IB · BM SL

Business Management SL

Finance and accounts — Unit 4

Name: ____________________Date: October 14, 2026

1.
A retail company reports the following for the year: gross profit $180,000, revenue $600,000, net profit $60,000. (a) Calculate the gross profit margin. (b) Calculate the net profit margin. (c) Suggest one reason the gap between the two margins might be considered large, referring to what lies between the two figures.
[4 marks]
Marking points
- Calculates gross profit margin = 180,000/600,000 × 100 = 30%.
- Calculates net profit margin = 60,000/600,000 × 100 = 10%.
- Identifies that the gap reflects operating and other expenses, such as wages, rent, marketing, interest or tax, deducted between gross and net profit.
- Suggests that high overhead or operating costs relative to revenue could explain a large gap.
Examiner tip: Both margins use revenue as the denominator; do not divide net profit by gross profit.
2.
Marking analysis: A learner attempts the following task: “A retail company reports the following for the year: gross profit $180,000, revenue $600,000, net profit $60,000. (a) Calculate the gross profit margin. (b) Calculate the net profit margin. (c) Suggest one reason the gap between the two margins might be considered large, referring to what lies between the two figures.” Their response addresses only this point: “Calculates gross profit margin = 180,000/600,000 × 100 = 30%.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates gross profit margin = 180,000/600,000 × 100 = 30%.
- Identifies the missing requirement: Calculates net profit margin = 60,000/600,000 × 100 = 10%.
- Identifies the missing requirement: Identifies that the gap reflects operating and other expenses, such as wages, rent, marketing, interest or tax, deducted between gross and net profit.
- Identifies the missing requirement: Suggests that high overhead or operating costs relative to revenue could explain a large gap.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
3.
A small workshop makes handmade candles. Each candle sells for $12 and has variable costs of $7 per unit. The workshop's total fixed costs are $2,500 per month. (a) Calculate the contribution per unit. (b) Calculate the break-even quantity per month. (c) Calculate the profit if 600 candles are sold in a month. (d) State the margin of safety in units if 600 candles are sold.
[5 marks]
Marking points
- Calculates contribution per unit = 12 − 7 = $5.
- Calculates break-even quantity = 2,500/5 = 500 candles.
- Calculates total contribution at 600 units = 600 × 5 = $3,000.
- Calculates profit = 3,000 − 2,500 = $500.
- States margin of safety = 600 − 500 = 100 candles.
Examiner tip: Margin of safety is measured from the actual (or budgeted) sales level down to the break-even level, not from zero.
4.
Marking analysis: A learner attempts the following task: “A small workshop makes handmade candles. Each candle sells for $12 and has variable costs of $7 per unit. The workshop's total fixed costs are $2,500 per month. (a) Calculate the contribution per unit. (b) Calculate the break-even quantity per month. (c) Calculate the profit if 600 candles are sold in a month. (d) State the margin of safety in units if 600 candles are sold.” Their response addresses only this point: “Calculates contribution per unit = 12 − 7 = $5.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks]
Marking points
- Recognises credit for the stated point: Calculates contribution per unit = 12 − 7 = $5.
- Identifies the missing requirement: Calculates break-even quantity = 2,500/5 = 500 candles.
- Identifies the missing requirement: Calculates total contribution at 600 units = 600 × 5 = $3,000.
- Identifies the missing requirement: Calculates profit = 3,000 − 2,500 = $500.
- Identifies the missing requirement: States margin of safety = 600 − 500 = 100 candles.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
5.
A start-up's cash-flow forecast shows an opening balance of $3,000 for March, total cash inflows of $8,000 and total cash outflows of $9,500 for the month. (a) Calculate the net cash flow for March. (b) Calculate the closing balance for March. (c) Explain one action the business could take if it foresees a negative closing balance in an upcoming month.
[4 marks]
Marking points
- Calculates net cash flow = 8,000 − 9,500 = −$1,500.
- Calculates closing balance = 3,000 + (−1,500) = $1,500.
- Explains a valid corrective action, such as arranging a short-term overdraft or loan, delaying non-essential payments, or chasing outstanding customer payments.
- Explains how the chosen action would specifically improve the cash position, for example an overdraft providing immediate funds to cover the shortfall.
Examiner tip: The closing balance carries forward as next month's opening balance — a forecasting error here compounds across future months.
6.
Marking analysis: A learner attempts the following task: “A start-up's cash-flow forecast shows an opening balance of $3,000 for March, total cash inflows of $8,000 and total cash outflows of $9,500 for the month. (a) Calculate the net cash flow for March. (b) Calculate the closing balance for March. (c) Explain one action the business could take if it foresees a negative closing balance in an upcoming month.” Their response addresses only this point: “Calculates net cash flow = 8,000 − 9,500 = −$1,500.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates net cash flow = 8,000 − 9,500 = −$1,500.
- Identifies the missing requirement: Calculates closing balance = 3,000 + (−1,500) = $1,500.
- Identifies the missing requirement: Explains a valid corrective action, such as arranging a short-term overdraft or loan, delaying non-essential payments, or chasing outstanding customer payments.
- Identifies the missing requirement: Explains how the chosen action would specifically improve the cash position, for example an overdraft providing immediate funds to cover the shortfall.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
7.
A business needs finance for two different purposes: (i) covering a short-term, one-off gap in cash flow while waiting for a large customer invoice to be paid, and (ii) funding a major long-term expansion of its factory. (a) Distinguish between internal and external sources of finance, giving one example of each. (b) Suggest a suitable source of finance for purpose (i), and justify your choice. (c) Suggest a suitable source of finance for purpose (ii), and justify your choice.
[5 marks] · no calculator
Marking points
- States that internal finance comes from within the business itself, such as retained profit or the sale of unused assets, while external finance comes from outside the business, such as a bank loan or share capital.
- Suggests a suitable short-term source for purpose (i), such as a bank overdraft or trade credit.
- Justifies this by explaining that it is flexible and quick to arrange for a temporary, one-off gap, and can be repaid as soon as the invoice is paid, avoiding the cost of a longer-term commitment.
- Suggests a suitable long-term source for purpose (ii), such as a long-term bank loan or issuing share capital.
- Justifies this by explaining that a major expansion requires a large, stable amount of capital repaid or held over a long period, matching the long-term nature of the investment in factory assets.
Examiner tip: Match the term of the finance to the term of the need: short-term problems call for short-term finance, and long-term investments call for long-term finance.
8.
Marking analysis: A learner attempts the following task: “A business needs finance for two different purposes: (i) covering a short-term, one-off gap in cash flow while waiting for a large customer invoice to be paid, and (ii) funding a major long-term expansion of its factory. (a) Distinguish between internal and external sources of finance, giving one example of each. (b) Suggest a suitable source of finance for purpose (i), and justify your choice. (c) Suggest a suitable source of finance for purpose (ii), and justify your choice.” Their response addresses only this point: “States that internal finance comes from within the business itself, such as retained profit or the sale of unused assets, while external finance comes from outside the business, such as a bank loan or share capital.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] · no calculator
Marking points
- Recognises credit for the stated point: States that internal finance comes from within the business itself, such as retained profit or the sale of unused assets, while external finance comes from outside the business, such as a bank loan or share capital.
- Identifies the missing requirement: Suggests a suitable short-term source for purpose (i), such as a bank overdraft or trade credit.
- Identifies the missing requirement: Justifies this by explaining that it is flexible and quick to arrange for a temporary, one-off gap, and can be repaid as soon as the invoice is paid, avoiding the cost of a longer-term commitment.
- Identifies the missing requirement: Suggests a suitable long-term source for purpose (ii), such as a long-term bank loan or issuing share capital.
- Identifies the missing requirement: Justifies this by explaining that a major expansion requires a large, stable amount of capital repaid or held over a long period, matching the long-term nature of the investment in factory assets.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
9.
A business reports a healthy net profit for the year on its income statement, yet its bank account is nearly empty and it is struggling to pay suppliers on time. (a) Explain how a business can be profitable on paper but still face a cash-flow crisis. (b) Suggest one specific reason, relating to how customers or inventory are managed, that could explain this business's situation.
[3 marks] · no calculator
Marking points
- Explains that profit is an accounting measure of revenue earned minus expenses incurred over a period, while cash flow measures the actual timing of money moving in and out of the bank account, and the two do not always occur at the same time.
- Explains that a business can record a sale as revenue (and profit) as soon as it is made, even though the cash from that sale is not actually received until much later, or not at all.
- Suggests a valid specific reason, such as customers being given generous credit terms and paying slowly (high debtor days), or the business holding excessive inventory that ties up cash without generating sales revenue.
Examiner tip: 'Profit' and 'cash' are not the same thing — a business can be profitable yet insolvent (unable to pay its bills) if its cash is tied up in unpaid invoices or unsold stock.
10.
Marking analysis: A learner attempts the following task: “A business reports a healthy net profit for the year on its income statement, yet its bank account is nearly empty and it is struggling to pay suppliers on time. (a) Explain how a business can be profitable on paper but still face a cash-flow crisis. (b) Suggest one specific reason, relating to how customers or inventory are managed, that could explain this business's situation.” Their response addresses only this point: “Explains that profit is an accounting measure of revenue earned minus expenses incurred over a period, while cash flow measures the actual timing of money moving in and out of the bank account, and the two do not always occur at the same time.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator
Marking points
- Recognises credit for the stated point: Explains that profit is an accounting measure of revenue earned minus expenses incurred over a period, while cash flow measures the actual timing of money moving in and out of the bank account, and the two do not always occur at the same time.
- Identifies the missing requirement: Explains that a business can record a sale as revenue (and profit) as soon as it is made, even though the cash from that sale is not actually received until much later, or not at all.
- Identifies the missing requirement: Suggests a valid specific reason, such as customers being given generous credit terms and paying slowly (high debtor days), or the business holding excessive inventory that ties up cash without generating sales revenue.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
11.
A business reports current assets of $60,000 and current liabilities of $40,000 on its statement of financial position. (a) Calculate the business's working capital. (b) State what a negative value for working capital would indicate about a business's ability to meet its short-term obligations. (c) Suggest one action a business with negative working capital could take to improve it.
[3 marks]
Marking points
- Calculates working capital = current assets − current liabilities = 60,000 − 40,000 = $20,000.
- States that a negative working capital would mean current liabilities exceed current assets, indicating the business may struggle to pay its short-term debts as they fall due.
- Suggests a valid corrective action, such as negotiating longer payment terms with suppliers, chasing outstanding customer debts more actively, reducing excess inventory, or arranging additional short-term finance.
Examiner tip: Working capital measures a business's short-term financial health specifically — it says nothing directly about long-term profitability.
12.
Marking analysis: A learner attempts the following task: “A business reports current assets of $60,000 and current liabilities of $40,000 on its statement of financial position. (a) Calculate the business's working capital. (b) State what a negative value for working capital would indicate about a business's ability to meet its short-term obligations. (c) Suggest one action a business with negative working capital could take to improve it.” Their response addresses only this point: “Calculates working capital = current assets − current liabilities = 60,000 − 40,000 = $20,000.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks]
Marking points
- Recognises credit for the stated point: Calculates working capital = current assets − current liabilities = 60,000 − 40,000 = $20,000.
- Identifies the missing requirement: States that a negative working capital would mean current liabilities exceed current assets, indicating the business may struggle to pay its short-term debts as they fall due.
- Identifies the missing requirement: Suggests a valid corrective action, such as negotiating longer payment terms with suppliers, chasing outstanding customer debts more actively, reducing excess inventory, or arranging additional short-term finance.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
13.
A business has current assets of $60,000 and current liabilities of $40,000. (a) Calculate the business's current ratio. (b) State the range within which a current ratio is generally considered healthy. (c) State whether this business's current ratio suggests it is within, below, or above that generally healthy range.
[3 marks]
Marking points
- Calculates the current ratio = current assets ÷ current liabilities = 60,000 ÷ 40,000 = 1.5 (or 1.5:1).
- States that a current ratio is generally considered healthy roughly in the range of 1.5:1 to 2:1.
- States that this business's ratio of 1.5:1 falls within (at the lower end of) that generally healthy range.
Examiner tip: A current ratio that is too high (e.g., well above 2:1) can also be a warning sign, suggesting the business is holding too much idle cash or inventory rather than investing it productively.
14.
Marking analysis: A learner attempts the following task: “A business has current assets of $60,000 and current liabilities of $40,000. (a) Calculate the business's current ratio. (b) State the range within which a current ratio is generally considered healthy. (c) State whether this business's current ratio suggests it is within, below, or above that generally healthy range.” Their response addresses only this point: “Calculates the current ratio = current assets ÷ current liabilities = 60,000 ÷ 40,000 = 1.5 (or 1.5:1).” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks]
Marking points
- Recognises credit for the stated point: Calculates the current ratio = current assets ÷ current liabilities = 60,000 ÷ 40,000 = 1.5 (or 1.5:1).
- Identifies the missing requirement: States that a current ratio is generally considered healthy roughly in the range of 1.5:1 to 2:1.
- Identifies the missing requirement: States that this business's ratio of 1.5:1 falls within (at the lower end of) that generally healthy range.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
15.
The same business has current assets of $60,000, of which $20,000 is inventory, and current liabilities of $40,000. (a) Calculate the business's acid test (quick) ratio. (b) Explain why the acid test ratio is considered a more cautious measure of liquidity than the current ratio.
[3 marks]
Marking points
- Calculates quick assets = current assets − inventory = 60,000 − 20,000 = $40,000.
- Calculates the acid test ratio = 40,000 ÷ 40,000 = 1 (or 1:1).
- Explains that the acid test ratio excludes inventory because inventory can be slow or difficult to convert into cash quickly, so it gives a more cautious view of a business's ability to meet immediate short-term obligations.
Examiner tip: The acid test ratio is especially important for businesses whose inventory is hard to sell quickly or perishable; for a business with fast-moving stock, the gap between the two ratios matters less.
16.
Marking analysis: A learner attempts the following task: “The same business has current assets of $60,000, of which $20,000 is inventory, and current liabilities of $40,000. (a) Calculate the business's acid test (quick) ratio. (b) Explain why the acid test ratio is considered a more cautious measure of liquidity than the current ratio.” Their response addresses only this point: “Calculates quick assets = current assets − inventory = 60,000 − 20,000 = $40,000.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks]
Marking points
- Recognises credit for the stated point: Calculates quick assets = current assets − inventory = 60,000 − 20,000 = $40,000.
- Identifies the missing requirement: Calculates the acid test ratio = 40,000 ÷ 40,000 = 1 (or 1:1).
- Identifies the missing requirement: Explains that the acid test ratio excludes inventory because inventory can be slow or difficult to convert into cash quickly, so it gives a more cautious view of a business's ability to meet immediate short-term obligations.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
17.
A business has an operating profit of $50,000 for the year and capital employed (total equity plus non-current liabilities) of $250,000. (a) Calculate the business's return on capital employed (ROCE). (b) State what ROCE measures. (c) Suggest one reason this ROCE figure might be more meaningful when compared against the ROCE of similar businesses in the same industry, rather than viewed alone.
[4 marks]
Marking points
- Calculates ROCE = (operating profit ÷ capital employed) × 100 = (50,000 ÷ 250,000) × 100.
- Calculates ROCE = 20%.
- States that ROCE measures how efficiently a business generates profit from the total long-term capital invested in it.
- Suggests that comparing ROCE against similar businesses in the same industry reveals whether 20% is strong or weak performance for that specific type of business, since acceptable ROCE levels vary considerably between industries.
Examiner tip: ROCE is best used as a comparative tool — against the business's own past performance, a benchmark rate of return (e.g., a bank interest rate), or similar businesses — rather than judged in isolation.
18.
Marking analysis: A learner attempts the following task: “A business has an operating profit of $50,000 for the year and capital employed (total equity plus non-current liabilities) of $250,000. (a) Calculate the business's return on capital employed (ROCE). (b) State what ROCE measures. (c) Suggest one reason this ROCE figure might be more meaningful when compared against the ROCE of similar businesses in the same industry, rather than viewed alone.” Their response addresses only this point: “Calculates ROCE = (operating profit ÷ capital employed) × 100 = (50,000 ÷ 250,000) × 100.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates ROCE = (operating profit ÷ capital employed) × 100 = (50,000 ÷ 250,000) × 100.
- Identifies the missing requirement: Calculates ROCE = 20%.
- Identifies the missing requirement: States that ROCE measures how efficiently a business generates profit from the total long-term capital invested in it.
- Identifies the missing requirement: Suggests that comparing ROCE against similar businesses in the same industry reveals whether 20% is strong or weak performance for that specific type of business, since acceptable ROCE levels vary considerably between industries.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
19.
A business is considering an investment project costing $100,000. It forecasts net cash inflows of $30,000 in Year 1, $40,000 in Year 2, and $50,000 in Year 3. (a) Calculate the cumulative net cash flow at the end of each of the three years. (b) Calculate the payback period, giving your answer in years and months.
[5 marks]
Marking points
- Calculates cumulative cash flow at end of Year 1 = $30,000.
- Calculates cumulative cash flow at end of Year 2 = 30,000 + 40,000 = $70,000.
- Calculates cumulative cash flow at end of Year 3 = 70,000 + 50,000 = $120,000, confirming payback occurs during Year 3.
- Calculates the remaining amount needed after Year 2 = 100,000 − 70,000 = $30,000, and divides by the Year 3 inflow: 30,000 ÷ 50,000 = 0.6 of a year.
- Converts 0.6 of a year to approximately 7.2 months, giving a payback period of 2 years and just over 7 months.
Examiner tip: When payback falls partway through a year, divide the remaining amount needed by that year's full cash inflow, not by the cumulative total, to find the fraction of the year required.
20.
Marking analysis: A learner attempts the following task: “A business is considering an investment project costing $100,000. It forecasts net cash inflows of $30,000 in Year 1, $40,000 in Year 2, and $50,000 in Year 3. (a) Calculate the cumulative net cash flow at the end of each of the three years. (b) Calculate the payback period, giving your answer in years and months.” Their response addresses only this point: “Calculates cumulative cash flow at end of Year 1 = $30,000.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks]
Marking points
- Recognises credit for the stated point: Calculates cumulative cash flow at end of Year 1 = $30,000.
- Identifies the missing requirement: Calculates cumulative cash flow at end of Year 2 = 30,000 + 40,000 = $70,000.
- Identifies the missing requirement: Calculates cumulative cash flow at end of Year 3 = 70,000 + 50,000 = $120,000, confirming payback occurs during Year 3.
- Identifies the missing requirement: Calculates the remaining amount needed after Year 2 = 100,000 − 70,000 = $30,000, and divides by the Year 3 inflow: 30,000 ÷ 50,000 = 0.6 of a year.
- Identifies the missing requirement: Converts 0.6 of a year to approximately 7.2 months, giving a payback period of 2 years and just over 7 months.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
21.
A different investment project costs $150,000 and is expected to generate total net profit of $75,000 over its 5-year life. (a) Calculate the average annual profit generated by the project. (b) Calculate the average rate of return (ARR) for the project. (c) State one advantage of using ARR, rather than payback period, to evaluate this investment.
[4 marks]
Marking points
- Calculates average annual profit = total profit ÷ number of years = 75,000 ÷ 5 = $15,000.
- Calculates ARR = (average annual profit ÷ initial investment) × 100 = (15,000 ÷ 150,000) × 100.
- Calculates ARR = 10%.
- States a valid advantage, such as ARR considering the total profitability over the entire life of the project, unlike payback period, which ignores any cash flows occurring after the payback point.
Examiner tip: ARR is expressed as a percentage, which makes it easy to compare directly against a target rate of return or the interest rate on a bank loan.
22.
Marking analysis: A learner attempts the following task: “A different investment project costs $150,000 and is expected to generate total net profit of $75,000 over its 5-year life. (a) Calculate the average annual profit generated by the project. (b) Calculate the average rate of return (ARR) for the project. (c) State one advantage of using ARR, rather than payback period, to evaluate this investment.” Their response addresses only this point: “Calculates average annual profit = total profit ÷ number of years = 75,000 ÷ 5 = $15,000.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates average annual profit = total profit ÷ number of years = 75,000 ÷ 5 = $15,000.
- Identifies the missing requirement: Calculates ARR = (average annual profit ÷ initial investment) × 100 = (15,000 ÷ 150,000) × 100.
- Identifies the missing requirement: Calculates ARR = 10%.
- Identifies the missing requirement: States a valid advantage, such as ARR considering the total profitability over the entire life of the project, unlike payback period, which ignores any cash flows occurring after the payback point.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
23.
A business buys a delivery vehicle for $40,000. It expects the vehicle to have a residual (resale) value of $5,000 after 5 years, and depreciates it using the straight-line method. (a) Calculate the annual depreciation charge. (b) Calculate the vehicle's book value after 2 years. (c) State one reason a business needs to account for depreciation on assets like this vehicle.
[4 marks]
Marking points
- Calculates annual depreciation = (cost − residual value) ÷ useful life = (40,000 − 5,000) ÷ 5.
- Calculates annual depreciation = $7,000.
- Calculates book value after 2 years = 40,000 − (2 × 7,000) = $26,000.
- States a valid reason, such as spreading the cost of the asset over its useful life to match expenses with the revenue it helps generate, or providing a more accurate value of the business's assets on its statement of financial position.
Examiner tip: The straight-line method spreads depreciation evenly across each year of useful life — the same dollar amount is charged every year, unlike reducing-balance methods.
24.
Marking analysis: A learner attempts the following task: “A business buys a delivery vehicle for $40,000. It expects the vehicle to have a residual (resale) value of $5,000 after 5 years, and depreciates it using the straight-line method. (a) Calculate the annual depreciation charge. (b) Calculate the vehicle's book value after 2 years. (c) State one reason a business needs to account for depreciation on assets like this vehicle.” Their response addresses only this point: “Calculates annual depreciation = (cost − residual value) ÷ useful life = (40,000 − 5,000) ÷ 5.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates annual depreciation = (cost − residual value) ÷ useful life = (40,000 − 5,000) ÷ 5.
- Identifies the missing requirement: Calculates annual depreciation = $7,000.
- Identifies the missing requirement: Calculates book value after 2 years = 40,000 − (2 × 7,000) = $26,000.
- Identifies the missing requirement: States a valid reason, such as spreading the cost of the asset over its useful life to match expenses with the revenue it helps generate, or providing a more accurate value of the business's assets on its statement of financial position.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
25.
A business budgeted for sales revenue of $200,000 this month but achieved actual sales revenue of $215,000. It also budgeted for raw material costs of $50,000 but actually spent $58,000. (a) Calculate the variance for sales revenue, and state whether it is favourable or adverse. (b) Calculate the variance for raw material costs, and state whether it is favourable or adverse.
[4 marks]
Marking points
- Calculates the sales revenue variance = 215,000 − 200,000 = +$15,000.
- States that this is a favourable variance, since actual revenue exceeded the budgeted figure.
- Calculates the raw material cost variance = 58,000 − 50,000 = +$8,000.
- States that this is an adverse variance, since for a cost item, spending more than budgeted reduces profit.
Examiner tip: For revenue items, actual exceeding budget is favourable; for cost items, actual exceeding budget is adverse — the direction that counts as 'good' flips depending on the type of item.
26.
Marking analysis: A learner attempts the following task: “A business budgeted for sales revenue of $200,000 this month but achieved actual sales revenue of $215,000. It also budgeted for raw material costs of $50,000 but actually spent $58,000. (a) Calculate the variance for sales revenue, and state whether it is favourable or adverse. (b) Calculate the variance for raw material costs, and state whether it is favourable or adverse.” Their response addresses only this point: “Calculates the sales revenue variance = 215,000 − 200,000 = +$15,000.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Calculates the sales revenue variance = 215,000 − 200,000 = +$15,000.
- Identifies the missing requirement: States that this is a favourable variance, since actual revenue exceeded the budgeted figure.
- Identifies the missing requirement: Calculates the raw material cost variance = 58,000 − 50,000 = +$8,000.
- Identifies the missing requirement: States that this is an adverse variance, since for a cost item, spending more than budgeted reduces profit.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
27.
A business begins the year with inventory (stock) valued at $10,000. During the year it purchases a further $60,000 of inventory, and ends the year with inventory valued at $15,000. Its sales revenue for the year is $90,000. (a) Calculate the cost of sales (cost of goods sold) for the year. (b) Calculate the business's gross profit for the year.
[4 marks]
Marking points
- Uses the formula: cost of sales = opening inventory + purchases − closing inventory.
- Calculates cost of sales = 10,000 + 60,000 − 15,000 = $55,000.
- Uses the formula: gross profit = sales revenue − cost of sales.
- Calculates gross profit = 90,000 − 55,000 = $35,000.
Examiner tip: Cost of sales reflects only the cost of the inventory that was actually sold during the period, which is why closing inventory (unsold stock) is subtracted, not added.
28.
Marking analysis: A learner attempts the following task: “A business begins the year with inventory (stock) valued at $10,000. During the year it purchases a further $60,000 of inventory, and ends the year with inventory valued at $15,000. Its sales revenue for the year is $90,000. (a) Calculate the cost of sales (cost of goods sold) for the year. (b) Calculate the business's gross profit for the year.” Their response addresses only this point: “Uses the formula: cost of sales = opening inventory + purchases − closing inventory.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks]
Marking points
- Recognises credit for the stated point: Uses the formula: cost of sales = opening inventory + purchases − closing inventory.
- Identifies the missing requirement: Calculates cost of sales = 10,000 + 60,000 − 15,000 = $55,000.
- Identifies the missing requirement: Uses the formula: gross profit = sales revenue − cost of sales.
- Identifies the missing requirement: Calculates gross profit = 90,000 − 55,000 = $35,000.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
29.
A business's statement of financial position must always satisfy the accounting equation: Assets = Liabilities + Equity. At the end of the year, the business reports total assets of $500,000 and total liabilities of $180,000. (a) Calculate the business's total equity. (b) Explain, in one sentence, what the equity figure represents.
[3 marks]
Marking points
- Rearranges the accounting equation to: Equity = Assets − Liabilities.
- Calculates equity = 500,000 − 180,000 = $320,000.
- Explains that equity represents the owners' residual claim on the business's assets, i.e., what would be left for the owners if all liabilities were paid off using the business's assets.
Examiner tip: The accounting equation must always balance — if assets don't equal liabilities plus equity, there is an error somewhere in the accounts.
30.
Marking analysis: A learner attempts the following task: “A business's statement of financial position must always satisfy the accounting equation: Assets = Liabilities + Equity. At the end of the year, the business reports total assets of $500,000 and total liabilities of $180,000. (a) Calculate the business's total equity. (b) Explain, in one sentence, what the equity figure represents.” Their response addresses only this point: “Rearranges the accounting equation to: Equity = Assets − Liabilities.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks]
Marking points
- Recognises credit for the stated point: Rearranges the accounting equation to: Equity = Assets − Liabilities.
- Identifies the missing requirement: Calculates equity = 500,000 − 180,000 = $320,000.
- Identifies the missing requirement: Explains that equity represents the owners' residual claim on the business's assets, i.e., what would be left for the owners if all liabilities were paid off using the business's assets.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.