The owner or owners of a small enterprise can choose between various forms of business organisation, including sole proprietorship and limited company status.

(a) Explain the advantages and disadvantages of sole proprietorship and limited company status in connection with the following areas:

(i) Liability for debts

(ii) Ability to raise capital

(iii) Legal formality.

(b) A business is having a number of problems with customers who either cannot or will not pay their debts. For the year ended 31 December 2014, these include:

(i) Customer A, who has died penniless, owing £800.

(ii) Customer B, who refuses to pay a debt of £600, despite many reminders. It is believed that B has the means to pay.

(iii) Customer C, who in July and August 2014 had paid eight amounts of £10 per week towards a total debt of £300.

(iv) Customer D, who was a bad debtor three years ago for £500, but has come into money and has paid off his debt.

The business had total trade receivables, before any adjustments for the above, totalling

£45,000. It had a provision for doubtful debts of £1,400 on 1 January 2014.

Required:

Show relevant extracts from the business’s income statement for the year ended 31 December 2014 and statement of financial position as at that date relating to trade receivables after making all adjustments required by the above information.