ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP’s financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow. Identify two external users of accounts. User 1: User 2: Identify two profitability ratios. Ratio 1: Ratio 2: Outline two possible reasons why ACP imports its raw materials. Reason 1: Reason 2: [ 1 12 Explain one benefit and one limitation to ACP of being ethical. Benefit: Explanation: Limitation: Explanation: Do you think making a profit is more important for a business than managing its cash flow? Justify your answer. 1 12

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THEORY

2023

Paper 1, Variant 1

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JTA is a public limited company. It sells holidays in a mass market. The business has 44 shops and 200 employees. The Finance Director is considering ways a business can increase its profit. She has been asked to analyse JTA’s financial performance using ratio analysis. An extract from JTA’s financial statements is shown in Table 3.1. Table 3.1 Extract from JTA’s financial statements for 2023 ($ million) Revenue Profit Capital employed Define ‘capital employed’. Calculate JTA’s return on capital employed (ROCE). Show your working. Working: Final answer: Outline two benefits to JTA of selling in a mass market. Benefit 1: Benefit 2: Explain one advantage and one disadvantage of JTA being a public limited company. Advantage: Explanation: Disadvantage: Explanation: Do you think increasing prices is the best way for a business to increase its profit? Justify your answer.

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THEORY

2024

Paper 1, Variant 1

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Bolton Hotel is a family-owned hotel. Most of its revenue is made in January and February. An extract of the hotel’s accounts is shown in Table 1. The Managing Director said: ‘I need to find ways to improve liquidity’. He is also concerned about the high level of staff turnover. He thinks that poor motivation might be the reason for many staff leaving their jobs. Table 1: Extract from Bolton Hotel’s balance sheet ($000s) Fixed assets Current assets: Stock Debtors Cash Current liabilities What is meant by a ‘balance sheet’? Calculate the acid test ratio for 2012. Identify and explain two problems for a business caused by many of its staff leaving. Problem 1: Explanation: Problem 2: Explanation: Identify and explain three suitable ways to improve motivation of staff at Bolton Hotel. Way 1: Explanation: Way 2: Explanation: Way 3: Explanation: Explain two ways to improve the liquidity of the hotel. Recommend which way the Managing Director should use. Justify your answer. Way 1: Way 2: Recommendation:

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THEORY

2013

Paper 1, Variant 3

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LWM uses batch production to make car tyres in 15 different sizes. Last year LWM sold 60 million tyres including 40 million tyres of its best-selling size. The Finance Director has been looking at the financial data shown in Table 1. She said: ‘Liquidity is important. I need to do some ratio analysis to measure business performance. In the previous year our Return on Capital Employed was 33%.’ The directors are worried about increased competition but they cannot decide on the best way for LWM to respond. Table 1: Extract of financial data for 2016 ($m) Revenue Profit Non-current liabilities Capital employed What is meant by ‘liquidity’? Identify two reasons why a director might want to measure business performance. Reason 1: Reason 2: Calculate the Return on Capital Employed (ROCE) for 2016. Explain what this result shows about LWM’s performance. 1 2 Identify and explain one advantage and one disadvantage to LWM of using batch production. Advantage: Explanation: Disadvantage: Explanation: Explain two ways LWM might respond to increased competition. Recommend which way LWM should choose. Justify your answer. [ 1 2

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THEORY

2017

Paper 1, Variant 2

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CLW makes wood furniture, including chairs and tables. Demand has risen quickly over the past 3 years and the business needs to increase the scale of production at its factory. The factory is located near the city centre in an area of low unemployment. The Finance Director has produced a business plan, including a balance sheet. The Finance Director is pleased with CLW’s liquidity. Table 1: Extract of financial information Non-current assets ($m) Current assets: Inventory ($m) Trade receivables ($m) 24 0 Cash ($m) Total current assets ($m) Current Liabilities ($m) Current ratio 1.25:1 ? Acid test ratio 0.875:1 ? What is meant by a ‘business plan’? What is meant by a ‘balance sheet’? Identify and explain two possible benefits for CLW of holding high inventory levels. Benefit 1: Explanation: Benefit 2: Explanation: Identify and explain two factors (other than finance) that CLW’s management need to consider when increasing the scale of production. Factor 1: Explanation: Factor 2: Explanation: Do you think the Finance Director is right to be pleased with the liquidity of CLW in 2014? Justify your answer using the data in Table 1 and appropriate ratios.

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THEORY

2015

Paper 1, Variant 2

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Dowson is a large business which owns a number of shops. It sells a range of electrical goods such as computers and televisions. The Finance Director has been looking at some recent financial data, as shown in Table 1. He is pleased with Dowson's liquidity but knows he must reduce its high level of debt including an overdraft of $6m. He said: 'The economy is in recession. Many small retailers have failed. Size is an advantage!’ Table 1: Extract of financial data for Dowson $300m $280m Revenue $180m $175m Profit 1.5:1 1.2:1 Current ratio 0.5:1 0.8:1 Acid test ratio 10% 10% Return on capital employed What is meant by ‘Return on capital employed’? What is meant by a ‘recession’? Identify and explain two ways in which the size of the business may benefit Dowson. Way 1: Explanation: Way 2: Explanation: 1 12 Identify and explain two problems for Dowson of having a high level of debt. Problem 1: Explanation: Problem 2: Explanation: Do you think the Finance Director is right to be pleased with the liquidity of the business? Justify your answer using the ratio results in Table 1. [ 1 12

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THEORY

2016

Paper 1, Variant 1

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PBG makes cars in country A. The Managing Director has been looking at PBG’s financial accounts. He is worried about PBG’s liquidity position. An extract from the balance sheet is shown in Table 2. The Managing Director said: ‘New legal controls mean that all cars sold in country A will have to be electric by 2025. PBG has to find new markets for its existing cars while we develop new models.’ One option for PBG is to form a joint venture with a car manufacturer in another country. Table 2: Extract from PBG’s balance sheet Current assets $m Current liabilities $m Non-current liabilities $m 0.3 0.4 Acid test ratio What is meant by ‘non-current liabilities’? Calculate PBG’s current ratio for 2019. Identify and explain one way each of the following stakeholder groups might use PBG’s financial accounts. Trade Payables (Creditors): Explanation: Shareholders: Explanation: 1 19 Identify and explain one advantage and one disadvantage to PBG of forming a joint venture. Advantage: Explanation: Disadvantage: Explanation: Do you think the Managing Director is right to be worried about PBG’s liquidity position? Justify your answer by referring to appropriate ratios. 1 19

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THEORY

2019

Paper 1, Variant 3

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Dhoni is a successful small business. It has five shops which sell kitchen equipment such as cooking pots and knives. Most of its products are sold to restaurants and hotels. The company has received a takeover offer of $700 000 from a large competitor. Dhoni’s shareholders have been looking at the accounts. They are not sure whether shareholders would benefit from the takeover. Dhoni’s return on capital employed was 7% in 2015 and 9% in 2016. Table 1: Extract from Dhoni’s accounts ($000s) Non-current assets Current assets: Inventory Trade receivables Cash Current liabilities What is meant by a ‘non-current asset’? Calculate the acid test ratio in 2016. Identify and explain two reasons why Dhoni has trade receivables. Reason 1: Explanation: Reason 2: Explanation: Identify two stakeholder groups (other than shareholders) and explain how they might use Dhoni’s accounts. Stakeholder group 1: Explanation: Stakeholder group 2: Explanation: Do you think the takeover would benefit Dhoni’s shareholders? Justify your answer.

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THEORY

2016

Paper 1, Variant 2

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WFH produces hats and sells them to a mass market. It holds a high level of inventory. The Managing Director is concerned about the liquidity of the business and has been analysing WFH’s financial statements. An extract is shown in Table 2.1. The Managing Director thinks that the business might fail. Other stakeholder groups might also be interested in WFH’s financial statements. Table 2.1 Extract from WFH’s financial statements ($000) Current assets Inventory Trade receivables Cash Current liabilities (10) Profit/loss Identify two possible causes of business failure. Cause 1: Cause 2: Calculate WFH’s acid test ratio for 2022. Show your working. Working: Final answer: 1 13 Identify four reasons why businesses hold inventory. Reason 1: Reason 2: Reason 3: Reason 4: Explain why the following two stakeholder groups might be interested in WFH’s financial statements. Employees: Explanation: Suppliers: Explanation: [ 1 13 Do you think it is always better for a business to sell to a mass market? Justify your answer. 1 13

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THEORY

2023

Paper 1, Variant 2

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HTB is a public limited company. It manufactures a range of computers. HTB spends a lot of money on advertising as it is in a competitive market. The management believes that the product is the most important element in their marketing mix. To meet increasing demand HTB is looking to expand their business. It plans to raise extra capital by issuing more shares. The Finance Director has been looking at the data in Table 1. Table 1: Selected financial data from HTB ($m) Sales Net Profit Long Term Liabilities Capital Employed What is meant by ‘public limited company’? Calculate the Return on Capital Employed for 2012. Identify and explain two reasons why shareholders might be interested in the accounts of HTB. Reason 1: Explanation: Reason 2: Explanation: Identify and explain three factors that HTB should consider before issuing more shares. Factor 1: Explanation: Factor 2: Explanation: Factor 3: Explanation: Do you think that the product is the most important element of the marketing mix for HTB? Justify your answer.

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THEORY

2012

Paper 1, Variant 2

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