Meritech Solutions Ltd is a software development company based in Madrid. After a successful year in 2023, MSL's Statement of Profit or Loss showed significant growth in sales revenue, but the company's gross profit decreased compared to the previous year.
Define the term 'gross profit'.
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Summit Beverages Ltd, an Australian soft drinks manufacturer, recorded strong financial performance in 2023. The company's Statement of Profit or Loss shows various expenses that impacted their final profit figure.
State two expenses shown in the profit and loss account.
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Fez Trading Group, a Morocco-based conglomerate, prepares its Statement of Financial Position for 2024. The company's accountants must properly classify its assets between non-current and current categories.
Define the term 'current assets'.
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Bologna Food Associates, an Italian spice wholesaler, recorded significant non-current liabilities in its 2024 Statement of Financial Position.
State two examples of non-current liabilities.
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Canadian Forest Products Ltd reviews its Statement of Financial Position for 2024. The accountants discuss the concept of net assets when analysing the company's financial position.
Define the term 'net assets'.
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African Pharmaceuticals PLC, based in Kenya, maintains various intellectual property rights protecting its medical innovations.
State two types of intellectual property.
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Coca-Cola, a multinational beverage company, experienced revenue growth in 2024 due to increased demand in emerging markets. The company’s Statement of Profit or Loss was closely monitored.
Explain one way Coca-Cola can use the Statement of Profit or Loss to make business decisions.
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Harmony Publishing is a small company that produces and distributes educational books for schools. The company has a steady revenue stream from annual contracts with several school districts. Recently, Harmony Publishing invested in new printing equipment worth £60,000 to improve production efficiency.
The company’s latest Statement of Profit or Loss reveals that its gross profit has increased due to lower cost of sales, but its operating expenses have risen because of higher maintenance costs for the equipment. Additionally, Harmony’s directors are concerned about its net profit margin, which has slightly decreased compared to the previous year. They are exploring whether further investment in automation could reduce operating expenses.
Analyse two benefits and one drawback of Harmony Publishing using its Statement of Profit or Loss to evaluate financial performance.
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Harmony Publishing is a small company that produces and distributes educational books for schools. The company has a steady revenue stream from annual contracts with several school districts. Recently, Harmony Publishing invested in new printing equipment worth £60,000 to improve production efficiency.
The company’s latest Statement of Profit or Loss reveals that its gross profit has increased due to lower cost of sales, but its operating expenses have risen because of higher maintenance costs for the equipment. Additionally, Harmony’s directors are concerned about its net profit margin, which has slightly decreased compared to the previous year. They are exploring whether further investment in automation could reduce operating expenses.
Describe two reasons why Harmony Publishing’s net profit margin decreased.
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Stellar Sports is a medium-sized company that designs and sells premium sports equipment. The company recently expanded its product line, which required significant investment in marketing and product development. Stellar Sports’ Statement of Financial Position reveals that its non-current assets have increased by £120,000 due to new manufacturing equipment, but its current liabilities have also risen.
The company’s directors are concerned about its liquidity, as the current ratio has dropped to 1.2:1 from 1.5:1 in the previous year. Stellar Sports is now considering selling off older inventory at a discount to improve its working capital position.
Explain one advantage and one disadvantage of selling off older inventory to improve Stellar Sports’ working capital position.
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Stellar Sports is a medium-sized company that designs and sells premium sports equipment. The company recently expanded its product line, which required significant investment in marketing and product development. Stellar Sports’ Statement of Financial Position reveals that its non-current assets have increased by £120,000 due to new manufacturing equipment, but its current liabilities have also risen.
The company’s directors are concerned about its liquidity, as the current ratio has dropped to 1.2:1 from 1.5:1 in the previous year. Stellar Sports is now considering selling off older inventory at a discount to improve its working capital position.
Describe two ways Stellar Sports’ directors can use its Statement of Financial Position to make decisions.
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GreenGlobe Energy is a renewable energy company that installs solar panels and wind turbines for residential and commercial clients. The company recently expanded its operations into a new region, which required significant investment in vehicles and equipment. GreenGlobe’s latest Statement of Profit or Loss shows a significant increase in sales revenue but also a rise in cost of sales due to higher material prices.
The directors are concerned about the company’s gross profit margin, which has dropped from 40% to 35% over the past year. They are also evaluating whether adopting more cost-effective suppliers could help improve profitability.
Explain one advantage and one disadvantage of using cheaper suppliers to reduce GreenGlobe Energy’s cost of sales.
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GreenGlobe Energy is a renewable energy company that installs solar panels and wind turbines for residential and commercial clients. The company recently expanded its operations into a new region, which required significant investment in vehicles and equipment. GreenGlobe’s latest Statement of Profit or Loss shows a significant increase in sales revenue but also a rise in cost of sales due to higher material prices.
The directors are concerned about the company’s gross profit margin, which has dropped from 40% to 35% over the past year.
Analyse two advantages and one disadvantage to workers at GreenGlobe Energy of using financial statements to assess their job security.
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2 marksBrightSpace Ltd. provides coworking spaces for freelancers and small businesses. The company’s financial performance has grown steadily, and its management wants to assess its net assets at the end of 2024.
Statement of Financial Position (2024) | Amount ($) |
|---|---|
Inventory | 56,840 |
Non-current Assets | 412,750 |
Cash | 82,420 |
Bank Loan | 150,000 |
Trade Receivables | 37,965 |
Trade Payables | 48,350 |
Accrued Expenses | 12,570 |
Calculate the net assets of BrightSpace Ltd. at the end of 2024 (show all your working).
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SavvyStyle Ltd. is a clothing retailer specialising in affordable casual wear. In 2024, the company generated total revenue of $524,780 by selling its products through online and physical stores. The company’s cost of goods sold (COGS) includes the cost of materials and production, totalling $312,430. Additional expenses, such as marketing and rent, amounted to $62,900.
Selected Financial Data (2024) | Amount ($) |
|---|---|
Total Revenue | 524,780 |
Rent | 25,700 |
Total costs | 375,330 |
Marketing Expenses | 37,200 |
Calculate the gross profit for SavvyStyle Ltd. in 2024 (show all your working).
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2 marksTechVision Ltd. is a well-established manufacturer of premium computer accessories, including ergonomic keyboards and high-performance mice. The company prides itself on innovation, regularly investing in research and development. Management is conducting a financial review to assess net profit for 2024.
Selected Financial Data (2024) | Amount ($) |
|---|---|
Revenue | 865,420 |
Cost of Goods Sold | 548,780 |
Operating Expenses | 185,430 |
Interest Income | 24,500 |
Interest Expenses | 8,900 |
Tax Expenses | 12,750 |
Calculate the net profit for TechVision Ltd. in 2024 (show all your working).
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Berry Bliss Bakery (BBB) is a small, family-run business specialising in high-quality, artisanal pastries and custom-made cakes. Located in a busy city centre, BBB is well-known for its personalised customer service and attention to detail. The bakery has built a loyal customer base over the past five years, relying heavily on word-of-mouth recommendations to attract new customers. However, competition from larger bakery chains offering similar products at lower prices has begun to put pressure on BBB’s market share
Emma and Raj, the co-owners, recognise the need to grow their business to remain competitive. They are currently exploring two options. The first option is to introduce a catering service for local events, such as weddings, corporate meetings and birthday parties. This service would allow BBB to diversify its revenue streams and target a broader customer base. However, it would require purchasing additional equipment and hiring specialised staff to manage the catering orders
The second option is to launch a subscription box service, where customers can sign up to receive a customised selection of BBB’s baked goods delivered to their homes each month. This option would enable BBB to reach customers beyond its city centre location. However, this option would involve setting up an e-commerce platform and investing in packaging and delivery logistics to ensure the freshness and quality of the products
Emma favours the catering service because it aligns with BBB’s reputation for high-quality, personalised offerings and builds on the bakery's existing strengths. Raj, on the other hand, prefers the subscription box service because it offers the potential for recurring revenue and expands BBB’s reach. Both options come with risks, including the potential for cash flow challenges and the difficulty of maintaining product quality as the business scales
To evaluate the feasibility of these options, Emma and Raj are closely reviewing BBB’s financial position. While revenue has grown steadily over the past five years, net profit margins have decreased due to rising operating costs. The bakery has limited cash reserves and relies on short-term loans to manage its working capital. Emma and Raj know that they must carefully assess the financial and operational implications of each option before making a decision
Table 1: Cost and return analysis of growth options
Option | Initial cost ($) | Expected annual revenue increase ($) | Key risks |
Launch catering service | 80,000 | 120,000 | High setup costs, additional staff training and difficulty managing large event orders |
Start subscription box service | 50,000 | 90,000 | Investing in e-commerce, organising delivery logistics and maintaining product freshness |
Table 2: Statement of financial position
As of 31 December 2024
Category | Value ($) |
Non-current assets | |
Property, plant and equipment | 150,000 |
Total non-current assets | 150,000 |
Current assets | |
Cash | 25,000 |
Inventory | 10,000 |
Accounts receivable | 5,000 |
Total current assets | 40,000 |
Total assets | 190,000 |
Equity | |
Share capital | 50,000 |
Retained earnings | 90,000 |
Total equity | 140,000 |
Liabilities | |
Accounts payable | 30,000 |
Short-term loan | 20,000 |
Total liabilities | 50,000 |
Total equity and liabilities | 190,000 |
Graph 1: Gross and net profit margins (2020–2024)
Examine two reasons for the declining net profit margin at Berry Bliss Bakery over the past five years.
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