SET B

1.
a) Market Value of a property- is the amount which a willing buyer will pay to a willing seller for the
property where each has equal advantage and is under no compulsion to buy or sell.
b) Fair value is the value which is usually determined by a disinterested third party in order to establish
a price that is fair to both seller and buyer.
c) book value sometimes called depreciated book value is the worth of a property as shown in the
accounting records of an enterprise.
d)Salvage value or resale value is the price that can be obtained from the sale of the property after it
has been used.
e. Scrap Value is the amount the property would sell for if disposed off as junk.
2.
a) Individual ownership or sole proprietorship is the simplest form of business organization, wherein
person uses his or her own capital to establish a business and is the sole owner.
Advantages of the individual ownership:
1. It is easy to organize
2. The owner has full control of the enterprise.
3. The owner is entitled to whatever benefits and profits that accrue from the business.
4. It is easy to dissolve.
Disadvantages of the Individual Ownership
1. The amount of equity capital which can be accumulated is limited.
2. The organization ceases upon the death of the owner
3. It is difficult to obtain borrowed capital, owing to the uncertainty of the life of the organization.
4. The liability of the owner for his debts is unlimited.
Partnership is an association of two or more persons for the purpose of engaging in a business for
profit.
Advantages:
1. More capital may be obtained by the partners pooling their resources together.
2. It is bound by few legal requirements as to its accounts, procedures, tax forms and other items of
operation.
3. Dissolution of the partnership may take place at any time by mere agreement of the partners.
4. It provides an easy method whereby two or more persons of differing talents may enter into
business, each carrying those burdens that he can best handle.
Disadvantages:
1. The amount of capital that can be accumulated is definitely limited.
2. The life of the partnership is determined by the life of the individual partners. When any partner
dies, the partnership automatically ends.
3. There are many serious disagreement among the individual partners.
4. Each partner is liable for the debts of the partnership.
b) Stock ownership is the practice of companies in giving their staff members shares In their company
as part of the salary. It also means owning a stock in a company investment.
c) Common stock represents ordinary ownership without special guarantees of return. Common
stockholders have certain legal rights, among which are the following:
1. Vote at stockholders meeting.
2. Elect directors and delegates to them power to conduct the affairs of the business.
3. Sell or dissolve the corporation
4. Make and amend the by laws of the corporation
5. Subject to government approval, amend or change the character or capital structure.
6. Participate in the profits.

7. Inspect the books of the corporation.

d) Preferred Stock
Preferred stockholders are guaranteed a definite dividend on their stocks. In case the corporation is
dissolved, the assets must be used to satisfy the claims of the preferred stockholders before those of
the holders of the common stock. Preferred stockholders usually have the right to vote in meetings but
not always.
e. Bond Financing
A bond is a certificate of indebtedness of a corporation usually for a period not less than ten
years and guaranteed by a mortgage on a certain assets of the corporation or its subsidiaries. Bonds
are issued when there is need for more capital such as for expansion of the plant or the services
rendered by the corporation.
The face or par value of a bond is the amount stated on the bond. When the face value has
been repaid, the bond is said to have been retired or redeemed. The bond rate is the interest rate
quoted on the bond.
f) Declining balance
In this method, sometimes called the constant percentage method or the Matheson Formula, it
is assumed that the annual cost of depreciation is a fixed percentage of the salvage value at the
beginning of the year. The ratio of the depreciation in any year to the book value at the beginning of
that year is constant throughout the life of the property and is designated by k the rate of depreciation.
This method does not apply, if the salvage value is zero, because k will be equal to one and d1 will be
equal to Co.
dn=depreciation during the nth year
dn=(Co(1-k)^n-1)k
Cn= Co(1-k)^n = Co (Cl/Co)^n/L
Cl = Co(1-k)^L
k = 1-(Cn/Co)^1/n = 1-(Cl/Co)^L
g) sum of the years digits (SYD)
Let dn= depreciation charge during the nth year
dn= (depreciation factor)(total depreciation)
dn = (reverse digit(Co-Cl)/(Sum of digits)
For example, for a property whose life is 5 years.
Year 1 2
3
4
5
Year in reverse order 5 4
3
2
1
Depreciation factor 5/15 4/15 3/15 2/15 1/15
Depreciation during the year (5/15)(Co-Cl)
(4/15)(Co-Cl) (3/15)(Co-Cl)