Financial statements: the income statement and statement of financial position - Worksheets, Questions and Revision

15 original exam-style questions - 5 pages of questions with a full mark scheme - free printable PDF.

Download PDF Jump to mark scheme (page 6)Financial statements: the income statement and statement of financial position revision guide

This topic is chapter 5 of GCSE Business: Finance Practice Book.

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3.5 Financial statements: the income statement and statement of financial position

AQA 8132 · Calculator allowed · about 55 minutes

Total Marks

Name: _______________________________ Date: ____ / ____ / ______

Answer ALL questions in the spaces provided. Show your working for every calculation: method marks are available even if your final answer is wrong. Willowmere Garden Centre, used throughout this pack, is a fictional business.

Which financial statement shows a business's revenue, costs and profit over a period of time, such as a year?

A) The statement of financial position
B) The statement of comprehensive income (income statement)
C) A cash-flow forecast
D) A break-even chart

(Total for Question 1 is 1 mark)

Which financial statement shows what a business owns and owes at a single point in time?

A) The statement of financial position (balance sheet)
B) The statement of comprehensive income
C) A cash-flow forecast
D) A break-even chart

(Total for Question 2 is 1 mark)

Which one of the following best describes 'non-current assets'?

A) Items a business expects to use for more than one year, e.g. premises and vehicles
B) Cash held in the bank
C) Money owed to a business by its customers
D) Money a business owes to suppliers within one year

(Total for Question 3 is 1 mark)

Which one of the following best describes 'current liabilities'?

A) Assets expected to be used for more than one year
B) Debts a business must repay within one year, e.g. trade payables and an overdraft
C) The total value of a business's non-current assets
D) Profit retained in the business

(Total for Question 4 is 1 mark)

State two groups of people (stakeholders) who might want to look at a business's financial statements.

(Total for Question 5 is 2 marks)

State two examples of items that would typically be included in 'cost of sales' for a garden centre like Willowmere.

(Total for Question 6 is 2 marks)

State two examples of 'expenses' (overheads) for Willowmere Garden Centre that would NOT be included in cost of sales.

(Total for Question 7 is 2 marks)

Under UK law, why must a private limited company file a set of annual accounts?

A) It is a legal requirement, so that Companies House, HMRC and shareholders are kept informed
B) It is only required if the business makes a loss
C) It is entirely optional for all business types
D) It is only required for public limited companies

(Total for Question 8 is 1 mark)

State two reasons why a bank might want to see a business's financial statements before agreeing to lend it money.

(Total for Question 9 is 2 marks)

Willowmere Garden Centre, a fictional garden centre, had the following results for the year: revenue £180,000; cost of sales £95,000; expenses (rent, wages, utilities and marketing) £52,000.

(a)Calculate Willowmere Garden Centre's gross profit for the year. Show your working.(2)

(b)Using your answer to part a, calculate Willowmere Garden Centre's net profit for the year. Show your working.(2)

(c)State the correct order in which revenue, cost of sales and expenses are used to arrive at net profit.(2)

(Total for Question 10 is 6 marks)

Calculate Willowmere Garden Centre's net profit margin for the year, as a percentage of revenue. Give your answer to 1 decimal place. Show your working.

(Total for Question 11 is 3 marks)

State two reasons why Willowmere Garden Centre's owner might want to compare this year's net profit margin (question 11) with previous years' figures, rather than looking at just one year in isolation.

(Total for Question 12 is 2 marks)

Calculate Willowmere Garden Centre's gross profit margin for the year, as a percentage of revenue. Give your answer to 1 decimal place. Show your working.

(Total for Question 13 is 3 marks)

At the end of the year Willowmere Garden Centre's statement of financial position shows: non-current assets £120,000; current assets £28,000; current liabilities £18,000; non-current liabilities (a long-term bank loan) £60,000.

(a)Calculate Willowmere Garden Centre's working capital (current assets minus current liabilities). Show your working.(2)

(b)Calculate Willowmere Garden Centre's net assets (non-current assets plus working capital, minus non-current liabilities). Show your working.(2)

(c)A business's net assets figure should equal its total equity (the owners' stake in the business). If Willowmere Garden Centre's owner's capital is £40,000, calculate the value of retained profit (reserves) included in total equity, using your answer to part b. Show your working.(2)

(Total for Question 14 is 6 marks)

Willowmere Garden Centre's financial statements show a net profit margin of 18.3% (question 11) and net assets of £70,000, including £30,000 of retained profit built up over several years (question 14c). The owner is deciding whether to use most of this £30,000 of retained profit to fund a £25,000 expansion (a new plant nursery building), rather than applying for another bank loan.
Recommend whether Willowmere Garden Centre should use its retained profit to fund the expansion. Justify your answer using the figures given in this pack.

(Total for Question 15 is 9 marks)

Mark scheme · 3.5 Financial statements: the income statement and statement of financial position

Question 1

B1 B cao
Answer: B

Question 2

B1 A cao
Answer: A

Question 3

B1 A cao
Answer: A

Question 4

B1 B cao
Answer: B

Question 5

B1 banks/lenders, e.g. to decide whether to lend money
B1 HMRC (tax authorities), shareholders/owners, or suppliers (any one)
Answer: Any two, e.g. banks/lenders; HMRC; shareholders/owners; suppliers.

Question 6

B1 the wholesale cost of plants/stock bought in to sell
B1 delivery costs of bringing that stock to the garden centre (direct costs of the goods sold)
Answer: Any two, e.g. wholesale cost of plants/stock; delivery costs of that stock.

Question 7

B1 staff wages (not directly tied to a specific sale)
B1 rent, utility bills, or marketing/advertising costs (any one)
Answer: Any two, e.g. staff wages; rent; utility bills; marketing costs.

Question 8

B1 A cao
Answer: A

Question 9

B1 to assess whether the business is profitable enough to afford loan repayments
B1 to assess the value of the business's assets, e.g. as security for the loan
Answer: Any two, e.g. to assess profitability/ability to repay; to assess the value of assets as security.

Question 10

(a) M1 180,000 - 95,000 seen
(a) A1 £85,000 cao
(a) Answer: £85,000.
(b) M1 85,000 - 52,000 seen (ft from part a)
(b) A1 £33,000 cao
(b) Answer: £33,000.
(c) B1 revenue minus cost of sales gives gross profit
(c) B1 gross profit minus expenses gives net profit
(c) Answer: Revenue minus cost of sales = gross profit; gross profit minus expenses = net profit.

Question 11

M1 net profit = 33,000 seen (ft from question 6b)
M1 33,000 / 180,000 x 100 seen
A1 18.3% cao (awrt 18.3%)
Answer: 18.3% (net profit margin).

Question 12

B1 to see whether the business's performance/profitability is improving or declining over time
B1 one year's figures alone do not show a trend, and unusual one-off events could distort a single year's results
Answer: Any two, e.g. to spot a trend over time; a single year can be distorted by one-off events.

Question 13

M1 gross profit = 85,000 seen (ft from question 6a)
M1 85,000 / 180,000 x 100 seen
A1 47.2% cao (awrt 47.2%)
Answer: 47.2% (gross profit margin).

Question 14

(a) M1 28,000 - 18,000 seen
(a) A1 £10,000 cao
(a) Answer: £10,000.
(b) M1 120,000 + 10,000 - 60,000 seen (ft from part a)
(b) A1 £70,000 cao
(b) Answer: £70,000.
(c) M1 70,000 - 40,000 seen (ft from part b)
(c) A1 £30,000 cao
(c) Answer: £30,000.

Question 15

Level 1 (1-3): Makes simple, undeveloped comments about the expansion, with little or no use of the pack's figures and no clear recommendation.
Level 2 (4-6): Gives a developed argument for or against using retained profit, using some of the pack's figures, but does not fully weigh both sides or reach a clearly justified recommendation.
Level 3 (7-9): Weighs the evidence for and against using retained profit, using the profit-margin, working-capital and reserve figures from this pack, and reaches a justified recommendation supported by that analysis.
Indicative content:
- The business already holds £30,000 of retained profit (question 13c), comfortably more than the £25,000 needed, and using it avoids paying any loan interest, unlike Willowmere Garden Centre's existing £60,000 of non-current liabilities (loan, question 13).
- The business's healthy 18.3% net profit margin (question 10) and positive working capital of £10,000 (question 13a) suggest it is in a strong enough financial position to fund growth without over-relying on debt.
- Against using retained profit: spending 25,000 of the £30,000 of retained profit would leave the business with very little of that reserve as a cash buffer for unexpected costs or a difficult trading period, especially since Willowmere Garden Centre already carries £60,000 of long-term loan debt (question 13).
- A bank loan would preserve the retained-profit cushion, spreading the cost of the expansion over time instead of depleting reserves in one go.
- Judgement: given the healthy margin and working capital, using most of the £30,000 of retained profit for the expansion is a reasonable and low-cost choice, but the owner should consider keeping some retained profit in reserve, e.g. topping up the remaining amount with a small loan, rather than spending the full £25,000 of reserves in one go, to avoid leaving the business without a cash buffer.

Financial statements: the income statement and statement of financial position - Worksheets, Questions and Revision

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3.5 Financial statements: the income statement and statement of financial position

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