- Mark Scheme /

Question Answer Marks AO Element Notes Guidance

1 Identify two external users of 2 Only award the first two

accounts. responses given.
Award 1 mark Do not award examples
per external of internal users of
user of accounts e.g. employees.
accounts
identified (max
2).
Points might
include:

• Banks/lenders Do not award stakeholder

• Suppliers as this does not answer
the question.
• Government
Accept creditors alone as
• Competitors
an alternative to
lenders/bank/suppliers if
• Other businesses e.g.
insurance companies no specific example is
given of a creditor.
• Pressure groups
• Investors/shareholders
• Customers
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

2 Identify two Only award the first two

profitability ratios. 2 responses given.
Award 1 mark per profitability Allow correct formula
ratio e.g. Gross profit:sales
(max 2). revenue
Two from:
• Gross profit
margin/ratio/percentage
• Profit margin/ratio/percentage

• Return on capital
employed/ROCE
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

3 Explain one possible effect on

6
Award decrease/fallen as
CPK of the change in each of
the
[k] OR [app] but not
following ratios as shown in
the
both.
table:
Do
Award 1 mark for identification
of
change as knowledge or
each relevant effect (max 2).
analysis as this does not
answer the question.
Award 1 mark for each relevant
reference made to this business
Note: To use words from
(max 2).
the stem as application,
the reference must be
Award 1 mark for each relevant
appropriate (i.e. make
explanation (max 2)
sense) in relation to the
Points might include:
point being made.
Current ratio: The following words are
likely to be appropriate
Decreased / fallen / worsened / for all responses on this
deteriorated [k] or [app] question:
Analysis could be awarded for: • 2% / 12% or 10%
• May need to reduce creditors
/ trade payables [k] to avoid • 0.3 / 1.6 / 1.3
cashflow problems [an] in the
sports clubs [app] • Sports club or
 examples such as
• May need to improve cash by
gym / yoga class
selling more products or sell
unwanted non-current assets • 5 (clubs)
Other appropriate
• May have problems paying its examples in context can
short-term liabilities / less still be credited.
liquidity / less cash available

• May make it harder to obtain

 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

finance
• Suppliers may be less willing
to provide goods (on credit)

Profit margin:
Decreased / fallen / worsened /
deteriorated [k] or [app]
Analysis could be awarded for:
• May need to increase prices
[k] to improve profit margin
[an] in the 5 clubs [app]
• Need to look for ways to
increase added value
• May look for ways to lower
variable costs / expenses
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

4 Outline two possible reasons why 4 To use words from the

liquidity is important to AHG. stem as application, the
reference must be
appropriate (i.e. make
Award 1 mark for each relevant
sense) in relation to the
reason (max 2).
point being made.
Award 1 mark for each relevant
The following words are
reference to this business (max
likely to be appropriate
2).
for this question:
Points might include: • Plants / flowers /
• To make sure the business has gardening products
access to enough cash/money or other examples
to pay day-today expenses / such as seeds
(short term) liabilities / avoid • 660 000 to 600
interest charges / keep its
000
suppliers [k] as shown by the
current ratio of 1.1 [app] • Established
(business) /
• To help arrange/apply for
operating for a long
finance [k] for this established
time
business [app]
• 4 managers
• Ensure business survival /
allow it to continue trading [k] • 30 or 34
to sell flowers [app] employees
• To provide for Competitive
(unforeseen) pricing
•
emergencies [k]
Other appropriate responses Other appropriate
should examples in context can
also be credited. still be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

5 Explain one 6 To use words

way each of the from the
following stem as
stakeholder application, the
groups reference must
might use of be
VCG’s appropriate (i.e.,
account: make
sense) in
Award 1 mark relation to the
for point being
identification of made.
each relevant
way (max 2).
Award 1 mark The following words are
for each likely to be appropriate
relevant
for this question:
reference to this
business (max
2).
Award 1 mark • Bags or examples
for each such as briefcase /
relevant
travel bag
explanation
(max 2).
Points might
include:
Shareholders: • (second) Factory
• $2m (revenue)
• Help assess business
performance / profits [k] to • $800 000
see whether they will receive (equity)
a dividend / return on their
investment [an] from this bag
manufacturer [app]
• $300 000 (current
assets)
• Help decide whether to
• $250 000 (current
continue to invest [k] as the
liabilities)
business is looking to open a • 1.2 (current ratio)
second factory [app] which
could mean less dividends • High-quality
paid [an]
• 50 / Skilled
• Assess the liquidity [k] they workers
do not want to invest in a
Other appropriate
business with serious cash or
examples in context can
liquidity problems [an]
still be credited.
• To compare performance over
time [k] and how much the Candidates must quote
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

$800 000 in equity increases the numbers to be

[app] to decide whether they awarded application for
should take their money and use of Table information.
invest elsewhere [an]
• Compare performance Calculation of current
between different ratio is not [an] as it does
businesses not answer the
[k] to decide whether it is a question.
good investment [an]
Suppliers:
• Can see the total value / level
of debt [k] current liabilities
$250 000 [app] to help decide
whether they should offer
(more) credit [an]
• Assess whether the business
has sufficient cash [k] within
current assets of $300 000
[app] for the business to be
able to repay them when debts
become due [an]
• Assess profitability / level of
sales [k] successful business
may need more materials so
maintains or increase revenue
for the supplier [an] especially
as make high-quality products
[app]
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

6 Calculate D2G’s gross profit 2 Award only 1 mark if

margin. Show your working. 60% is written as part of
the answer but is not
Award two marks for a correct
given as the final answer.
answer.
Award one mark Must have % to gain 2nd
for correct mark.
method
but incorrect
answer.
Correct answer:
60% [2]
Method: gross
profit divided
by
revenue * 100
[1] OR 12 000 /
20
000 * 100 [1]
If correct answer given with no
working shown, award 2 marks.

7 State four financial ratios a 4 Only award the first four

business can use. answers
Award 1 mark per financial ratio.

Four from: • Profit margin • Gross

profit margin • Return on capital
employed / ROCE • Current (ratio)
• Acid test (ratio)
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

8 Define ‘Return on Capital 2 Do not award answers

Employed’. which simply reorder the
words as this does not
Award 2 marks for a full definition.
define the term.
Award 1 mark for a partial
definition.
Profit as a percentage of capital
employed [2]
Correct formula: (Profit/Capital
employed) *100 [2]
Profit made on each dollar/pound
invested in the business [2]
Partial definition e.g. Money made
on investment/capital [1]
(It is a profitability ratio which)
shows how effectively a business
uses it capital [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

9 Do you think Elton should be 6 Relevant calculations for

pleased with the financial analysis:
performance of his business?
Profit margin:
Justify your answer using
appropriate ratios. 32% in 2019
Award up to 2 marks for Fallen by 3% in 2019
identification of relevant issues.
Gross profit margin:
Award up to 2 marks for relevant
development of points. 70% in 2018 72% in
2019 R
Award 2 marks for justified
decision as to whether Elton should isen by 2% [an][an]
be pleased with his financial OFR applies if candidates
performance.
have incorrectly
calculated profit in
Answers might include:
question 3(b).
• Gross profit margin has improved
[k] from 70% [an] to 72% [an] For evaluation to be
awarded justification will
showing better control of its
follow on from relevant
variable costs [an]. • Profit margin
analysis of points and
has decreased [k] showing less
must include ratio
control of expenses [an] • Revenue
analysis.
improved [k] by $1000 [an] •
Gross profit increased [k] by
$1200 [an]
• Profit decreased [k] by $400 [an]

Other appropriate responses should

also be credited.
Justification might include:
• Gross profit margin has improved
[k] from 70 % [an] to 72% [an]
However profit margin has
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

decreased. [k] He should be pleased

as sales and gross profit are rising
[eval] but he must be concerned
about expenses. [eval]

10 Define ‘margin of safety’. 2

Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
Difference between current level of
output and break-even output [2]
Partial definition e.g. Extras made
over what you need to cover costs
[1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

11 Explain one way each of the 6

following stakeholder groups
might use LXA’s financial
information.
Award 1 mark for identification of
each relevant factor (max 2).
Award 1 mark for each relevant
reference made to this business
(max 2).
Award 1 mark for each relevant
explanation (max 2).
Points might include:
Suppliers:
• Liquidity position [k] to know
whether the business is likely to be
able to repay them [an] for clothing
[app] • Assess risk of default [k] as
acid test ratio fallen to 0.5 [app]
which shows have fewer liquid
assets [an] • See level of debts [k]

Shareholder:
• Help make decisions on keeping,
buying or selling shares [k] as may
not be happy ROCE reduced [an]
by 2% [app] • Check performance
e.g. profit [k] as operate in
competitive markets [app] as if
business is successful it may
increase value of shares [an] •
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

Assess (possible) level of dividend

[k] to know whether will receive a
return on their investment [an]
Other appropriate responses should
also be credited.

12 Define ‘Return on Capital 2

Employed’.
Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
Amount of profit made for each
dollar invested [2] (Capital)
Profit/capital employed × 100 [2]
Partial definition e.g. profit from
capital invested [1]
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

13 Identify and 4 Application

explain two marks may
ways be awarded for
NBV’s appropriate
managers use of the
could use its following:
financial
accounts to
help make
decisions.
Knowledge [2 × • multinational company
1] – award 1
mark
for each
relevant way
Application [2 • capital employed OR
× 1] – award 1 $144 bn
mark
for each
explanation in
context
Possible points might include: • 18 countries
• Help measure financial • 400 000 (workers)
performance OR profit over time
• diseconomies of scale
[k] to see how business achieved
$144 bn [app]
• building products OR
• Help compare its performance
bricks
with its competitors [k] who also
make bricks [app] • raw materials (are
bought in country of
• Help decide which source of
operation)
finance to use OR whether to
borrow money or able to afford to • factory
borrow [k]
Note: candidates can be
• Help make investment decisions credited for both
[k] such as the new factory [app] profitability and liquidity
 as separate points as they
relate to different
• Decide how much dividend to pay
financial statements
[k]
Do not award answers
which refer to operational
decisions, whether to stop
production, increase
price, etc.
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Question Answer Marks AO Element Notes Guidance

14 Consider how each of the 12

following might use MF’s
financial statements as shown in
Appendix 1. Which user would
find the information most
helpful?
Justify your answer.
Government
• Helps to see/calculate the amount
of tax due
• Increased profitability means
higher tax revenue
• May need to support failing
business with grant or subsidy
Bank
• Helps establishes if MF can repay
any outstanding loans – or if any
further loans might be required –
shows liquidity of MF – shows
profitability of MF – can be used to
assess risk to the bank from loans
or overdraft
• Improved liquidity is good as
more likely to repay debts
Shareholders
• See whether dividends are likely
to be paid – judge likely direction
of share price – consider whether
further investment should be made
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

• Increased profitability should lead

to increased dividends
Knowledge/Analysis/Evaluation
– award up to 10 marks using the
levelsbased mark scheme below.

Level 3
At least 2 × Level 2 +
9–10 marks for well justified
conclusion as to which user would
find the information most helpful
and why the other two users will
find the information less helpful.

7–8 for limited conclusion as to

which user of the accounts will find
the information most helpful
Level 2
4–6 marks Detailed discussion of
how each user might find the
accounts helpful.
Level 1
1–3 marks Outline of how each user
might find the accounts helpful.
.
Level 1 – 1 mark for each L1
statement (max of 3 marks), e.g.
the
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

bank might want to see if MF is

making a profit to see if they can
repay any loans.
Level 2 – 1 × L2 explanation can
gain 4 marks and a further mark can
be awarded for each additional L2
explanation (max 6 marks), e.g. the
bank might want to see if MF is
making a profit to see if it can repay
any loans otherwise the bank may
not have the loan repaid. This
would cause problems for the bank
as it would risk losing its money.
Also MF might need an overdraft
and the bank could also see that the
overdraft is likely to be repaid after
seeing that the liquidity of the
business is good (L2). Level 3 – For
L3 to be awarded there needs to be
at least two L2 marks awarded and
then a conclus
Award up to 2 additional marks
for relevant application.
Possible application marks:
Sugar free ice-cream; MF is a
public limited company established
30 years ago; MF has a large
market share of the food markets;
objectives are growth and increased
market share; new automated
production line required; increasing
trends of people being overweight
in country x; increased government
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Question Answer Marks AO Element Notes Guidance

costs to treat overweight people.

Reference to data in Appendix 1.

There may be other examples in

context that have not been included
here.

15 What is meant by ‘return on 2

capital employed’?
Clear understanding [2]: measures
the amount of profit made for each
dollar invested.
Profit of a business expressed as a
percentage of capital invested
Formula : Profit / Capital employed
× 100
Some understanding [1]: e.g. profit
/ money made on investment
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

16 Do you think IBH’s performance 6 Application marks may

has improved in 2017? Justify be awarded for
your answer using profit margins. appropriate use of the
following:
Award 1 mark for identification of • want to expand • shoes
relevant point or related words • correct
use of data from the
Award 1 mark for relevant
Table • (use of $000 not
reference made to this business
required) • competitive
Award up to 2 marks for relevant market • directors •
development of point(s) private limited company
Award up to 2 marks for a justified
decision made as to whether IBH’s To gain analysis mark at
performance has improved or not least one profit margin
must be calculated. %
sign is not required.
Points might include:
Accept 66% or 67% for
• revenue increased [k] by 80 000 gross profit margin.
[app] • non-current liabilities have
increased [k] by 100 000 [app] •
gross profit increased [k] by 80 000
[app] • profit has remained the same
[k] • gross profit margin increased
[k] from 60% [app + an] to 67%
[an] • gross profit margin increased
[k] by 6–7% [app + an + an] • (net)
profit margin has fallen [k] from
30% [app + an] 25% [an] • (net)
profit margin fallen [k] by 5% [app
+ an + an]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

17 Do you think Paul should be 6 Application marks may

worried about the change in the be awarded for
profit margins between 2016 and appropriate use of the
2017? Justify your answer. following: • private
limited company
Knowledge [1] – award 1 mark for
identification of relevant issue(s) • shirts • men and women
(Max 1) • priced lower than
competitors • sales have
Application [1] – award 1 mark for
fallen • legal controls •
a relevant reference made to this
relevant use of financial
business
data in table • selling in
Analysis [2] – award up to 2 marks other countries •
for each relevant explanation(s) economic boom
Evaluation [2] – justified decision
as to whether Paul should be
worried by the change in profit
margins
Relevant points may include:
• Gross profit margin decreased [k]
from 42% to 34% [app + an] which
is a decrease of 8% [an]
• Profit margin decreased [k] from
32% to 17% [app + an] a decrease
of 15% [an]
• Revenue decreased [k] by $150m
OR to $350m [app]
• Cost of sales decreased [k] by
$60m OR to $230m [app]
• Expenses increased [k] by $10m
OR to $60m [app]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

• Profit decreased [k] to $60m OR

by $100m [app]

18 Calculate the current ratio in 2

2017.
Clear application [2] 2 (times not
needed)
Some application [1] correct
method incorrect answer e.g.
current assets/current liabilities
OR 30/15

19(a) Calculate the current ratio as at 2

30 September 2017.
Good application [2]: Correct
answer 1.5 (times) OR 1.5:1 OR
3:2

Some understanding [1] correct

formula OR 60/40
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

19(b) Explain what the two current 2 Do not award statements

ratio results show about Yanis’s such as ‘good’ liquidity
business. as subjective comment
Good application [2] improved OR
increased [1] so better able to repay For 2nd mark must
short term liabilities [1] explain what the result
shows e.g. better able to
Some understanding [1] improved
repay current liabilities
OR has more current assets to
repay debts Increased OR
improved by
0.3 [1] OFR rule does apply

20 Calculate the Return on Capital 2

Employed (ROCE) for 201 6
Good application [2]: e.g. 25 or
25%
Some understanding [1]: e.g. profit
/ capital employed *100 [1]
OR incomplete answer 1000 / 4000
[1]
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Question Answer Marks AO Element Notes Guidance

21 Identify two reasons why a 2

director might want to measure
business performance.
Knowledge [2 × 1]: award 1 mark
for each reason
Points might include:
• See how well meeting objectives
OR see how well business is doing
OR indicates what a business
objective might be e.g. level of
profitability or levels of sales or
productivity • Aid decision making
OR Identify strengths and
weaknesses OR Identify what
needs
to be done to improve OR
practical
examples such as to determine
rewards for employees • Way to
compare with competitors • To
compare with previous years OR
Spot trends • Report to
shareholders
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

22 What is meant 2 Do not award

by ‘liquidity’ measures
of liquidity such
Clear
as
understanding
current asset
[2]: ability of
ratio or acid
a business to
test ratio as
pay back its
these do not
short-term
explain the
OR day to day
term.
debts
OR ability of a
business to pay
its
current
liabilities using
its current
assets
OR A measure
of how quickly
you
can turn
(current) assets
into cash
to pay short
term debts
Some
understanding
[1]: whether
business
can pay its
debts OR how
easily is
it to convert
assets to cash
OR
Amount of cash
available
23(a) Calculate the 2
 Return on
Capital
Employed
(ROCE) for
2016
Good application [2]: e.g. 25 or
25%
Some understanding [1]: e.g. profit
/ capital employed *100 [1]
OR incomplete answer 1000 / 4000
[1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

23(b) Explain what this result shows 2 Answer can compare

about LWM’s performance results between years or
outline what the ratio
Good application [2]: ratio has
figure means.
fallen [1] which shows that
profitability fallen OR not using OFR rule does apply but
capital as efficiently as last year OR answer must be linked
to
ratio fallen from 33% to 25% [2] their ROCE ratio
OR for every $100 invested the calculation.
business generates $25 in profit [2]

Some application [1] e.g. not as

good

24(a) What is meant by ‘Return on 2 Note: Must show the

capital employed’? awareness of the
relationship between
Clear understanding [2]: ROCE
profit and capital
means the profit of the business
employed for 2 marks
expressed as % of capital invested
in the business or correct formula.
(Profit / Capital employed × 100)
Some understanding [1] – e.g. profit
from capital invested or money
made on investment
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

25(a) Do you think the Finance 6 Application: marks may

Director is right to be pleased be awarded for
with the liquidity of the business? appropriate use of the
Justify your answer using the following: current ratio
ratio results in the Table. 1.2:1, 1.5:1, or change
by
0.3, acid test ratio 0.8:1,
Knowledge [1] – award 1 mark for
0.5:1, Acid test fallen by
identification of relevant points
37.5%, Current ratio
Application [1] – award 1 mark if
increased by 25%,
relevant reference made to
stockholding has risen,
Dowson’s business
recession, overdraft $6m,
Analysis [2] – award up to 2 marks
large / big, electrical
for relevant development of point(s)
goods
Evaluation [2] – justified decision
made as to whether the Finance
Director is right to be pleased about
liquidity
Relevant points might include:
• Current ratio increased [k] by 0.3
[app][an] so more liquid [an]
• Acid test lower [k] from 0.8 to 0.5
[app] so not able to pay short-term
debts [an] possibly due to high
value of its inventory [an]
• Expenses are high [k] as have a
high level of debts, which includes
$6 m overdraft [app]
• Risk that demand might fall [k]
due to recession [app] therefore he
would be left with excess stock [an]
• High level of inventory [k] 66%
of current assets [app] [ an]
• High level of trade receivables [k]
danger that customers might not
pay [an] due to recession [app] so
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

business will lack the cash it needs

[an]
• Current ratio shows the business
is able to pay its short-term debts
[k]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

26 Do you think Izaak should be 6

pleased with the financial
performance of his business?
Justify your answer using
appropriate ratios.
Knowledge [1] – award 1 mark for
identification of relevant issue(s)

Application [1] – award 1 mark if

relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to whether Izaak should be
pleased with the financial
performance of his business
Relevant methods might include: •
Gross profit increased [k] to 150
000 [app] • Gross profit margin
improved [k] to 50% [app +an] so
better control of variable costs [an]
• Profit margin down [k] to 5% [app
+an] so less control of overheads
[an] • Profit has fallen [k] by 50%
[app +an] • Expenses up [k] could
reflect fact that fixed costs too high
[app] • Revenue has not changed
[k] • Cost of sales down [k]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

27 Do you think Izaak should be 6

pleased with the financial
performance of his business?
Justify your answer using
appropriate ratios.
Knowledge [1] – award 1 mark for
identification of relevant issue(s)

Application [1] – award 1 mark if

relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to whether Izaak should be
pleased with the financial
performance of his business
Relevant methods might include: •
Gross profit increased [k] to 150
000 [app] • Gross profit margin
improved [k] to 50% [app +an] so
better control of variable costs [an]
• Profit margin down [k] to 5% [app
+an] so less control of overheads
[an] • Profit has fallen [k] by 50%
[app +an] • Expenses up [k] could
reflect fact that fixed costs too high
[app] • Revenue has not changed
[k] • Cost of sales down [k]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

28 Calculate the current ratio using 2

the information in the table.
Good Application [2] 1.2:1 or 1.2.

Some application [1] – e.g. Formula

current assets/current liabilities or
324/270.

29 I dentify and explain two ways in 4 Application marks may

which shareholders might use be awarded for
JT’s accounts. appropriate use of the
following: use of
Knowledge [2 × 1] – identification
numbers, takeover,
of relevant way [max 2].
shops, holidays (or
Application [2 × 1] – award 1 mark related words), mass
for each explanation in context. market.
Relevant points might include:
• Check business performance (e.g.
Liquidity, debt levels) [k] to see if
will benefit from cost savings [app]
• Assess (possible) dividend [k] so
can decide if they should keep
investing after the takeover [app] •
Assess risk [k] • Help potential
investors make investment
decisions [k] as may want more
than 8% ROCE [app] • To see a
rise
in share price is possible [k] after
gain additional shops/market
share
[app] • To compare with other
businesses [k].
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

30 Identify two stakeholder groups 6 Do not accept ‘owner’

(other than shareholders) and or ‘investor’, as these are
explain how they might use the same as shareholders
Dhoni’s accounts.
Knowledge [2 × 1] – award one Application marks may
mark for each relevant group be awarded for
identified [max 2] appropriate use of the
following: use of
Application [2 × 1] – award 1 mark
numbers, successful
if relevant reference made to this
company, small / 5 shops,
business
restaurants and hotels,
Analysis [2 × 1] – award 1 mark for kitchen equipment or
each relevant explanation related words such as
knives and cooking
Relevant points might include: pots
• Management [k] as ROCE
increased by 2% [app] know
performance improved [an] •
Employees [k] as potential for pay
increase/bonus [an] from a
successful business [app] • Lenders
/ bank [k] so know if able to repay
capital/interest [an] when
borrowing for non-current assets
[app] • Suppliers [k] as current
ratio
fallen [app] may be more risky to
sell stock to Dhoni [an] •
Government [k] to see how much
tax revenue they might expect [an]
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Question Answer Marks AO Element Notes Guidance

31 Calculate the acid test ratio in 2

2016.
Good Application [2] e.g. correct
answer = 0.6: 1 or 0.6
Some application [1] e.g. Current
assets – inventory/ current liabilities
[1] or 120 / 200
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Question Answer Marks AO Element Notes Guidance

32 Do you think the Finance 6

Director is right to be worried
about the financial performance
of Ramford in 2014? Justify your
answer using the data in the
Table and appropriate ratios.
Knowledge [1] – award 1 mark for
identification of relevant point(s)
[max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to whether Ramford should be
worried about its performance
Points include: • Sales down [k]
which is a 25% fall [app + an] •
(net) profit down [k] by $10m [app]
• Profit margin increased [k] to 40%
[app+ an] showing better control of
fixed costs [an] • ROCE has fallen
[k] to 20% [app + an] showing a
lower return on each $ invested [an]
• Financial Director is aware of the
problem [k] as they are cutting the
number of products to 10 [app]
Note: using percentage calculation
or ratio award application and
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

analysis. Max 1 for application.

Application marks may be awarded
for appropriate use of the following:
appropriate calculations/use of
numbers, diseconomies of scale,
four factories, 80 to 10 products
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Question Answer Marks AO Element Notes Guidance

33 Do you think the Finance 6

Director is right to be pleased
with the liquidity of CLW in
2014? Justify your answer using
the data in the Table and
appropriate ratios.
Knowledge [1] – award 1 mark for
identification of relevant point(s)
[max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to whether CLW should be
pleased with its liquidity in 2014
Points include:
• Current assets increased [k] by
$60m [app] • Current liabilities
fallen [k] by 8.33% [app +an] •
Current ratio improved [k] from
1.25:1 to 1.50:1 [app + an] but only
because inventory increased by
$150m so not as liquid [an] • Acid
test value fallen [k] from 0.875:1 to
0.75:1 [app + an] so not able to pay
short-term debts from its liquid
assets if needed [an] • Cash fallen
[k] • Trade receivables down [k]
which could mean customers
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

paying quicker [an] but could mean

less sales overall therefore less
trade receivables [an]
Note: using percentage calculation
or ratio award application and
analysis. Max 1 for application.
Application could include:
calculation of relevant ratios/use of
numbers, demand risen rapidly,
increased scale.
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Question Answer Marks AO Element Notes Guidance

34 Do you think the Finance 6

Director is right to be pleased
about the performance of QF
Group? Justify your answer using
the data in the Table and
appropriate ratios.
Knowledge [1] – award 1 mark for
identification of relevant issue(s)
[max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to whether Finance Director is
right to be pleased about its
performance in 2014
Relevant points might include:
• Gross Profit margin fallen [k] by
5% in 2014 [app] as cost of sales
increased/prices fallen [an] • Profit
margin improved [k] to 15% [app
+ an] as better control of fixed costs
[an] • ROCE improved [k] as now
12% [app + an] • Sales same [k] at
$600 [app] could suggest that
market for goods is saturated [an]
• Profit increased [k] by 25% [app
+ an]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

Note: using percentage calculation

or ratio award application and
analysis. Max 1 for application.
Application marks may be awarded
for appropriate use of the following:
relevant use of financial data,
computers and televisions, growth
objective
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

35 Explain why the profit margin 4

might be important for Walt’s
business.
Knowledge [2] – award up to 2
marks for each relevant
point/knowledge of importance of
profit margin (do not credit
definitions or formulae) [max 2]
Application [2] – award up to 2
marks for each relevant explanation
in context of this business
Relevant points might include:
• Profit as a proportion of sales
revenue, a higher margin would
mean more profit [k] is made for
each game sold [app] • Influence
price charged [k] if he sells to
wholesaler [app] it could mean
he
needs more adults to buy product
[app] • Indicates efficiency [k] •
Measure of
success/performance/comparison
with other years [k] •
Comparison
with other real world businesses
specified by the candidate [k]
Do not award answers that explain
reasons why profit rather than profit
margins matter.
Application might include:
wholesaler, adults, many countries,
game, computer or other related
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

terms e.g. software.

 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

36 Do you think that investing in 6

new technology is the best way to
improve profitability at PJK?
Justify your answer
Knowledge [1] – award 1 mark for
identification of relevant issue(s)

Positive or negative points allowed

or alternative ways to improve
profitability [max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

made as to whether new technology
is the best way to improve
profitability. Candidate’s final
decision can be either for or against
the statement Relevant points might
include:
• Reduce labour costs [k] so lower
costs [an] • Less wastages or
errors
[k] so have to order less parts
[app]
• Additional costs e.g. redundancy
or training costs [k] initially reduce
profitability [an] • Impact on
employee morale [k] • Better
quality / accuracy [k] for this
luxury
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

product [app] so customers might

pay higher price [an] leading to
bigger gap between costs and
revenue [an] • High initial costs of
equipment [k] • Speed up
production [k] so leading to lower
average costs [an] • Might take
away their USP [k] of being
handmade [app] so reduce demand
[an] • Or Introduce more efficient
working practices e.g. redesign
factory layout [k] • Or use cheaper
materials [k] so lower variable
costs
[an] but could mean lower quality
of watches [app] • Or sell more
through increased advertising [k]
but could be expensive / may not
work [an]
Application marks may be awarded
for appropriate use of the following:
luxury product / watches, skilled
workers, quality assurance,
handmade, production process,
materials / parts

[Total: 152]