cost volume profit, budgeting etc… Those accounts are not
published and some data are confidential only reserved for owners and managers.
2nd difference is that FA only uses historical financial data to
make financial reports. Those data are recorded in special books (cash, bank statements
and petty cash) and then trial balance next at last financial statements are
prepared. But in MA, historical, current predicted future financial and
non-financial data is considered. MA also could be concern as part of helping business
strategy too as some accounts (Cash Budgets) are prepared based on predictions.
If the Christmas season coming up, you have to increase production. Based on
that MA is prepared. 3rd difference for consideration is FA make on
quarterly or annually while MA is prepared often on daily or weekly basis. FA
normally published after a year to understand progress of the organization.
Although MA recognizes accounts for shorter periods to come to a conclusion and
take quick decisions in various sections of the organization.
In the above descriptions clearly cognized differences between FA and MA. Even
though relevance and reliability is high in FA, MA information should be considered
as highly relevance and reliable which could lead to take correct decisions.
Also MA should concern as highly regulated like FA by organizations because it convince
transparency. As accounting purpose is to take decisions, both FA and MA should
be treated equally to take right decisions. MA helps to organization’s overall
picture which is FA statements betterment.