AQA GCSE Business: Finance (8132) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 3.6 Finance in the AQA GCSE Business (8132) specification, for first teaching from September 2017: sources of finance, cash flow, financial terms and calculations, and analysing financial performance. All businesses and figures are invented. Revise first with the study guide and revision notes. See also the AQA GCSE Business hub, the checklist and the free diagnostics.

Questions

1. Identify two internal sources of finance. [2]

2. Tamar Lane Cafe can buy a coffee machine for a cash price of £2,700. The hire purchase deal is a £900 deposit plus 18 monthly payments of £120. Calculate how much more the hire purchase deal costs than paying cash. [3]

3. Hallam Fitness is a gym that has traded for three years. It needs £60,000 for new equipment and has £15,000 of retained profit. The owners are considering a five-year bank loan or a new share issue to local investors. Evaluate which source it should use for the remaining money. [8]

4. Penrose Bakes has prepared part of its cash flow forecast (£).

	May	June	July
Opening balance	3,000	C	3,000
Cash inflows	20,000	18,500	18,500
Cash outflows	21,500	17,000	19,000
Net cash flow	A	1,500	-500
Closing balance	B	D	2,500

(a) State the values of A, B, C and D. [4] (b) Explain one reason why the forecast is useful to Penrose Bakes. [2]

5. In December, Tolley Toys sells goods on credit for £30,000. They cost £18,000 to make and were paid for in December. The customers pay in February. Explain why Tolley Toys makes a profit in December but may still have a cash flow problem. [4]

6. Sunnaby Signs makes signs for shops. Its customers take 60 days to pay, but its suppliers want payment in 30 days. The bank offers an overdraft. Evaluate two ways Sunnaby Signs could solve its cash flow problem and recommend one. [6]

7. Wolsey Wheels makes 600 bicycle wheels a month. Fixed costs are £5,000 a month and variable costs are £14 a wheel. Each wheel sells for £30. (a) State what is meant by variable costs. [1] (b) Calculate total costs. [2] (c) Calculate profit. [2]

8. Kintore Kitchens is considering a new oven line costing £45,000. It expects total returns of £99,000 over six years. A set of delivery vans would give an average rate of return of 14%. (a) Calculate the average rate of return for the oven line. [4] (b) Recommend which project to choose and justify your answer. [2]

9. A break-even chart for Garsdale Print shows these readings. Fixed costs are £8,000. At 1,000 units, total costs are £14,000 and revenue is £16,000. At 800 units, total costs and revenue are both £12,800. Garsdale sells 1,100 units; its lines at 1,100 units read: total costs £14,600 and revenue £17,600. (a) Identify the break-even output. [1] (b) Calculate the margin of safety. [2] (c) Calculate the profit at 1,100 units. [2]

10. Penrose Bakes plans a new cafe and has used break-even analysis. Evaluate how useful break-even analysis is to the business. [6]

11. Fellbeck Foods has these figures. This year: sales revenue £400,000, cost of sales £260,000, expenses £108,000. Last year: gross profit margin 40%, net profit margin 12%, sales revenue £360,000. A main competitor has a gross profit margin of 38% and a net profit margin of 9%. (a) Calculate Fellbeck’s gross profit margin and net profit margin this year. [4] (b) Evaluate Fellbeck’s financial performance. [6]

12. A small business has these items on its statement of financial position: delivery van £18,000; inventories £4,000; bank loan repayable over five years £15,000; trade payables £6,000; cash at bank £2,500; money owed by customers £3,500. (a) Classify each item as an asset or a liability. [2] (b) Calculate net assets. [3] (c) Explain why the statement of financial position is described as a snapshot in time. [2]

Answers

1. Retained profit [1]; selling unwanted assets [1]. [2] Examiner insight: Family and friends, loans and overdrafts are external sources, so naming them does not answer the question.

2. Monthly payments 18 x £120 = £2,160 [1]. Total paid £900 + £2,160 = £3,060 [1]. Extra cost £3,060 - £2,700 = £360 [1]. [3] Examiner insight: Show each stage of the working, so that a slip in one step is easy to find and does not hide the rest.

3. Loan: provides a large sum quickly and repayments are fixed, so the owners keep full control [1]; but interest raises costs for five years and repayments must be made even in a quiet year [1]. Share issue: no repayment or interest needed [1]; but new shareholders share control and profits [1]. As an established business with three years of trading and £15,000 of its own profit, Hallam can show lenders a record, so a loan is realistic [1]. Using retained profit first cuts the amount borrowed to £45,000 [1]. Judgement: a loan for the remaining £45,000 is better because the owners keep control and the cost is predictable [1], provided membership income covers the repayments [1]. [8] Examiner insight: Strong evaluation ties each point to the case facts (age, retained profit, size of sum) and ends with a justified choice rather than a list.

4. (a) A = 20,000 - 21,500 = -1,500 [1]. B = 3,000 - 1,500 = 1,500 [1]. C = 1,500 (June opens with May’s closing balance) [1]. D = 1,500 + 1,500 = 3,000 [1]. [4] (b) It shows when cash will be short, such as May’s negative net cash flow [1], so Penrose can arrange an overdraft or delay payments in advance [1]. [2] Examiner insight: Reasons are strongest when they use a figure from the table and say what action follows.

5. Profit in December is £30,000 - £18,000 = £12,000 [1] because revenue is recorded when the sale is made. The customers have not yet paid, so no cash comes in during December [1]. The £18,000 for production has already been paid out [1], so cash flow is negative until February and Tolley may be unable to pay bills [1]. [4] Examiner insight: Distinguish clearly between recording a sale and receiving the money; an answer that only says cash is different from profit gains little.

6. Overdraft: gives immediate cash to pay suppliers [1] but interest is high and the bank can withdraw it [1]. Ask suppliers for longer to pay (re-schedule payments): costs nothing and matches the 60-day customer delay [1] but suppliers may refuse or lose trust [1]. Recommendation: negotiate longer terms, because the gap is a regular timing problem rather than a one-off [1]; keep the overdraft only as a back-up [1]. [6] Examiner insight: Match the solution to the cause given in the stem; recommendations that ignore the 30 and 60 day figures are weaker.

7. (a) Costs that change with output [1]. [1] (b) Variable costs 600 x £14 = £8,400 [1]. Total costs £5,000 + £8,400 = £13,400 [1]. [2] (c) Revenue 600 x £30 = £18,000 [1]. Profit £18,000 - £13,400 = £4,600 [1]. [2] Examiner insight: Include the £ sign and the unit on the answer line; keep each step labelled so the working is easy to follow.

8. (a) Total profit £99,000 - £45,000 = £54,000 [1]. Average annual profit £54,000 / 6 = £9,000 [1]. £9,000 / £45,000 x 100 [1] = 20% [1]. [4] (b) Choose the oven line because 20% is higher than the vans’ 14% [1]; but the returns are forecasts, so actual returns could differ [1]. [2] Examiner insight: A recommendation needs a reason using the calculated figure; forgetting to subtract the cost of investment first is a common route to the wrong ARR.

9. (a) 800 units [1]. [1] (b) Margin of safety = 1,100 - 800 [1] = 300 units [1]. [2] (c) Profit = £17,600 - £14,600 [1] = £3,000 [1]. [2] Examiner insight: Margin of safety is in units, not pounds; state the unit.

10. Benefits: shows the sales needed to cover costs before opening [1]; helps support a loan application and test changes in price or costs [1]. Limits: assumes all output is sold at a constant price and constant variable cost per unit [1]; based on forecasts for a new cafe with no sales history [1]; ignores timing of cash and competitors [1]. Judgement: useful as a starting guide for the new cafe, but not enough alone, so Penrose should check it against market research and a cash flow forecast [1]. [6] Examiner insight: Evaluation needs both sides and a conclusion that states how far the technique helps, in this business.

11. (a) Gross profit £400,000 - £260,000 = £140,000, margin 140,000 / 400,000 x 100 = 35% [2]. Net profit £140,000 - £108,000 = £32,000, margin 32,000 / 400,000 x 100 = 8% [2]. [4] (b) Revenue rose by about 11% [1] but both margins fell, gross from 40% to 35% and net from 12% to 8% [1]. Net profit fell from £43,200 to £32,000 [1]. Cost of sales grew by about 20%, much faster than revenue, suggesting higher input costs or discounting [1]. Against the competitor, Fellbeck’s gross margin (35% against 38%) and net margin (8% against 9%) are lower [1]. Judgement: performance is weaker overall; owners and lenders will worry, though revenue growth shows demand, and the next step is cutting cost of sales [1]. [6] Examiner insight: Comparing across time and with a competitor, then judging, is what separates analysis from simply stating the percentages.

12. (a) Assets: delivery van, inventories, cash at bank, money owed by customers [1]. Liabilities: bank loan, trade payables [1]. [2] (b) Total assets £18,000 + £4,000 + £2,500 + £3,500 = £28,000 [1]. Liabilities £15,000 + £6,000 = £21,000 [1]. Net assets £28,000 - £21,000 = £7,000 [1]. [3] (c) It shows assets and liabilities on one particular date [1]. They change the next day as cash moves, so it does not show performance over a period [1]. [2] Examiner insight: Money owed by customers is an asset because it is owed to the business, a frequent point of confusion.

Where marks are usually lost

• Listing external sources when the question asks for internal ones.
• Quoting only advantages of a source and missing the link to the case.
• Failing to carry one month’s closing balance into the next month’s opening balance.
• Stating that cash and profit are different without showing how.
• Subtracting nothing from the total return before working out ARR.
• Giving the margin of safety without units.
• Writing a list for “evaluate” with no judgement.
• Using revenue, not cost of sales, to find gross profit.
• Treating money owed by customers as a liability.

Next steps

• Revise with the revision notes and the study guide.
• Course hub: AQA GCSE Business; checklist.
• Take the free diagnostics.
• Book a free trial class.

Frequently asked questions

What does section 3.6 Finance cover in AQA GCSE Business (8132)? Sources of finance, cash flow, financial terms and calculations including average rate of return and break-even, and analysing the performance of a business through its financial statements.

What are the most common mistakes in GCSE Business finance calculations? Failing to carry a month’s closing balance into the next opening balance, using revenue instead of cost of sales to find gross profit, and giving the margin of safety without units.

Is the margin of safety measured in pounds or units? In units. It is actual output minus break-even output, so state the unit with your answer.

Is money owed by customers an asset or a liability? An asset, because it is money owed to the business. Treating it as a liability is a common error on statement of financial position questions.

Official syllabus

Aligned to AQA GCSE Business (8132), first teaching from September 2017, published by AQA: section 3.6 Finance.