Financial Statements (A Level) (Cambridge (CIE) A Level Business): Exam Questions

George’s Gym (GG)

George identified a potential niche market for a new gym in his local area. He set up GG as a sole trader business three years ago. GG is a modern gym with the latest equipment.

George has recently gained planning permission to build a new swimming pool. George wants to open the swimming pool because a national competitor is planning to open a new gym close by and he wants GG to remain competitive. The swimming pool will cost $400 000 and George has yet to decide on the best source of fi nance. He has $50 000 in savings that he could use and he does not have any mortgage or loans. George is thinking about seeking a private investor but is unsure of the risks involved.

The local population is wealthy. Last year (2012), GG had 300 members who each paid a membership fee of $60 per month. George is thinking about new ways of increasing revenue such as offering additional ‘keep fit’ classes. He also plans to increase the monthly fee he charges members to $66. His accountant has told him he needs to think about the price elasticity of demand before making a pricing decision.

Table 3 – Annual revenue and profit for the year for the previous 3 years ($000)

George hopes that the information in Table 3 will help show any potential lender how attractive the gym is as an investment.

GG has a problem of a high labour turnover of personal trainers. Three of them have left in the last six months. He has just employed a new personal trainer, Sally. George needs to issue her contract of employment. George thinks that the reasons for the high labour turnover include:

• George is always busy and so he can never offer an effective induction training programme for his employees

• GG salaries are below average for the industry.

Ormesby

Ormesby manufactures workwear for construction and healthcare businesses in country K.

Two years ago Ormesby moved to a cheaper fabric supplier and raised its prices by 6%. It also opened a showroom and increased its sales team from 4 people to 11.

Table 1.1 shows extracts from Ormesby's statement of profit or loss.

Table 1.1 Ormesby statement of profit or loss extracts ($000)

Wexford Signs

Wexford Signs designs and installs illuminated shop signs in country H.

Wexford has agreed to buy the workshop it currently rents. The purchase removes annual rent of $84 000, but Wexford will take a loan of $700 000 at 7% interest a year, and the building will be depreciated at $28 000 a year using the straight-line method.

The directors expect no change to revenue or cost of sales.

Table 1.1 shows Wexford's most recent statement of profit or loss.

Table 1.1 Wexford Signs statement of profit or loss, year ended 2026 ($)

Talgarth Scaffolding

Talgarth Scaffolding hires out scaffolding to builders in country V. It has asked its bank for a loan of $600 000 to buy new equipment.

Talgarth's directors have given the bank its statement of profit or loss, pointing out that profit for the year has risen from $210 000 to $340 000.

Three further facts are not obvious from the statement:

• $180 000 of the 2026 profit came from selling a depot that Talgarth no longer needed

• Talgarth changed its depreciation policy in 2026, extending the assumed useful life of its scaffolding from five years to eight, which reduced the annual depreciation charge by $70 000

• Two large customers now take 90 days to pay rather than 30

Anya, the bank's lending manager, must decide whether the statement of profit or loss gives her enough information.

Ellersby

Ellersby manufactures office furniture in country G. It currently makes its own metal frames and is considering buying them from an outside supplier instead.

Table 1.1 shows Ellersby's statement of profit or loss for 2026 and the directors' forecast for 2027 if frames are bought in.

Table 1.1 Ellersby statement of profit or loss ($000)

The 2027 forecast includes redundancy payments of $390 000 to the 14 employees who make frames. Without those payments, expenses would fall to $2 625 000.

The supplier is the only business in country G able to make the frames to Ellersby's specification. It quotes a seven-week lead time; Ellersby currently offers its corporate customers four weeks, which is its main selling point.