Week01_Practice_Question_Solutions

Week01_Practice_Question_Solutions - Week 1 Practice...

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Week 1 Practice Questions 1.1 Give some examples of the ways in which companies affect the following groups, favourably or adversely: shareholders, consumers, governments, employees, creditors, the ‘general public’. The answer to this question is found from the prior experience of students, not in the text. The question is designed to concentrate attention on the benefits and detriments to different groups within society of the corporate form. The following table lists some of the aspects that could be mentioned. Favourably Adversely shareholders increased wealth dividends share price risk of loss due to: commercial factors dishonest management consumers an efficient and effective mechanism for meeting demands of consumers effective way of ‘mobilising capital’ loss of control and bargaining power governments assist in: economic development expanding taxation base moral hazards: major company crashes need for regulatory intervention employees opportunities for employment greater remuneration scope for advancement loss of bargaining power risks of limited liability of employer (employee benefits) loss of self-esteem (small cog in large enterprise) creditors increase potential market risks of limited liability ‘general public’ economic growth increased standard of living impact on share values increased gap between haves and have nots
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2.7 Briefly outline the test applied in classifying an entity as a disclosing entity and describe the consequences of being classified as a disclosing entity. The test for determining if an entity is a disclosing entity is quite complex, however, in summary an entity is a disclosing entity if: its securities are listed on a stock exchange (such as the one operated by the ASX); it has issued debentures for which the Corporations Act requires the appointment of a trustee for debenture holders; and for securities (other than debentures), the entity has issued securities – either under a disclosure document or under a takeover – for which there are at least 100 persons or entities holding those securities. Securities that satisfy any of the above are called enhanced disclosure securities in the Act. The main consequences of an entity being classified as a disclosing entity are: having to prepare both half year and full year financial reports; the ability to use abbreviated disclosure documents in fund-raising; and the obligation to keep both the ASX and ASIC informed of information that may affect the price of its securities (the continuous disclosure requirement). 2.10 Give an overview of the present company law scheme that operates in Australia. The current company law is found in the Corporations Act 2001, which re-enacted the prior
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Week01_Practice_Question_Solutions - Week 1 Practice...

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