IGCSE Business: Profit and loss and Statement of financial position (Cambridge 0264) – 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 sections 5.3 (Profit and loss) and 5.4 (Statement of financial position) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. Both papers are based on all the subject content. Revise first with the study guide and the revision notes. See also the course hub, the printable checklist and the free diagnostics.

Money is in dollars. All businesses and people are invented. Where a question asks for capital employed, use total assets - current liabilities.

Questions

1. Define the term profit. [2]

2. State two reasons why profit is important to a private sector business. [2]

3. Bramblecott Tools sold 2,400 hammers at 15 each in one year. Its cost of sales was 21,600 and its expenses were 9,300.

(a) Calculate its revenue. [1] (b) Calculate its gross profit. [2] (c) Calculate its profit. [2]

4. Wychwood Prints had revenue of 90,000, gross profit of 38,000 and profit of 11,500. Calculate its cost of sales and its expenses. [4]

5. Classify each item as a non-current asset, a current asset, a non-current liability or a current liability. [5]

• A delivery van
• Paper held ready to be sold
• Money owed to a supplier for ink
• A bank loan repayable over five years
• Cash in the till

6. Salterton Kites has the following items on its statement of financial position: premises 85,000; machinery 22,000; inventory 14,000; trade receivables 6,500; cash 3,500; trade payables 9,000; overdraft 4,000; bank loan repayable in five years 40,000.

(a) Calculate total assets. [2] (b) Calculate total liabilities. [2] (c) Calculate working capital. [2] (d) Calculate capital employed. [2]

7. Explain one way in which profit can be a source of finance for a business. [3]

8. Explain the difference between a non-current liability and a current liability. Give one example of each. [3]

9. Mossgiel Bakery had revenue of 64,000, cost of sales of 38,400 and expenses of 28,000 last year.

(a) Calculate the profit or loss. [3] (b) Explain one action the owner could take to improve the result. [3]

10. Kilnwick Cafe has two years of figures.

Line	Year 1	Year 2
Revenue	120,000	138,000
Cost of sales	48,000	62,100
Expenses	60,000	66,000

(a) Calculate gross profit and profit for each year. [4] (b) Analyse why profit fell although revenue rose. [4]

11. Sandiway Signs has the following statement of financial position. Non-current assets: machinery 96,000. Current assets: inventory 11,000, trade receivables 18,000, cash 1,000. Current liabilities: trade payables 22,000, overdraft 26,000. Non-current liabilities: bank loan 50,000.

(a) Calculate working capital. [2] (b) Calculate total liabilities. [2] (c) The owner wants to buy a second machine for 30,000, paid for by increasing the overdraft. Evaluate whether this is a good decision. [6]

12. Blythewood Gardens asks a bank for a long-term loan of 40,000. Last year it had revenue of 210,000, cost of sales of 126,000 and expenses of 70,000. Its statement of financial position shows non-current assets of 150,000, inventory of 12,000, trade receivables of 4,000, cash of 20,000, trade payables of 18,000, an overdraft of 12,000 and an existing bank loan of 60,000.

(a) Calculate Blythewood Gardens’ profit. [2] (b) Justify whether the bank should lend the 40,000. [6]

Answers

1. Profit is revenue minus total costs [1]. A negative result is a loss, so profit is the surplus left after all costs are paid [1]. [2] Examiner insight: A definition that only says “money the business makes” is too vague. Answers usually need the idea of revenue less costs.

2. Any two from: reward for risk-taking; source of finance; measure of success; attracts investors. One mark for each reason stated [1] [1]. [2] Examiner insight: Stating two separate reasons from the syllabus list is enough here. Repeating one idea in two ways is unlikely to earn the second mark.

3. (a) Revenue = 2,400 x 15 = 36,000 [1] (b) Gross profit = revenue - cost of sales = 36,000 - 21,600 [1] = 14,400 [1] (c) Profit = gross profit - expenses = 14,400 - 9,300 [1] = 5,100 [1] Examiner insight: Write the subtraction you are doing. If one number is wrong, visible working still shows that you know the method.

4. Cost of sales = revenue - gross profit = 90,000 - 38,000 [1] = 52,000 [1]. Expenses = gross profit - profit = 38,000 - 11,500 [1] = 26,500 [1]. [4] Examiner insight: Questions with missing figures test whether you can rearrange the formulae. Do not use revenue in the second calculation, since expenses come from gross profit.

5. Delivery van: non-current asset [1]. Paper held ready to be sold: current asset (inventory) [1]. Money owed to a supplier: current liability (trade payables) [1]. Bank loan repayable over five years: non-current liability [1]. Cash in the till: current asset [1]. [5] Examiner insight: Look at how long the business will keep the asset, or how long until the debt is due. A van is kept for years, whereas money owed to a supplier is usually due soon.

6. (a) Non-current assets = 85,000 + 22,000 = 107,000. Current assets = 14,000 + 6,500 + 3,500 = 24,000 [1]. Total assets = 131,000 [1] (b) Current liabilities = 9,000 + 4,000 = 13,000. Total liabilities = 13,000 + 40,000 [1] = 53,000 [1] (c) Working capital = current assets - current liabilities = 24,000 - 13,000 [1] = 11,000 [1] (d) Capital employed = total assets - current liabilities = 131,000 - 13,000 [1] = 118,000 [1] Examiner insight: Group the items before adding. A subtotal for each category makes later parts easier and shows your method clearly.

7. Profit that is kept in the business (retained profit) can be used to finance the business [1]. For example, it can pay for new machinery or more inventory [1]. The business does not have to borrow, so it avoids paying interest [1]. [3] Examiner insight: A three-mark explanation usually needs a point, a development and a consequence. Naming “retained profit” alone is only the start.

8. A non-current liability is owed for longer than a year, whereas a current liability is due within a year [1]. Example of a non-current liability: a bank loan [1]. Example of a current liability: trade payables or an overdraft [1]. [3] Examiner insight: Make the comparison explicit with a word such as “whereas”. Two separate definitions, with no contrast, can read as incomplete.

9. (a) Gross profit = 64,000 - 38,400 = 25,600 [1]. Profit = 25,600 - 28,000 [1] = -2,400, a loss of 2,400 [1] (b) One action: reduce expenses [1], for example by moving to cheaper premises or cutting advertising [1]. Expenses would need to fall by more than 2,400, less than 9% of 28,000, for the bakery to reach a profit [1]. Raising prices is another valid action if it is developed in the same way. [3] Examiner insight: A negative answer should be labelled as a loss. For the action, tie it to the figures in the case rather than giving a generic idea.

10. (a) Year 1 gross profit = 120,000 - 48,000 = 72,000 [1]; profit = 72,000 - 60,000 = 12,000 [1]. Year 2 gross profit = 138,000 - 62,100 = 75,900 [1]; profit = 75,900 - 66,000 = 9,900 [1] (b) Revenue rose by 18,000 (15%) [1]. Cost of sales rose by 14,100, about 29%, so it grew nearly twice as fast as revenue [1]. Gross profit therefore rose by only 3,900 [1]. Expenses rose by 6,000, more than the gain in gross profit, so profit fell by 2,100 [1]. [4] Examiner insight: An analyse answer builds a chain from one figure to the next. Describing that revenue rose and profit fell, with no link between them, is only a description.

11. (a) Current assets = 11,000 + 18,000 + 1,000 = 30,000. Current liabilities = 22,000 + 26,000 = 48,000 [1]. Working capital = 30,000 - 48,000 = -18,000 [1] (b) Total liabilities = 48,000 + 50,000 [1] = 98,000 [1] (c) For: a second machine may raise output and revenue, and machinery is a non-current asset the business keeps [1]. It may meet demand the present machine cannot, so profit could rise [1]. Against: working capital is already negative at -18,000 [1]. An overdraft is a current liability, so borrowing 30,000 this way takes current liabilities to 78,000 and working capital to -48,000 [1]. A long-term asset is being funded by short-term borrowing, with interest and a risk that the bank asks for repayment [1]. Judgement: the purchase is a poor decision on these terms [1]. The owner should consider a longer-term loan or leasing, or first improve working capital by collecting the 18,000 owed by customers. [10] Examiner insight: An evaluate answer weighs both sides and then commits to a decision with a reason. Use the figures from the case, and do not end with “it depends” alone.

12. (a) Gross profit = 210,000 - 126,000 = 84,000 [1]. Profit = 84,000 - 70,000 = 14,000 [1] (b) For lending: the business makes a profit of 14,000, which shows it earns more than it spends [1]. Current assets are 36,000 against current liabilities of 30,000, so working capital is positive at 6,000, and cash of 20,000 is available [1]. Against lending: it already has a bank loan of 60,000, and total liabilities are 90,000, so a further 40,000 adds to the debt [1]. Annual profit of 14,000 is small compared with a 40,000 loan and working capital of 6,000 gives only a thin cushion [1]. Judgement: the bank should lend only with caution, for example a smaller amount or a security over the non-current assets of 150,000 [1]. The reason is that the business is profitable and can meet short-term bills, but its existing debt is already high and the profit is modest [1]. [8] Examiner insight: A justify answer needs a clear decision and a reason that uses evidence from both statements. A reply that lists figures without saying what they mean for the lender is incomplete.

Where marks are usually lost

• Giving gross profit when the question asks for profit.
• Showing only a final number. Write the formula and the substitution.
• Placing an overdraft among non-current liabilities, or inventory among non-current assets.
• Using total liabilities instead of current liabilities when finding working capital.
• Forgetting that a negative profit is a loss, and not labelling it.
• Listing the reasons profit is important without linking them to the business in the question.
• Describing figures in a case study without analysing why they changed or what they mean.
• Writing only one side in an evaluate or justify question, or finishing with no decision.
• Treating profit as cash. A business with profit can still have negative working capital.

Frequently asked questions

Are these questions from Cambridge IGCSE Business 0264 past papers? No. They are original practice questions written for Marlbridge on sections 5.3 (Profit and loss) and 5.4 (Statement of financial position). Use them alongside the official past papers from your board or school.

How do you find a missing figure in a statement of profit or loss? Rearrange the two formulas: gross profit = revenue − cost of sales, and profit = gross profit − expenses. Expenses are taken from gross profit, not from revenue, so check which line you are working from.

What should you write when a profit figure comes out negative? Label it as a loss. If the question asks for an action, tie it to the figures in the case rather than giving a generic idea.

How do you answer an “analyse” question on financial statements? Build a chain of reasoning from one figure to the next, for example why profit fell even though revenue rose. Describing that revenue rose and profit fell, with no link between them, is only description.

What does a “justify” question on a loan or lending decision need? A clear decision with a reason that uses evidence from both statements, saying what the figures mean for the lender. Listing figures without interpreting them is incomplete.

Next steps

• Review the revision notes and the study guide.
• Go to the course hub and tick off topics on the printable checklist.
• Take one of our free 10-minute diagnostics to find the next topic to revise.
• Book a free trial class if you want help with the calculations or case-study answers.

Official syllabus

These questions follow the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press and Assessment. Sections 5.3 and 5.4 sit under “Financial information and decisions”.