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IGCSEBusinessCambridge (CIE)Exam Questions5. Financial Management5.3 Income Statements

Income Statements (Cambridge (CIE) IGCSE Business)

Exam Questions

58 mins12 questions
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1
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Case Study

Elton is a sole trader. He sells specialist clothing and equipment for sports, including baseball and hockey. It is a niche market. Elton started his business 5 years ago and it has remained small. A wide range of inventory is important. Elton has been looking at the financial performance of his business. The profit margin for 2018 was 35%. An extract of the accounts is shown in the below table.

Revenue and cost information for Elton’s business for 2018 and 2019 ($)

2018

2019

Revenue ($)

24,000

25,000

Cost of sales ($)

7,200

Y

Gross profit ($)

16,800

18,000

Expenses ($)

8,400

10,000

Profit ($)

X

8,000

Calculate X and Y.

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2
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Case Study

Aurelie is a sole trader. She started her small hotel a year ago using government support.

Aurelie knew it would be important to build good customer relationships. Aurelie wants to analyse her financial statements using ratio analysis. An extract is shown in the below table.

She is worried about how the Government’s plan to introduce a new tourist tax of $1 per tourist per night might affect her business.

Extract of Aurelie’s Income statement for 2020 ($)

Revenue

5 600

Cost of sales

1 800

Gross profit

X

Expenses

2 400

Profit

Y

Calculate X and Y.

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32 marks

Define ‘cost of sales’.

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42 marks

Define ‘retained profit’.

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5
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Case Study

BGR is a private limited company. It operates 6 cinemas in different towns. Effective internal communication is important for BGR. The Finance Director has been analysing BGR’s accounts and an extract is shown in Table 4.1. BGR plans to open another cinema and will need to recruit 10 new employees. The new cinema will cost $8m. The Finance Director has to decide whether BGR should issue new shares or use a bank loan to finance the expansion.

Table 4.1: Extract from BGR’s Income statement for year ending 2020 ($000’s)

Revenue

X

Cost of sales

180

Gross profit

720

Expenses

Y

Profit

400

Calculate X and Y.

Show your workings.

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62 marks

Define 'gross profit'.

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72 marks

Define 'insolvency'.

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18 marks

Explain four reasons why profit is important to private sector businesses.

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2
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Case Study

Kemala makes high-quality beauty products. Demand for her best-selling hand cream is price inelastic. She advertises her products in specialist beauty magazines. Kemala is analysing her income statement, comparing this years' performance to last years'. An extract is shown in Table 2.1. She said: ‘I'm unsure whether I should worry more about cost of sales or expenses’.

Table 2.1 :Extract from Kemala’s income statement 2021 ($000)

This year

Last year

Revenue

480

460

Gross profit

192

186

Profit for the year

72

60

Should Kemala worry more about her business's cost of sales or its expenses? Justify your answer.

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36 marks

Do you think cash or profit is more important for a start-up business? Justify your answer.

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1
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Consider how each of the following three changes may affect ETL's profit.

  • The introduction of import tariffs on toys in Country Y

  • An increase in the cost of raw materials

  • A decrease in corporate tax rates in Country Y

Which change is likely to have the greatest impact on ETL's profit? Justify your answer.

Refer to the following insert when answering the question

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212 marks

Consider the advantages and disadvantages of the following two options for MapQuest Ltd to improve its financial performance.

  • Develop the subscription-based digital app

  • Focus on reducing costs in the existing printed map business

Which option do you recommend? Justify your answer.

Refer to the following insert when answering the question

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