10.1. Financial statements
A subsection of Business Studies, 9609, through 10. Finance and accounting (A Level)
Listing 4 of 4 questions
Nearly New (NN) NN sells second-hand computers. NN is owned by Nathan who is a sole trader. Nathan is a fully trained and qualified computer engineer. Nathan buys broken computers from large electrical retailers and repairs them. The repaired computers are then sold through NN’s website. Nathan uses a cost-based pricing strategy and adds 50% to the cost of the computer and the cost of repairs. Nathan currently works alone and has no employees. Nathan has recently purchased, for $2000, a batch of 20 laptop computers all of which have broken screens. Nathan thinks that each will cost $50 to repair and he hopes to make a profit from selling them. One of Nathan’s biggest problems is cash flow. Nathan pays for all of his inventory in cash and he must spend time repairing the computers before he can sell them. Customers expect a range of computers to choose from and expect next day delivery. This means that most of Nathan’s working capital is tied up in inventory. Sometimes Nathan is offered large batches of computers and he cannot buy them because he does not have the cash available. Nathan wants to recruit an employee to allow him to increase the production at NN. He has interviewed two potential employees and he has made some notes about their suitability (see Table 2). Table 2: Nathan’s notes on the potential employees Name Katy Sahdat Current income per year $20 000 $25 000 Industry experience Two years as a computer repairer for a large electrical retailer Ten years as a sole trader repairing computers Qualifications University degree in computer engineering No formal qualifications Age Skills • Repairing computers • Being organised • Repairing computers • Managing employees • Communication with customers Define the term ‘inventory’ (line 9). Briefly explain the term ‘sole trader’ (line 1). Calculate the total profit that Nathan would make if he sold the whole batch of repaired laptop computers (lines 4 to 8). Explain one advantage to Nathan of using a cost-based pricing strategy. Analyse two methods Nathan could use to improve NN’s cash flow. Recommend which one of the two potential employees Nathan should select. Justify your recommendation.
9609_w17_qp_22
THEORY
2017
Paper 2, Variant 2
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Cartoon Costumes (CC) Ava is an entrepreneur. After leaving school she set up CC as a private limited company and she owns 100% of the shares. CC sells ‘dressing up’ costumes for children using ecommerce. Each costume is based on popular TV and movie characters that appeal to children. CC owns a large sewing machine which Ava uses to create the costumes. Each costume is made from brightly coloured materials which CC purchases in bulk. Ava has to produce more inventory to grow the business. This can be expensive so Ava is thinking of using crowdfunding to finance this growth. CC has completed its second full year of trading. An extract from the statement of financial position is in Table 2.1. Table 2.1: Extract from CC’s statement of financial position at 31 August $(000) $(000) Non-current assets Current assets Current liabilities Non-current liabilities Reserves and equity Until recently CC operated from Ava’s house. However, two months ago she rented a shop in a shopping centre. Ava wants to recruit a salesperson for the shop so that she can concentrate on designing and making costumes. Details about the two best applicants are in Table 2.2. Ava must now decide who to employ. Table 2.2: Details about the two best applicants Liu Ahura Date of birth 12 February 2004 19 September 1975 Employment history • 2 years working part-time in a small retail food shop • 10 years as an actor • 10 years as manager of a large clothing shop • 5 years unemployed Highest qualifications A Levels in Business, Design Technology and Mathematics University degree in Acting Personal attributes • Good customer service skills • Likes working with other people • Highly motivated • Good administrative skills • Works well on their own Career ambitions • Would like to go to university • Would like to own a business in the future None Define the term ‘inventory’ (line 7). Explain the term ‘entrepreneur’ (line 1). Refer to Table 2.1. Calculate the change in CC’s working capital between 2021 and 2022. Explain the distinction between revenue expenditure and capital expenditure for CC. Analyse one possible advantage and one possible disadvantage to CC of using crowdfunding to finance growth. Refer to Table 2.2 and other information. Recommend which person Ava should employ. Justify your recommendation.
9609_w22_qp_22
THEORY
2022
Paper 2, Variant 2
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Questions Discovered
4