A Level Business: Business finance and Sources of finance (Cambridge 9609) – 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.

These questions cover sections 5.1 Business finance and 5.2 Sources of finance of the Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028, an AS Level topic that A Level candidates also study. All businesses and people are invented. Revise first with the study guide and the revision notes. See the Cambridge A Level Business hub, the printable checklist and the free diagnostics.

Questions

1. Define the term working capital. [2]

2. Norrisby Dairy starts June with £6,000 in the bank. It sells £15,000 of cheese on credit, and customers will pay in August. During June it pays £9,500 for milk, wages and rent.

(a) Calculate the profit for June. [1] (b) Calculate the bank balance at the end of June. [2] (c) Explain why a profitable business like Norrisby Dairy may still be at risk of failure. [2]

3. Distinguish between capital expenditure and revenue expenditure, giving an example of each. [4]

4. Brantwick Signs has inventory of £9,000, trade receivables of £16,000 and cash of £2,500. Trade payables are £12,000 and the overdraft is £6,500. Credit sales are £146,000 a year, about £400 a day, and customers take 45 days to pay.

(a) Calculate working capital. [2] (b) Calculate the cash released if customers are persuaded to pay in 30 days. [2] (c) Explain one risk to Brantwick Signs of insisting on payment in 30 days. [2]

5. Explain what is meant by liquidation and by administration. [4]

6. Kellerby Foods sells its warehouse for £340,000 and rents it back for £2,500 a month on a ten-year agreement.

(a) Calculate the rent paid in one year. [1] (b) Calculate the rent paid over ten years. [1] (c) Analyse one benefit and one drawback of this decision for Kellerby Foods. [3]

7. Explain why a public limited company usually has more sources of finance than a sole trader. [4]

8. A small caterer needs £12,000 for 3 months to buy ingredients for a large contract. An overdraft would charge 14% a year on the amount used. A 12-month bank loan would charge 10% a year.

(a) Calculate the interest on the overdraft if £12,000 is used for 3 months. [2] (b) Calculate the interest on the loan for 12 months. [1] (c) Justify which source is more appropriate. [2]

9. Distinguish between leasing and hire purchase. [4]

10. Haverdon Cycles earns a profit of £21,000 a year before finance costs. It already pays £9,600 a year in interest on existing loans. The owner needs £60,000 for vans, which would raise annual profit before finance costs by £14,000. She is considering: a new bank loan at 9% a year (assume interest of 9% of £60,000 each year); leasing the vans at £1,350 a month for four years; or a new partner who invests £60,000 for 30% of profit after existing interest. Ignore tax.

(a) Calculate annual profit after all interest if the bank loan is used. [2] (b) Calculate the owner’s share of annual profit if the partner invests. [2] (c) Recommend which option the owner should choose. [5]

11. Evaluate whether retained earnings are the best source of finance for an established business. [8]

Answers

1. Working capital is the finance available for day-to-day operations [1], equal to current assets minus current liabilities [1]. [2] Examiner insight: Giving the formula as well as the idea secures both marks; “money in the bank” confuses it with cash.

2. (a) £15,000 − £9,500 = £5,500 [1]. (b) £6,000 − £9,500 [1] = −£3,500, so the account is overdrawn by £3,500 [1]. (c) Customers do not pay until August, so cash is short for two months [1]. If Norrisby cannot pay suppliers or wages, or the bank refuses more overdraft, it can fail despite the profit [1]. Examiner insight: Keep the cash balance separate from the profit figure; quoting £5,500 as the bank balance is the usual loss.

3. Capital expenditure is spending on non-current assets used for more than a year [1], for example a delivery van [1]. Revenue expenditure is spending on the everyday running costs of the business [1], for example wages or repairs [1]. [4] Examiner insight: Each half needs its own example; two definitions without examples cap the answer.

4. (a) Current assets = £9,000 + £16,000 + £2,500 = £27,500; current liabilities = £12,000 + £6,500 = £18,500 [1]. Working capital = £9,000 [1]. (b) 15 days fewer × £400 [1] = £6,000 released [1]. (c) Customers may dislike the tighter terms and buy from a rival [1], so sales revenue could fall by more than the cash gained [1]. Examiner insight: Show current assets and liabilities separately before subtracting, so a slip in one line is still visible.

5. Liquidation is the closing of the business [1], with its assets sold to pay creditors as far as they allow [1]. Administration is when an outside administrator takes charge [1] to try to rescue the business or sell it as a going concern [1]. [4] Examiner insight: The contrast is that liquidation ends the business and administration tries to save it; describe the outcome of each.

6. (a) £2,500 × 12 = £30,000 [1]. (b) £30,000 × 10 = £300,000 [1]. (c) Benefit: Kellerby gains £340,000 of cash now without borrowing [1], which could pay debts or fund growth [1]. Drawback: it must pay £300,000 over ten years and no longer owns the warehouse [1]. Examiner insight: Use the figures from the stem to make each point specific to Kellerby.

7. A public limited company can sell shares to the public [1], raising large sums that never have to be repaid [1]. A sole trader relies on the owner’s savings, retained earnings and loans [1], and lenders may see a single owner as a greater risk [1]. [4] Examiner insight: A comparison needs both businesses. Saying a plc is “bigger” without naming the sources gains nothing.

8. (a) £12,000 × 14% × 3/12 [1] = £420 [1]. (b) £12,000 × 10% = £1,200 [1]. (c) The overdraft is more appropriate [1] because the need lasts only 3 months and interest is charged only on the time used, so it costs £780 less than the loan [1]. (A reasoned alternative on risk of recall may also be credited.) Examiner insight: A justification must reach a choice and use the numbers; “overdrafts are flexible” alone is thin.

9. Leasing is renting an asset for regular payments [1], and the business never owns it [1]. Hire purchase is paying instalments for an asset [1], which the business owns after the final payment [1]. [4] Examiner insight: Ownership at the end is the distinction examiners look for.

10. (a) Profit before finance costs = £21,000 + £14,000 = £35,000. Interest = £9,600 + 9% × £60,000 (£5,400) = £15,000 [1]. Profit = £20,000 [1]. (b) £35,000 − £9,600 = £25,400 [1]. Partner takes 30% = £7,620, so the owner keeps £17,780 [1]. (c) Leasing costs £1,350 × 12 = £16,200 a year, leaving profit of £9,200 [1]. The loan leaves £20,000 and the partner option £17,780 for the owner [1]. The loan gives the highest profit and keeps full control [1], but adds to existing debt and needs repayment of principal of about £12,000 a year if repaid over five years [1]. The partner option avoids debt but shares control and 30% of profit [1]. Recommend the loan if profit is stable enough to cover the interest; otherwise the partner. [5] Examiner insight: Compare all three options with figures and end in a clear recommendation. Stating the assumption about interest shows awareness of its limits.

11. For: retained earnings carry no interest and need no repayment [1], and ownership and control are not shared [1]. They are available quickly without lender approval [1]. Against: they exist only if the business has made profit and kept it [1], they may not be enough for a large project such as a new factory [1], and keeping profit means lower dividends for owners [1]. Judgement: they are often the best first choice for a profitable business with a modest need, but a large or urgent need, or a low-profit year, requires external finance such as a loan [1]. The conclusion depends on the size of the need and the profit history [1]. [8] Examiner insight: Evaluation needs both sides and a reasoned conclusion that depends on the situation; “it is best” with only advantages stays at analysis.

Where marks are usually lost

• Giving profit as the bank balance, or the other way round.
• Defining working capital as cash.
• Mixing up liquidation (closure) and administration (rescue attempt).
• Failing to apply the figures from the stem in an explanation.
• Ignoring the length of time when calculating interest.
• Recommending a source without rejecting at least one alternative.
• Listing sources of finance with no link to cost, control or the use.
• Describing hire purchase as renting, or leasing as ownership.

Next steps

• Review with the revision notes and the study guide.
• Course hub: Cambridge A Level Business and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

Which sections of Cambridge AS and A Level Business 9609 do these questions cover? Section 5.1 Business finance and section 5.2 Sources of finance. The questions are original and written for practice.

What is the difference between liquidation and administration? Liquidation closes the business and sells its assets to pay creditors. Administration is when an outside administrator takes charge to try to rescue the business or sell it as a going concern.

What is the difference between leasing and hire purchase? With leasing, the business rents an asset for regular payments and never owns it. With hire purchase, the business pays in instalments and owns the asset once the final payment is made.

How do I answer a recommend question on sources of finance? Compare the options using the figures given, link each to its cost, control and use, and reject at least one alternative before making a clear recommendation.

Why can a profitable business run short of cash? Profit is recorded when sales are made, but customers may pay later while costs must be paid now, so the bank balance can be negative even when the business is profitable.

Official syllabus

Cambridge International AS & A Level Business 9609, syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education). Sections 5.1 Business finance and 5.2 Sources of finance.