OCR A Level Business: Accounting and financial considerations (H431) – 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 topic 6, Accounting and financial considerations, in OCR A Level Business H431 (Version 2.1, January 2026; final assessment summer 2027). Every business named here is invented. Begin with the study guide and revision notes. Related: measures of performance, course hub, checklist and free 10-minute diagnostics.

Questions

1. Define working capital and explain what is meant by the working capital cycle. [4]

2. Tansy Row Foods (a) records a £4,000 delivery as sales in the month it is sent, though the customer pays next month; (b) provides against a £1,500 invoice it expects not to be paid; (c) uses the same depreciation method as last year. Name the accounting convention in each case and explain it. [6]

3. Sorrel Bindery has fixed costs of £27,000 a year, sells books at £15 and has variable costs of £9 per book. It sells 6,000 books. (a) Calculate break-even output. [2] (b) Calculate the margin of safety in books and as a percentage of sales. [2] (c) Calculate the output needed for a target profit of £12,000. [2] (d) A bulk order of 800 books at £11 each arrives. There is spare capacity. Calculate the extra profit and state one non-financial factor to consider. [3] (e) Recommend and justify one way to lower break-even. [3]

4. Roan Hill Farm Shop: budget and actual for a month (£): sales 90,000 and 97,000; wages 18,000 and 21,000; stock purchases 45,000 and 47,500; other costs 12,000 and 11,000. (a) Work out the variance for each item and label it favourable or adverse. [4] (b) Find the variance in profit. [2] (c) Analyse why the wages variance may not show poor control. [2]

5. Tansy Row Foods plans a £54,000 chilling unit. Cash inflows are £20,000, £25,000, £25,000 and £10,000 in years 1 to 4. Discount factors at 10% are 0.909, 0.826, 0.751 and 0.683. (a) Calculate payback. [2] (b) Calculate the average rate of return (ARR). [2] (c) Calculate net present value (NPV). [3] (d) Recommend whether to invest, justifying your answer with quantitative and qualitative points. [4]

6. Tansy Row Foods forecasts opening cash of £8,000. Receipts are £30,000, £26,000 and £32,000 and payments £28,000, £36,000 and £27,000 over three months. (a) Calculate the closing cash each month. [3] (b) Month 3 receipts fall 10%. Calculate the new month 3 closing cash. [2] (c) Distinguish cash-flow from profit. [2] (d) Evaluate one strategy for the month 2 position. [2]

7. Vessel & Vine buys a machine for £36,000 with a residual value of £6,000 and a life of five years. (a) Calculate the yearly charge under straight line depreciation. [2] (b) Calculate the charge for years 1 and 2 using reducing balance at 25%, and the net book value after year 2. [3] (c) Explain why a provision for depreciation is needed. [2]

8. Vessel & Vine: revenue £600,000; cost of sales £330,000; operating expenses £195,000; interest £10,000; tax £13,000. Calculate gross profit, operating profit and profit for the year, then the gross and net profit margins. [6]

9. Vessel & Vine also has current assets £100,000 (inventory £40,000), current liabilities £80,000, non-current liabilities £150,000 and equity £250,000. Use the figures from question 8. It has 260,000 shares priced at £2.00 and pays 8p per share. (a) Calculate the current ratio and acid test. [2] (b) Calculate gearing and interest cover. [2] (c) Calculate ROCE and return on equity. [2] (d) Calculate earnings per share, dividend yield and the price/earnings ratio. [3] (e) Evaluate the financial position of the business. [4]

10. Roan Hill Farm Shop Ltd needs £60,000 for a cold store. It has operating profit of £22,000, non-current liabilities of £20,000 and equity of £80,000. Options: a 9% bank loan, or new shares sold to a family investor. Using relevant calculations, evaluate the options and recommend one. [8]

11. Tansy Row Foods plans to fund expansion mainly by borrowing, and interest rates are expected to rise. Evaluate the effect of this external influence on its financial strategy. [6]

Answers

1. Working capital is current assets minus current liabilities [1], the money available for day-to-day running [1]. The cycle is the time from paying for inventory, through production and sale and the credit period, to receiving cash [1]; a longer cycle ties up more cash and raises the need for short-term finance [1]. [4] Examiner insight: A formula alone describes the first idea; the cycle needs the stages in order.

2. (a) Realisation [1]: revenue is recorded when the sale is made, not when cash arrives [1]. (b) Prudence [1]: avoids overstating profit and assets [1]. (c) Consistency [1]: makes results comparable year to year [1]. [6] Examiner insight: Name the convention and then tie it to the facts given, as a bare label usually earns little.

3. (a) Contribution 15 - 9 = £6 [1]; 27,000 / 6 = 4,500 books [1]. [2] (b) 6,000 - 4,500 = 1,500 books [1]; 1,500 / 6,000 = 25% [1]. [2] (c) (27,000 + 12,000) / 6 [1] = 6,500 books [1]. [2] (d) Contribution 11 - 9 = £2 [1]; 2 x 800 = £1,600 [1]; regular customers may expect lower prices [1]. [3] (e) Cut fixed costs by £3,000 [1]; break-even 24,000 / 6 = 4,000 books [1]; it leaves price and quality unchanged, but the saving may be hard to achieve [1]. [3] Examiner insight: Show the contribution step, since it supports every later figure; for “recommend”, give a reason, not only a method.

4. (a) Sales £7,000 favourable [1]; wages £3,000 adverse [1]; stock £2,500 adverse [1]; other costs £1,000 favourable [1]. [4] (b) Budget profit 90,000 - 75,000 = £15,000; actual 97,000 - 79,500 = £17,500 [1]; £2,500 favourable [1]. [2] (c) Higher sales may have needed more staff hours [1], so wages should be judged against volume before blaming managers [1]. [2] Examiner insight: Label each variance by its effect on profit, not by its arithmetic sign.

5. (a) Cumulative 20,000, 45,000, 70,000 [1]; 2 + 9,000/25,000 = 2.36 years [1]. [2] (b) Total 80,000 - 54,000 = 26,000; 26,000 / 4 = 6,500 [1]; 6,500 / 54,000 = 12.0% [1]. [2] (c) Present values 18,180 + 20,650 + 18,775 + 6,830 = 64,435 [2]; NPV = £10,435 [1]. [3] (d) Invest [1]: NPV is positive [1], and payback is within the 4 years [1]; weigh qualitative risk, such as food safety gain against disruption and uncertain demand [1]. [4] Examiner insight: Reach a decision and support it with both the figures and a qualitative point.

6. (a) Month 1 £10,000 [1]; month 2 £0 [1]; month 3 £5,000 [1]. [3] (b) Receipts 28,800 [1]; closing 5,000 - 3,200 = £1,800 [1]. [2] (c) Cash-flow is money actually received and paid [1]; profit is revenue less costs, including credit sales and non-cash items [1]. [2] (d) An overdraft covers the gap quickly [1] but costs interest and may be withdrawn [1]. [2] Examiner insight: Each month’s closing cash is the next month’s opening cash, so show that link.

7. (a) (36,000 - 6,000) / 5 [1] = £6,000 [1]. [2] (b) Year 1: 9,000 [1]; year 2: 25% of 27,000 = 6,750 [1]; NBV £20,250 [1]. [3] (c) Assets lose value through use and age [1]; matching cost to the years used avoids overstating profit and assets [1]. [2] Examiner insight: Reducing balance applies the rate to the net book value, not the original cost.

8. Gross profit £270,000 [1]; operating profit 270,000 - 195,000 = £75,000 [1]; profit before tax £65,000 [1] and profit for the year £52,000 [1]; gross margin 45% [1]; net margin 8.7% [1]. [6] Examiner insight: State the formula used for net margin, as practice varies on which profit is the numerator.

9. (a) 100/80 = 1.25; (100 - 40)/80 = 0.75 [2]. [2] (b) Capital employed 400,000; gearing 150/400 = 37.5% [1]; cover 75,000/10,000 = 7.5 times [1]. [2] (c) ROCE 75/400 = 18.75% [1]; return on equity 52/250 = 20.8% [1]. [2] (d) EPS 52,000/260,000 = 20p [1]; yield 8/200 = 4% [1]; P/E 2.00/0.20 = 10 [1]. [3] (e) Acid test below 1 suggests a liquidity risk [1]; interest cover and gearing look comfortable [1]; returns are good, though without comparison data this is limited [1]; judgement: sound profitability, but watch short-term cash [1]. [4] Examiner insight: Group the ratios (liquidity, solvency, profitability) and finish with a judgement.

10. Loan interest 9% x 60,000 = £5,400 [1]; interest cover 22,000/5,400 = about 4.1 times [1]; gearing rises from 20% to 50% [1]. Loan: keeps control and interest is affordable, but raises risk [1]. Shares: no repayment or interest [1], but the family investor gains a say and a dividend claim [1]. Judgement [1]: the loan is reasonable because cover is above 4, if profits are stable, otherwise shares [1]. [8] Examiner insight: Evaluation scores for a reasoned choice that uses the case figures, not for listing pros and cons.

11. Higher rates raise interest costs and cut profit and cover [1]; they lower the net present value of projects and may make investment unattractive [1]. Fixed-rate borrowing or retained profit reduces the exposure [1]. However, rates may not rise, and expansion could raise sales [1]. Recommend a mix of loan and retained profit [1], because it spreads risk [1]. [6] Examiner insight: Connect the external influence to a specific finance decision.

Where marks are usually lost

• Writing a bare number without the formula or working.
• Giving gearing against equity rather than capital employed.
• Mislabelling favourable and adverse variances.
• Not carrying closing cash forward to the next month.
• Treating depreciation as a cash cost.
• Listing points when asked to evaluate, with no judgement.
• Ignoring qualitative factors in investment decisions.
• Using the wrong base for turnover ratios.

Frequently asked questions

Are these OCR A Level Business H431 past paper questions? No. They are original practice questions written for Marlbridge on topic 6, Accounting and financial considerations. Use them alongside OCR’s own past papers.

How should variances be labelled? Label each variance as favourable or adverse by its effect on profit, not by its arithmetic sign. Higher sales than budget is favourable, while higher costs than budget is adverse.

What base should gearing be calculated against? Gearing uses capital employed, not equity alone. Using the wrong base for gearing or for turnover ratios is a common way to lose marks.

Why should you state the formula for net profit margin? Practice varies on which profit figure is the numerator, so stating the formula you used makes your answer clear. Writing a bare number without the formula or working risks losing method marks.

How do you score well on an evaluate question about finance decisions? Make a reasoned choice that uses the case figures, such as interest cover and gearing, and bring in qualitative factors such as control. Listing pros and cons without a judgement scores less.

Next steps

• Revision notes
• Study guide
• OCR A Level Business hub and checklist
• All free 10-minute diagnostics
• Book a free trial class: trial

Official syllabus

OCR Level 3 Advanced GCE in Business (H431), Version 2.1 (January 2026), topic 6, Accounting and financial considerations. Published by OCR.