OxfordAQA IGCSE Business: Finance (9225) – 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 section 3.6 Finance of the OxfordAQA International GCSE Business (9225) specification, version 3.1, for exams from May/June 2022 onwards: sources of finance, cash flow, financial terms and calculations, and analysing financial performance. You will not be given formulae in an exam, so write each one out in your working. Read the study guide first and use the revision notes for recall. Course pages: the hub and the checklist. All businesses and figures are invented.

Questions

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

2. Sunbird Pottery is a new business. The owner needs £6,000 for a second kiln. She has no savings left and no profit history. Her options are crowdfunding or a bank overdraft. Analyse one advantage of crowdfunding and one disadvantage of an overdraft for this business. [4]

3. Bellfounder Furniture has traded for 20 years and wants £500,000 for a new factory. It can take out a bank loan or make a new share issue. Evaluate which source is more suitable. [6]

4. Peregrine Print Studio is completing part of its cash flow forecast (in £).

	April	May	June
Opening balance	3,000	(a)	(c)
Cash inflows	14,000	11,000	15,000
Cash outflows	12,500	14,500	13,000
Net cash flow	1,500	(b)	2,000
Closing balance	4,500	1,000	(d)

Calculate the values (a), (b), (c) and (d). [4]

5. Explain the difference between cash and profit. Use this example: Peregrine Print Studio sells £5,000 of posters to a shop on 60 days’ credit and pays £3,000 in cash for paper and ink. [4]

6. Sunbird Pottery’s forecast shows a negative closing balance in two successive months. Customers (gift shops) pay 60 days after delivery, while clay suppliers and the kiln lender are paid each month. Evaluate whether re-scheduling payments or increasing cash inflow is the better way to solve the problem. [8]

7. Foxhollow Prints sells framed prints at £8 each. Fixed costs are £15,000 and variable costs are £3 per print. Output and sales are 4,000 prints. Calculate revenue, total costs and profit. [4]

8. Thornwick Tea Co is considering a new blend. The table shows revenue and total costs at different output levels.

Output (packs)	0	1,000	2,000	2,500	3,000	4,000
Total revenue (£)	0	20,000	40,000	50,000	60,000	80,000
Total costs (£)	30,000	38,000	46,000	50,000	54,000	62,000

(a) Identify the break-even output. [1] (b) The firm plans to sell 3,200 packs. State the margin of safety. [2] (c) Evaluate the value of break-even analysis to Thornwick Tea Co. [6]

9. Bellfounder Furniture buys a delivery vehicle for £54,000. Its net cash inflows are £12,000 in year 1, £18,000 in year 2, £18,000 in year 3 and £20,000 in year 4.

(a) Calculate the payback period. [4] (b) Explain one limitation of using payback to judge the investment. [2]

10. Ambleside Outdoor Gear’s income statement for the current year shows revenue £400,000, cost of sales £260,000 and expenses £100,000. Last year its gross profit margin was 35% and its net profit margin was 12%. A competitor reports a gross profit margin of 38% and a net profit margin of 11%.

(a) Calculate the gross profit margin and net profit margin for the current year. [4] (b) Evaluate Ambleside’s performance from the point of view of its shareholders. [6]

11. The statement of financial position of a small firm shows: delivery vans, inventories, cash, trade payables and a bank loan. Non-current assets total £90,000, current assets £35,000, current liabilities £25,000 and non-current liabilities £50,000.

(a) Classify each of the five items as an asset or a liability. [3] (b) Calculate net assets. [2] (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: A “state” question wants two distinct sources; a family loan or overdraft is external and would not fit.

2. Advantage of crowdfunding: many people each give a small sum, so she does not need a lender to approve her with no profit history [1], which makes the £6,000 reachable for a new business [1]. Disadvantage of an overdraft: interest is high [1] and the bank can withdraw it, which is risky for a business with no profit to repay it from [1]. [4] Examiner insight: Analysis needs the point developed with because or so, tied to the new business, rather than a bare statement.

3. Loan: fixed repayments and no change in ownership [1]; a 20-year record makes lending easier [1]; but interest on £500,000 is a heavy cost and security may be needed [1]. Share issue: no repayment and large sums can be raised [1]; but ownership is shared and dividends are expected [1]. Judgement: for a long-established firm with steady profit, a loan (possibly with a smaller share issue) is more suitable if it can afford repayments, because owners keep control; a share issue is better if profit is uncertain [1]. [6] Examiner insight: An evaluation that lists both sources but never decides, or decides without a reason, leaves the top level out of reach.

4. (a) Opening May = closing April = 4,500 [1]. (b) 11,000 − 14,500 = −3,500 [1]. (c) Opening June = closing May = 1,000 [1]. (d) 1,000 + 2,000 = 3,000 [1]. [4] Examiner insight: Each missing value uses the forecast rule that closing equals opening plus net cash flow; show the sum so a slip still shows method.

5. Profit is revenue minus costs, counted when the sale is made [1]: here £5,000 − £3,000 = £2,000 profit [1]. Cash is counted only when money moves [1]: the £3,000 has gone out but the £5,000 will not arrive for 60 days, so cash is down £3,000 for now despite the profit [1]. [4] Examiner insight: Use the numbers in the stem; a general definition alone does not apply the idea to the business.

6. Re-scheduling payments: asking the clay supplier and lender to accept later payment costs nothing and acts quickly [1], but suppliers may refuse, add charges or stop supplying, and a lender may see it as risk [1]. Increasing cash inflow: asking shops to pay in 30 days or offering a small discount for prompt payment attacks the cause, since the 60-day delay is the problem [1]; it keeps working in later months [1]; but a discount cuts profit and shops may not agree [1]; stricter terms may lose customers [1]. Judgement: increasing cash inflow is better because it deals with the root cause, while re-scheduling is a short-term fix that can damage supplier relationships; re-scheduling could still bridge the gap while new terms start [2]. [8] Examiner insight: Weigh the two options against each other and against the cause given in the case; two separate evaluations with no comparison do not reach a judgement.

7. Revenue = 8 × 4,000 = £32,000 [1]. Variable costs = 3 × 4,000 = £12,000 [1]. Total costs = 15,000 + 12,000 = £27,000 [1]. Profit = 32,000 − 27,000 = £5,000 [1]. [4] Examiner insight: Show the formula and each stage; total costs include both fixed and variable.

8. (a) 2,500 packs, where revenue and total costs are both £50,000 [1]. (b) Margin of safety = planned output − break-even output [1] = 3,200 − 2,500 = 700 packs [1]. (c) For: it shows the output needed to avoid a loss (2,500 packs) [1]; it shows the risk, as a margin of safety of 700 is modest [1]; it can support a loan application or pricing choice [1]. Against: it assumes every pack made is sold [1] and that price and costs stay fixed, whereas a price cut or bulk discounts would move the lines [1]. Judgement: useful as a first check on a new blend, but the firm should test demand and costs because the result is only as good as its forecasts [1]. [9] Examiner insight: Part (b) asks for output, so state the unit; part (c) needs a balanced judgement tied to a new product.

9. (a) Cumulative inflows: £12,000, £30,000, £48,000 [1]. Still to repay after three years: 54,000 − 48,000 = £6,000 [1]. Fraction of year 4 = 6,000 ÷ 20,000 = 0.3 years, about 4 months [1]. Payback = 3 years 4 months (approximately) [1]. (b) It ignores cash earned after the payback point [1], so a vehicle that earns a lot later could be rejected unfairly [1]. [6] Examiner insight: Give the answer in years and months, since a part-year remains; a limitation needs a consequence, not just a label.

10. (a) Gross profit = 400,000 − 260,000 = £140,000 [1]; gross profit margin = 140,000 ÷ 400,000 × 100 = 35% [1]. Net profit = 140,000 − 100,000 = £40,000 [1]; net profit margin = 40,000 ÷ 400,000 × 100 = 10% [1]. (b) Gross margin is unchanged at 35% on last year, so cost of sales is under control [1], but it is below the competitor’s 38% [1]. Net margin has fallen from 12% to 10% [1], so expenses are taking more of each sale, and it is below the competitor’s 11% on net margin too [1]. Shareholders want profit and returns: this falling margin is a concern even if revenue has grown [1]. Judgement: performance is weaker than last year and than the competitor, so shareholders may be disappointed unless expenses can be reduced [1]. [10] Examiner insight: Compare with last year and the competitor, and write from the shareholders’ view; quoting figures without comment shows only data handling.

11. (a) Assets: delivery vans, inventories, cash [1]. Liabilities: trade payables, bank loan [1]. Assets are items owned or owed to the firm; liabilities are what it owes [1]. (b) Total assets = 90,000 + 35,000 = £125,000 and total liabilities = 25,000 + 50,000 = £75,000 [1]. Net assets = £50,000 [1]. (c) It shows assets and liabilities at one date [1], which can change soon after as cash moves and inventories are sold [1]. [7] Examiner insight: “Snapshot” needs the point that it is one date, not a period; do not confuse it with the income statement.

Where marks are usually lost

• Listing sources of finance without linking them to the size, timescale or age of the business in the stem.
• Offering advantages only when the question asks for an evaluation or judgement.
• Mixing up cash and profit in the same answer.
• Not carrying a closing balance forward as the next opening balance.
• Giving margin of safety in pounds when the chart reading is in output.
• Giving a payback period in years only, ignoring the part-year.
• Calculating margins on cost of sales rather than on revenue.
• Quoting figures from the case without saying what they mean for the stakeholder named.
• Showing a final answer with no formula or working.

Frequently asked questions

Should margin of safety be given in pounds or units? When it is read from a break-even chart showing output, give the margin of safety in units of output, not in pounds. It is the amount by which actual or planned output is above break-even output.

How do you answer an “evaluate” question on finance? Weigh advantages against disadvantages for the business in the question and finish with a judgement. Offering advantages only, when an evaluation or judgement is asked for, limits the marks.

Which part of OxfordAQA IGCSE Business 9225 do these questions cover? They cover section 3.6 Finance of OxfordAQA International GCSE Business (9225): sources of finance, cash flow, financial terms and calculations, and financial performance.

Next steps

• Re-read the study guide on any part you missed.
• Revise from the revision notes.
• Tick off the checklist and visit the course hub.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International GCSE Business (9225), version 3.1, first teaching September 2020, first examined May/June 2022, section 3.6 Finance. Published by OxfordAQA.