Edexcel GCSE Business: Limited liability and business location (1BS0) – 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 Theme 1, Topic 1.4 items 1.4.1 and 1.4.2 of the Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0) specification, Issue 2, July 2022. The specification says formulae are not provided in the examinations, so work the calculations from memory. Partner liability and franchise fees in these answers are general knowledge, not specification text.

Links: the study guide, the revision notes, the Business hub, the printable checklist and the free diagnostics.

Questions

1. Define the term “limited liability”. [2]

2. Give two types of business ownership for start-ups, other than a sole trader. [2]

3. Dev runs Wren Joinery as a sole trader. The business closes owing £63,500. Selling all of its assets raises £41,200.

(a) Calculate the amount Dev must find from his own resources. [2] (b) Dev’s cousin runs a similar firm as a private limited company, having paid £15,000 for shares. State the most she can lose if that firm fails, and give one reason. [2]

4. Three partners run Larkfield Signs. They put in £30,000, £20,000 and £10,000 and agree to share profit in the ratio of the capital they invested. Profit this year is £42,000.

(a) Calculate the profit each partner receives. [3] (b) Explain one disadvantage of a partnership. [3]

5. Bean and Bloom is a coffee franchise. A new franchisee pays an initial fee of £18,000 and a royalty of 5% of sales revenue. Her first-year sales revenue is £264,000.

(a) Calculate the royalty she pays in the first year. [2] (b) Calculate her total payments to the franchisor in the first year. [1]

6. Outline one disadvantage to the Bean and Bloom franchisee of buying the franchise. [2]

7. Explain one way in which proximity to labour may influence where a business locates. [3]

8. Saltmarsh Smokehouse buys fresh fish, smokes it and sells it to restaurants. Fish loses quality within a day or two of landing. The owners are choosing between a unit by a fishing harbour and one in a town 90 miles inland. Analyse how the nature of the business activity affects where Saltmarsh Smokehouse should locate. [6]

9. A clothing maker compares two sites for a year.

	Site X	Site Y
Rent	£36,000	£21,000
Wages	£88,000	£71,000
Delivery costs	£9,500	£17,200
Expected sales revenue	£310,000	£262,000

(a) Calculate the total annual cost of each site. [2] (b) Calculate the percentage by which expected sales revenue at Site X is higher than at Site Y. Give your answer to 1 decimal place. [2]

10. Pennant Yarns sells wool from a rented shop on a high street. Its owner is thinking of selling mainly through a website and moving to a cheaper unit on an industrial estate. Analyse the impact of the internet on the location decision for Pennant Yarns. [6]

11. Sana wants to open Greenfold Cycles, a repair and sales workshop that needs £50,000 to start. She has £20,000 of her own savings. She is considering two options.

Option 1: trade as a sole trader and borrow £30,000 from a bank. Option 2: form a private limited company. Sana buys shares worth £20,000 and a friend, Tomas, buys shares worth £30,000.

Justify which option Sana should choose. [9]

12. Sweet Harbour Cakes bakes celebration cakes. The owner is choosing between two options.

Option A: a high-street shop with rent of £2,800 a month, delivery and packaging costs of £2,500 a year and expected sales revenue of £195,000 a year. Option B: a low-rent kitchen unit with rent of £900 a month, delivery and packaging costs of £16,000 a year, selling mainly online, with expected sales revenue of £128,000 a year.

Evaluate which option the business should choose. [9]

Answers

1. The owner’s possible loss is restricted to the amount they have invested in the business [1], so creditors cannot claim the owner’s personal wealth to cover the debts [1]. [2] Examiner insight: A definition earns credit when it says what is limited and who is protected. “The business has limited debts” is a common slip, because the limit applies to the owner’s loss.

2. Partnership [1] and private limited company [1]. [2] Examiner insight: Name only the types asked for. Repeating a sole trader wastes the line.

3. (a) Shortfall = 63,500 - 41,200 [1] = £22,300 [1]. [2] (b) The most she can lose is £15,000 [1], because limited liability restricts the loss to the amount invested in shares, and her personal wealth is protected [1]. [2] Examiner insight: Show the subtraction before the final figure, and include the pound sign.

4. (a) Total capital = 30,000 + 20,000 + 10,000 = £60,000, so the shares are 3 : 2 : 1 [1]. One part = 42,000 / 6 = £7,000 [1]. The partners receive £21,000, £14,000 and £7,000 [1]. [3] (b) One disadvantage is unlimited liability, which in general applies to ordinary partners [1]. Because each partner is personally responsible for the debts, a partner’s poor decision could force the others to pay from their own savings [1], which may make them reluctant to take business risks or to trust one another [1]. [3] Examiner insight: An “explain” answer generally needs a developed statement with two expansions.

5. (a) Royalty = 5% x 264,000 [1] = £13,200 [1]. [2] (b) 18,000 + 13,200 = £31,200 [1]. [1] Examiner insight: Part (b) rewards remembering to include the one-off fee as well as the royalty.

6. The franchisee must pay an initial fee and a royalty every year [1], which reduces profit, so she keeps less of the money earned at the coffee shop than an independent owner would [1]. [2] Examiner insight: An outline works best with two linked points that stay in the coffee-shop context.

7. Locating near a pool of suitable workers makes recruitment easier [1], because there are enough people with the right skills nearby [1], which can lower recruitment and training cost and help the business fill vacancies quickly [1]. [3] Examiner insight: “Labour” alone is not an explanation. The chain from skilled workers nearby to a business benefit is what gives the answer depth.

8. Identify the activity: the fish is perishable and loses quality in a day or two [1]. A harbour site cuts the transport time between landing and smoking [1], which protects quality and cuts waste [1]. A location inland would add around 90 miles of travel, raising transport costs and the risk of spoilage [1]. However, restaurants are the customers, and they may be in towns, so delivery of the finished product also matters [1]. A judgement that the harbour is the better location, because smoked fish lasts longer and can travel to customers afterwards [1]. [6] Examiner insight: Strong analysis uses the facts in the stem (perishable, one or two days, 90 miles) and weighs them against the market. Stating “close to materials” with no link to the fish scores less.

9. (a) Site X = 36,000 + 88,000 + 9,500 = £133,500 [1]. Site Y = 21,000 + 71,000 + 17,200 = £109,200 [1]. [2] (b) Difference = 310,000 - 262,000 = £48,000 [1]. Percentage = 48,000 / 262,000 x 100 = 18.3% [1]. [2] Examiner insight: The percentage is taken from the lower figure, the one being compared against. Using 310,000 as the base gives a different answer, and rounding should be to the stated decimal place.

10. Selling online means customers can be reached anywhere, so being on a high street matters less for sales [1]. A cheaper industrial unit lowers rent, which could raise profit [1]. Some customers like to feel and compare wool before buying, so moving could lose walk-in sales [1]. Online trading needs packing, dispatch and returns, which add delivery costs and make good transport links a new location factor [1]. Premises are still needed to store stock and send parcels, so the business does not escape fixed premises [1]. A supported view, such as moving only if the website already brings in enough orders to replace shop sales [1]. [6] Examiner insight: Analysis improves when it keeps referring to wool and to the high-street shop.

11. Option 1 advantages: Sana keeps full control and all the profit [1], and she does not need a partner to agree decisions [1]. Option 1 disadvantages: she has unlimited liability, so a failed business could cost her personal savings beyond the £20,000 [1], and she must repay £30,000 plus interest whether sales are good or bad [1]. Option 2 advantages: limited liability means she risks only her £20,000 [1], and raising £30,000 from Tomas does not involve borrowing and interest [1]. Option 2 disadvantages: Tomas puts in 30,000 / 50,000 = 60% of the capital, so Sana holds only 40% of the shares [1] and may lose control of decisions and a share of profit [1]. There is also more paperwork for a company. A justified recommendation: for example, Option 2, because the protection of her savings and absence of a debt outweigh sharing control, provided Sana and Tomas agree how the company will be run [1]. [9] Examiner insight: A “justify” answer should end with one option chosen and a reason based on the data. A list of pros and cons with no choice leaves the question unfinished.

12. Rent: Option A = 2,800 x 12 = £33,600 a year and Option B = 900 x 12 = £10,800 [1]. Total of rent plus delivery and packaging: A = £36,100, B = £26,800, so B is £9,300 cheaper [1]. Sales revenue at A is £67,000 higher (195,000 - 128,000), which is 52.3% higher than B [1]. The sales gap is much bigger than the cost gap, so A looks better on those figures [1]. A high-street shop gives walk-in customers, a visible presence and a chance to display cakes [1], which matches a product bought for celebrations, often with a personal visit [1]. Option B suits e-commerce, widening the market beyond the local area [1], but the sales forecast depends on the website attracting enough orders, and returns and breakage in delivery are a risk for cakes [1]. Judgement: Option A, because the extra expected revenue of £67,000 outweighs the extra £9,300 of cost, though the forecast is uncertain and Option B could be added later as a low-cost second channel [1]. [9] Examiner insight: An evaluation is stronger when the figures are used to support the conclusion and when the conclusion notes a condition or limitation, such as the reliability of the forecasts.

Where marks are usually lost

• Defining limited liability as limited debts instead of a limit on the owner’s loss.
• Describing every partner as having limited liability.
• Forgetting the initial fee when asked for the total franchise payments.
• Calculating a percentage difference using the wrong base.
• Naming a location factor, such as materials, but not linking it to the business in the stem.
• Answering “explain” questions with one undeveloped point.
• Writing a list of advantages and disadvantages for “justify” or “evaluate” with no decision.
• Treating the internet as removing the need for any premises.

Next steps

• Revise with the revision notes.
• Re-read the study guide.
• Check coverage on the printable checklist and the Business hub.
• Try all the free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

What do these limited liability and location questions cover? They follow Pearson Edexcel GCSE Business (1BS0) Theme 1 items 1.4.1 and 1.4.2: limited and unlimited liability, sole traders, partnerships, private limited companies, franchising, location factors and the impact of the internet.

What is the most common mistake when defining limited liability? Describing it as “limited debts”. Limited liability means the owner’s loss is limited to the money they put in, usually the value of their shares; it does not stop the business losing money.

Do you include the initial fee when calculating franchise payments? Yes, if the question asks for total payments. A franchisee usually pays an initial fee and then a royalty, often a percentage of sales revenue, so forgetting the fee is a common slip.

How should you answer a location question? Name the location factor, such as proximity to market, labour, materials or competitors, and link it to the business described in the case. A list of factors with no link to the business earns little.

Official syllabus

Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0), Specification, Issue 2, July 2022, published by Pearson Education Limited. Theme 1: Investigating small business, Topic 1.4 Making the business effective, items 1.4.1 and 1.4.2.