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BTEC NationalBusinesssUNIT 3 Grade BoosterRevision Workshop

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2 BTEC NATIONAL BUSINESS UNT 3 GRADE BOOSTER Revision Workshop www.tutor2u.net 3

BTEC National Business Unit 3 grade booster REVISION WORKSHOP

Welcome to the BTEC National Business, Grade Booster revision workshop. Today’s event consists of four sessions where we focus on the Unit 3 Personal and Business Finance exam. It would be impossible to cover the content of the entire unit in one day, so the aim is to review key topics and refine and sharpen the essential examination skills in preparation for the exam.

Each session has a real focus on the key examination skills and techniques required and at the end of each session you will find a range of extension activities that will support you in your preparation and revision for the examination.

1 Perfecting Personal Finance

2 Mastering Business Finance

3 Nailing the Numbers

4 Become an Expert with Exam Technique

The Key Exam Skills

A01

A02

A03

A04

Demonstrate KNOWLEDGE and UNDERSTANDING of business and personal financeprinciples, concepts, key terms, functions and theories

APPLY KNOWLEDGE and understanding of financial issues and accounting processes to real life business and personal scenarios

ANALYSE business and personal financial information and data, demonstrating the ability to INTERPRET the potential IMPACT and OUTCOME in CONTEXT

EVALUATE how financial information and data can be used, and INTERRELATE, in order to JUSTIFY conclusions related to business and personal finance

In this session we will look at the key aspects of the Personal Finance specification and the importance of writing in context when answering examination questions. There will be a specific focus on the 2 – 6 mark questions ensuring that your exam technique is perfected.

Activity 1: Finance StreetCan you spot and identify the financial institutions?

Session 1Perfecting Personal Finance

147

258

369

Activity 2: Ladies v Gents

The continuing trend of multiple branch closuresA dramatic shift in the way in which customers choose to carry out the majority of their financial transactions has meant that the programmes of bank branch closures has continued to rise.Leading high street banks have witnessed a 43% decline in ‘in branch’ transactions since 2010, making the high costs associated with operating branches no longer viable. As the decline in ‘face-to face’ in branch communication continues, the closure of further branches is inevitable.

4 BTEC NATIONAL BUSINESS UNIT 3 GRADE BOOSTER Revision Workshop www.tutor2u.net 5

Activity 3: True or False

Banks & Building Societies only guarantee savings protection up to the value of £75,000

A standing order enables a varying amount to be paid each month to match the amount required

A basic current account provides an individual with debit card to use for making payments

A credit card allows a period of interest free borrowing

The Money Advice Service provides face to face, telephone or online support

True False

Activity 4: Give Me Three!

Selecting one of the above methods consider the following:

Ladies - 2 advantages Gents – 2 disadvantages

List the different methods, apart from visiting a branch, that a customer can use to interact with a bank.

1

3

2

4

This type of question will appear at the start of each section and will require you to ‘Give’ or ‘Identify’. These are simply testing your ability to recall key knowledge directly from the specification.They will usually require a one-word answer or a term from the specification.Do not waste valuable exam time writing in sentences or developing this type of question.e.g. Identify two types of insurance an individual may purchase. 1 Car 2 Home and contents

Answering the 1 mark questions

In the 2 mark ‘Outline’ or ‘Explain’ questions there will be a content mark and a development mark.e.g. Outline one benefit of using contactless as a method of payment.One benefit of contactless payment is that it is fast method of payment. This means that the customer can make a transaction quickly and efficiently without needing to input a pin number at the checkout.These questions can require two benefits or two drawbacks and would be worth a total of 4 marksi.e. 2 x 2 marks

Structuring the 2 mark questions

1

2

3

1

2

3

1

2

3

Outline one benefit of a payment method an individual may use. (2 marks)

Outline one benefit of a type of borrowing an individual may use. (2 marks)Let’s practice!

Type of borrowing

Type of payment method

Outline one benefit of the type of borrowing

Outline one benefit of the payment method

Methods of payment Sources of information, guidance and advice Types of borrowing


Name

CONTEXTPick out a key point from the profile that makes this account most suitable

PROS (in context)One advantage linked to the persons situation

CONS (in context)One disadvantage linked to the persons situation

1 2

1 2

1 2

KNOWLEDGESelect two possible types of current account that may be appropriate

1 2

Answer the following question for the individual selected.

Discuss which type of current account would be the best option. (6 marks)

Remember... It’s all about the context!

Activity 5: Time to ‘Discuss’

Martha 38 years old from Plymouth

Ali 29 years old from London

Caroline 18 years old from Manchester

Martha is currently unemployed having lost her job as a retail manager 18 months ago. During this time she has borrowed a significant amount of money through a bank loan and multiple credit cards. Martha has struggled to maintain the repayments needed on her borrowing and her credit rating has suffered greatly.

Ali is an accountant in the city. He travels extensively with his work and enjoys several holidays abroad throughout the year. He regularly uses comparison websites and has switched his main bank account and savings accounts before to find the best deal.

Caroline is currently studying at a local 6th form college and is hoping to move away to study Business in Newcastle at the end of her course. She has a part time job in a florist owned by her mum and is very sensible with money.

In the examination you will face a 6 mark ‘Discuss’ question in section A.To achieve the maximum marks available, it is important that you demonstrate the following: 1 Thorough knowledge of the topic area 2 Applied to the context given 3 With pros and cons of the options presented, in context


There are many types of payment method Beth could use to purchase her car. These include cash, debit card or credit card.

As Beth has the money saved she could make a cash purchase. The advantages of using cash are that Beth will have the correct funds available to buy her car and it guarantees that the purchase can happen without any payment problems e.g. no need for any credit checks. The disadvantages would be that she would need to visit a branch to access this amount of money and possibly pre-arrange the withdrawal with them. In addition to this when she has the money there is a greater risk of it being lost or stolen before the payment is made to the car dealer.

An alternative for Beth would be to pay using a debit card. As she is 18 it is likely that she will have access to this facility on her current account which provides her with a much safer and more secure method of payment than carrying a large amount of cash. The disadvantages of this would be if Beth did not have the required funds available in her account she may have to use an overdraft facility. However, given that Beth has saved the money required and using a debit card reduces the risk associated with a large cash payment greatly, this is probably the best option for her to use.

Student demonstrates knowledge and understanding immediately by identifying specific examples of payment methods.

The second paragraph looks at one payment method and considers both the advantages and disadvantages of this – all written in the context of the question. The student uses specific information e.g. her age and the likely value of the payment to show a well-balanced argument in context.

The third paragraph considers an alternative payment method and again demonstrates a good understanding in relation to the context of the question. Well-balanced to consider both advantages and disadvantages.

Student answers the question by selecting the best option based on the arguments.

This is a thorough and balanced answer that ensures the student moves into level 3 of the marking bands and achieves 6/6 marks.

The following student answer shows a top level response to the question:

Worked Answer – Discuss Question

Student answer Examiner Commentary

Beth has just turned 18 and is looking to purchase her first car. She has been asked by the car dealership how she would like to pay. She has the money saved for the purchase and is unsure what the different payments options could be.

Discuss the best payment method for Beth to use (6 marks)

NOTES


Q4 Discuss which method of borrowing would be most suitable for Jane.

Jane has recently graduated and secured a job as a trainee accountant. She is looking to purchase her first car to help her with the daily commute.

Jane has been advised that there are a number of borrowing options available to her to make this purchase.

Total for Question 4 = 6 Marks

Q1 Identify two types of borrowing an individual may use.

SET ONEWith interest rates at an all-time low, there continues to be a rapid rise in the amount of borrowing consumers are willing to access. The concern is that once rates increase the cost of borrowing may become unmanageable for many people.

Q2 Give two different payment methods that could be used to make a transaction.

Q3 Outline two drawbacks of excessive borrowing.

1

1

1

2

2



2


extension activitiesTiming is essential in the examination. You have 15 minutes to complete each of the following sets of questions worth 14 marks.


Q1 Identify two communication methods used by banks that allow customers to interact on the move.

SET TWOGrowth in innovative technology is changing the banking industry. As consumers try to fit things into an already busy lifestyle, ‘On the Go’ interactions are becoming the norm.

Q2 Give two reasons why it is important for an individual to plan expenditure.

Q3 Outline two benefits to the customer of using a credit card as a method of payment.

1

1

1

2

2



2


Q4 Discuss which source of information, guidance and advice would be the best for Steve.

Steve has found himself in the position of having unmanageable debt and needs some information, guidance and advice on the best ways to deal with the situation.

Steve has been told that there are many places he can go to for support.



Activity 4: Small steps to make a perfect paragraph

Difference

Hire Purchase

Revenue

CurrentRatio

Key Term 1 Key Term 2

Fixed Cost Variable Cost

Leasing

Profit

LiquidCapitalRatio

Activity 1: Key Word Countdown

Activity 2: What’s the Difference

In this session we will look at the key components of the Business Finance specification and further examine the importance of context when answering the examination questions. We will focus on the 2 – 8 mark questions to ensure that you have fully mastered the essential exam technique.

Session 2Mastering Business Finance

Accuracy when defining key terms is essential. Can you explain the difference between the followingfinancial concepts?

Activity 3: 30 Second Match Up

Definition Key Term

Attracting investment from a large number of speculativeinvestors many of whom may invest relatively small amounts

The difference between the selling price and the variable cost per unit

Opening Inventory + purchases - closing inventory

When an expense is paid in advance of the period to which it relates

An accounting concept used to spread the cost of an asset over its useful life

You have 30 seconds to identify the 5 Key Terms that match the definitions below:

You will be shown 4 Business Finance key word conundrums.Can you work them out before the music stops?

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The standard 2 mark ‘outline’ or ‘explain’ questions will appear at the start of section B in the Unit 3 exam. This type of question is there to test your knowledge.There are no short cuts! Learn your key terms and definitions thoroughly. Remember these are easy marks to pick up if you have prepared well.

In section B of the exam you will face an 8 mark ‘Analyse’ question.This type of question requires you to: 1 Demonstrate accurate and thorough knowledge and understanding 2 Evidence thorough application 3 Present balanced analysis containing linkages and interrelationships


(Note - the above example only illustrates analysis. In the exam your analysis must be contextualised.)

Pe

CAn

Consider the following question:

Analyse the importance of a cash flow forecast as method of planning and control. (8 marks)

Now over to you...Fill in the following table for two further benefits of a cash flow forecast?Remember to use your connectives at each step of the way.

Pe stands for POINT explainedSignpost every paragraph! Check that each paragraph starts with a sentence that uses the words of the question to state a relevant point that will be developed using the skills of knowledge and understanding, applied context and analysis.

CAn stands for CONTEXTUALISED ANALYSISFor BTEC CONTEXT is vital - without it answers can only remain in level 1 of the Level Based Mark Scheme (LBMS).Use everything available to you to help contextualise your answer: the question, the scenario and any previous questions that could hold relevant information for you too.The arguments (pros & cons, advantages & disadvantages, strengths & weaknesses) that are to be developed (ANALYSIS) must be APPLIED to the CONTEXT.

So what is ANALYSIS?This is not simply listing ‘textbook’ style advantages and disadvantages. Each one must be APPLIED to the CONTEXT but that is only the start. You need to develop a reason, cause or consequence to show depth and linkages between points.Connectives can help - therefore, as a result, this may lead to, consequently.

Student AOne benefit of a cash flow forecast is that it helps to avoid cash flow problems.

Student BOne benefit of a cash flow forecast is that it requires a business to consider both cash inflows and cash outflows. This means that the business is looking at the money coming and in and going out each month as part of the planning process. As a result the business would be able to spot potential problems e.g. a fall in sales or an increase in expenditure and respond to them, therefore avoiding future cash flow problems.

Starting Point

Step 1

Step 2

End Point

Writing a winning paragraph the PeCAn wayIt is essential that you produce an answer with well structured paragraphs - this makes it easier for the examiner to follow your arguments and ensure that the core assessment skills are demonstrated.A good strategy to use when developing paragraphs is PeCAn.


Finally let’s consider ‘context’ to create the PeCAn paragraphAleisha has been running her sandwich bar ‘The Sandwich Station’ for 6 months. She is concerned that her expenditure is much higher than initially forecast. In particular she has underestimated the cost of purchasing her supplies and also the cost of advertising. As a result Aleisha feels that the time she spent on financial planning was wasted.

Time to bring it together... the PeCAn way!Here is an example of a PeCAn paragraph for one benefit to Aleisha.Complete the table by writing your own PeCAn paragraph for a drawback to Aleisha.

Analyse the usefulness of a cash flow forecast to Aleisha in this situation. (8 marks)

Knowledge

One benefit to Aleisha of using a cash flow forecast isthat she will be able to closely monitor her inflows and outflows, particularly important for a new business like ‘The Sandwich Station’. This means that Aleisha can identify problems as early as possible, for example high advertising costs and therefore do something about them. As ‘The Sandwich Station’ is in its early stages of development it is likely that advertising costs will be high in order to raise awareness of her new business. However, Aleisha may decide to look at alternative, more cost effective methods to reduce the outflows at this present time.

One drawback to Aleisha of using a cash flow forecast is

Contextual information we might use

Break-even analysis helps a new business to identify the level of output/sales required to cover all costs and start making a profit.One benefit to Pippa would be that it would help her to identify the costs associated with her new business. This means that she could identify potentially excessive costs for the cafe e.g. premises, equipment and fixtures and fittings in advance of the start-up and this in turn would give her time to look for lower cost alternatives if possible. As a result, Pippa would hopefully be able to break-even earlier as her costs would be lower.A drawback of break-even analysis is that it is based on forecasted sales. This could be a reason why Pippa was unsure about the value of the process as the forecast had to be based on her initial idea. On the one hand it is possible that the sales in her pet cafe may turn out to be less than expected, which would impact on her break-even level, however it can help Pippa to set targets for sales that can be monitored. Therefore, Pippa becomes aware of potential problems in her business at a much earlier stage.A second drawback of break-even analysis is that it does not account for changes in either costs or selling price. The likelihood is that once Pippa’s business opens she will make changes with these variables, for example she may charge an introductory price which will be lower than the selling price used in her analysis – this will impact on her break-even point as it will reduce the initial revenue coming into the cafe. In addition to this she may find that some of her costs may increase e.g. the variable costs of her supplies for the cafe which will result in her needing to make more revenue to break-even.However, a further benefit to Pippa is that break-even analysis can help her to set the right price for her products/service. Pippa can look at the impact that varying her prices would have on the sales in her cafe and use this information to help her to determine whether a profit or loss will be made. This is particularly helpful for a new business like the Pet Cafe as Pippa will be unsure of the market and potential demand.

Student demonstrates knowledge and understanding of the purpose of break-even analysis.

The second paragraph clearly identifies a benefit to the business in question with clear application to the scenario given. There is good use of connectives to show the development of points and the linkage between costs and break-even.

The third paragraph considers a potential drawback of the technique, again written in context. Strong development of the argument presented with a balanced analysis to consider both sides of this point. This is a well written paragraph.

The fourth paragraph considers a further drawback to the business with excellent use of context throughout. The student always links the point back to the business and considers impact. There is a real sense that the student appreciates the value of the technique but accepts that there are drawbacks.

This final paragraph addresses the benefits in relation to pricing. The student has now covered all aspects of the concept of break-even (sales, costs, revenue) and therefore the knowledge is both accurate and thorough. As with the previous paragraphs the context is clear throughout to produce a balanced answer that would be awarded a level 3 response.

The following student answer shows a top level response to the question:Worked Answer – Analyse Question


Pippa’s Pet Cafe has been a long time in the planning process. On the one hand Pippa was confident that the demand was out there for her business idea, however the bank had taken more convincing to secure the finance necessary for this new venture. She had created financial forecasts, including a 12-month cash flow and carried out a detailed break-even analysis to support her business plan but Pippa was not convinced of the value of forecasting.

Analyse how effective break-even analysis can be when starting a new business. (8 marks)


extension activitiesTiming is essential in the examination. You have 20 minutes to complete each of the following sets of section B questions worth 18 marks.

Q4 Analyse the importance of maintaining a positive net cash flow to a business like ‘Woof & Ready’.



Q1 Outline what is meant by the term accruals in a financial document.

SET ONE

Q2 Outline what a ‘non-current asset’ is.

Kevin set up a local dog walking service ‘Woof & Ready’ 12 months ago. Due to an increase in demand he wants to purchase a van to help with the collection and drop off of the dogs during the day. Kevin has no available funds to purchase the vehicle and will need to find suitable finance.

Q3 Discuss the best external source of finance for Kevin to use.




Q1 Outline what is meant by the term ‘net book value’ in a financial document.

SET TWO

Q2 Outline what is meant by the term ‘margin of safety’.

Grace has been running her business ‘Food for Thought’ for 12 months now and she is worried about the current financial position. Despite identifying a niche in the market for organic and health foods her financial forecasts had indicated that her business would be profitable by now, especially given the long hours she has put into making the business work.

Q3 Discuss why it is important for a business like ‘Food for Thought ‘ to break-even.



Q4 Analyse the importance of producing financial statements to a business like ‘Food for Thought’.



24 A LEVEL BUSINESS STRONG FOUNDATIONS Revision Workshop www.tutor2u.net 25

In this session we will look at the range of calculation questions you can expert to face on section B of the examination. You will get the chance to pick up some time saving tips, improve your accuracy and ensure that you have the potential to achieve the maximum marks on this aspect of the paper.

Session 3Nailing the Numbers

Activity 1: Cash Machine Calculation!

Activity 2: Fill in the gaps in Financial Statements

You will be shown 4 calculations on the screen.You have 30 seconds to complete each of the calculations shown on the Cash Machine screen.

Fill in the gaps to complete the statement of comprehensive income for John.

Sandbrook & Sons is a local garage owned and run by John Sandbrook. The garage has been in operation for over 15 years and has built up a strong customer base in the local community. In addition to offering a full mechanic service, John’s eldest son Michael has now joined the business and manages the sales of second hand vehicles as the business expands further.John has produced an outline statement of comprehensive income for the year ending 30th April 2017.

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There are two financial statements that can appear on the examination: 1 Statement of Comprehensive Income (SOCI) 2 Statement of Financial Position (SOFP)It is essential that you know the formula required to be able to complete any missing parts that may appear in these statements. Notes/workings

Statement of Comprehensive Income for Sandbrook & Sons for the year ended 30 April 2017

Opening inventory

Purchases

Closing inventory

Gross Profit

Less expenses

Rent & Rates

Wages & Salaries

Advertising

Depreciation

Other expenses

Total expenses

Revenue income

Net Profit before Tax

45,500

68,200

11,300

£ £

Sales

Less cost of goods sold

398,100

34,400

71,500

11,300

15,485

65,450

14,300


Using the ‘3-step’ approach complete the following ratio calculations for John based on the completed Statement of Comprehensive Income for Sandbrook & Sons.

Activity 3: ‘3 steps to success’ – A Ratio Review Activity 4: Accurate Adjustments

In section B of the examination you will be required to complete a series of calculation questions. The mark allocation ranges from 2 to 8 marks (total marks available = 24.) You need to be able to calculate, interpret and use the data presented and must show all of your workings.Use the ‘3-step’ approach when answering any calculation question - formula, substitute, answer (with appropriate notation e.g. £, %, days).

Ratio Formula Substitute Answer

Gross Profit Margin

Mark Up

Profit Margin

There are three types of adjustments that you may be required to make on the examination:

Ellie has been running her own business for a year now and has quickly had to get to grips with the financial demands associated with the responsibility of being her own boss. Ellie has produced an outline statement of financial position for her hairdressing and beauty salon, ‘Best of Both Worlds’ but it is incomplete. Ellie has been discussing with her accountant the importance of financial records being a true and fair record of the business activities. As a result, Ellie needs to record the following adjustments in her account. 1 A 15% depreciation allowance using the reducing balance method for her equipment 2 An accrual of £4,750 for electricity 3 A prepayment of £15,500 for rent

Complete the statement of financial position for Ellie.

1 Depreciation 2 Accruals 3 Prepayments

An extract from a Statement of Financial Position for ‘Best of Both Worlds’ as at 30 April 2017

Cost £ Depreciation £ Net Book Value £

Non-current Assets

Current Assets

Inventory

Cash

Current Liabilities

Bank Overdraft

Trade Payables

Net Current Assets

Long-term Liabilities

Bank Loan

Net Assets

Financed by

Opening capital

Profit for the year

Less drawings

Capital Employed

Equipment 12000

4800

1200

1400

550

9,500

13000

6500

4000


The Phone Hut is a mobile phone repair and sales business owned by Dan. As the business has two distinct parts, sales and repairs, he has decided to carry out some individual financial analysis to assess the profitability of the mobile phone sales. Dan knows that he is always very busy with repairs but is less convinced that the phone sales are generating sufficient profit.

Dan has provided you with the following financial data to help him. Using the information below calculate the following:

Jill opened her business ‘Beautiful Blooms’ 6 months ago and has quickly established herself as a high-quality florist. Jill prides herself on the variety of traditional and exotic flowers she sources from a number of different wholesalers. Despite the popularity of her shop Jill is concerned that the sudden increase in wholesale prices combined with rising advertising costs will have a significant impact on her cash flow.Jill has calculated the following changes from October onwards: 1 An increase of 10% in purchase costs 2 An increase in marketing costs of 5% 3 A seasonal fall in sales of 3% in October and 5% November based on the previous months sales

Complete the cash flow

Activity 5: Quickfire Formula Activity 6: Cash Flow Challenge

AnswerQuestion Formula Substitute

Contribution per unit

Total Revenue

Break Even

Margin of Safety

Profit (use contribution method)

Fixed Costs

Variable cost per unit

Selling price per unit

Current units sold

£25,500

£125

£375

240

September October November

Income

Total Income

Expenditure

Purchases

Wages

Rent

Advertising

Other Expenditure

Total Expenditure

Opening Balance

Net Cash Flow

Closing Balance

Sales 14500

14500

6300

1750 1750 1750

550 550 550

3500

1250 1250 1250

13350 14155

7500 8650

8560

8560

-793.25

Notes/workings


extension activitiesTiming is essential in the examination. You have 25 minutes to complete the following set of section B questions worth 24 marks.

ii) Profit at the current level of output for the Cupcake Cafe. (3)

iii) Fixed costs for the Cupcake Cafe. (3)

Show your workings

Show your workings

SET ONECarly has been running her business, ‘Cupcake Cafe’ forjust over a year now. She bakes Cupcakes daily to sell in house in her cafe, and also takes orders for specialist cupcake designs required for parties, weddings and any celebration. Carly is always busy and feels as if the business could expand further. She has asked you to carry out some financial calculations to support her future plans.

Carly has provided you with the following extract of financial information.

Q1 (a) Using the above information, calculate:

i) The margin of safety for the Cupcake Cafe. (2)

Break-even quantity

Selling Price per unit


Current output level

3700 units

£15

£7

5000 units

Show your workings

units

£

£



Carly has also given you this additional information.

Q2 (a) Using the above information, calculate:

i) The liquid capital ratio for the Cupcake Cafe. (2)

Q3 i) Based on the initial equipment cost of £12,000 calculate the amount of depreciation Carly needs to account for at the end of her first year. (2)

ii) Using your answer from part a, complete the statement of financial position for Carly. (8)

Gross Profit

Opening Inventory

Closing Inventory

Purchases

Current assets

Current liabilities

£10,000

£23,000

£44,500

£86,500

£62,000

£9,500

Show your workings

Show your workings

Show your workings

£

£

ii) Mark-up for the Cupcake Cafe. (4)

Carly has invested in equipment to help prepare the volume of Cupcakes required each day. She has been advised that to prepare accurate accounts she should factor in depreciation. Carly has decided to depreciate the equipment by 5% using the straight line method.

An extract from a Statement of Financial Position for ‘Cupcake Cafe’ as at 30 September 2017

Cost £ Depreciation £ Net Book Value £

Non-current Assets

Current Assets

Inventory

Prepayments

Cash

Current Liabilities

Bank Overdraft

Trade Payables

Net Current Assets

Long-term Liabilities

Bank Loan

Net Assets

Financed by

Opening capital

Profit for the year

Less drawings

Capital Employed

Equipment

44500

8500

62000

6000

9500

14000

54000

6500

10600


Session 4Become an Expertwith Exam TechniqueThis session will tackle the 10 & 12 mark questions in detail for both section A and B. You will be given useful advice on how to structure your answers to maximise marks and gain an invaluable insight into the mind of the examiner.

Activity 1: ‘Think’

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How many different life stages are there?

What does the abbreviation CHAPS stand for?

What is the formula for calculating inventory turnover?

Which of the following organisations will pay compensation to a consumer of financial services if the service provider is unable to?

On a statement of financial position, how is the net assets figure calculated?

Break-even output is 8000 units, with a selling price of £6 and variable cost per unit of £3.50. What are the total fixed costs?

A B C D

Activity 2: It’s all about balance!Time for a Challenge – Tug of warWe are going to consider the arguments for and against two different types of borrowing, the Credit Card and the Personal Loan.

Advantages Disadvantages

Credit Card

Personal Loan

Activity 3: Time to Assess!

The 10 mark ‘Assess’ question

You can expect to see two 10 mark questions on the paper, one in each section. Each ‘Assess’ question will give you multiple points to examine e.g. ‘two options’ or ‘the effects on’. It is important that you ensure both sides are addressed, with pros and cons for each.To reach the top of mark band 3 you will need: 1 Thorough knowledge which is balanced and uses the scenario well 2 Good depth to the points made – use of connectives will help with this 3 Plenty of links made which are highly relevant to the scenario

Consider the following section A question:

Mo is 31 years old and has just purchased his first home. The move went very smoothly however after three months living in his new home he has noticed a problem with the boiler that means it needs to be replaced. He has had several quotes for the work to be carried out and these have ranged from £2700 to £4500 – money Mo does not have available. He is considering whether to use a credit card or take out a personal loan to cover the cost of the work.

Assess which of the two options are more suitable for Mo. (10 marks)To answer this question in a balanced way, you will need to cover both advantages and disadvantages of both a credit card and a personal loan.

Remember..... each point made and developed must be written fully in context.

Knowledge (key features)

Contextual information we might use


Activity 4: PeCAn ParagraphsSession 3 introduced you to the concept of the PeCAn paragraph. You have now planned the knowledge, context and arguments required to advise Mo on his situation. Using the grids below, produce 4 PeCAn paragraphs to answer the ‘Assess’ question.

Activity 5: Challenge Time... Be the examiner!The following paragraph is taken from a student answer to the question in activity 3. Using your knowledge of exam technique and the mark scheme requirements, how would you improve this response? Annotate the answer with your suggestions and make recommendations on how to improve in the table below.

Pe

Pe

Pe

Pe

CAn

CAn

CAn

CAn

Point explained

Point explained

Point explained

Point explained

Contextualised Analysis




Student A‘Mo could use a credit card. A credit card allows a purchase to be made with a period of interest free credit. This allows him to borrow now and pay later. However, if the money borrowed is not repaid, usually at the end of the month, there would be interest charged on the amount borrowed. This would mean that there was a cost to the borrowing and he would have to pay back more overall. Credit cards have very high interest rates.’

Recommendations

1

2

3

Now rewrite the perfect paragraph based on your recommendations


Activity 6: It’s a question of evaluation!

The 12 mark ‘Evaluate’ question

There will be two 12 mark questions, one in each section and together they are worth almost a quarter of the total marks on the exam. They require you to produce a structured, extended response with a fully justified conclusion.To reach the top of mark band 4 you will need: 1 A balanced answer in which knowledge points are developed 2 Clear links between your answer and the scenario given 3 To consider the consequences/impact of the points made 4 Arguments presented in a logical manner 5 A definite conclusion no ‘sitting on the fence’!

Consider the following section B question:Lilly is now into her second year of running her traditional sweet shop ‘Sweet Sensations’. During the first 12 months she slowly established herself within the market and started to build a strong reputation for high quality confectionary along with a growing customer base. However, despite this positive start Lilly was disappointed to see that she was unable to break-even in her first year.

Lilly has provided you with the following financial information from year 1.

Evaluate the actions Lilly could take to ensure that her business can break-even by the end of year 2 (12 marks)

Fixed costs

Average selling price per unit


Sales (units)

Year 1

£9,000

£4.00

£2.50

5000

Context

Calculations

Possibleactions

Pros

Cons

1 2 3

Activity 7: Signing off with style – writing the fully justified conclusionThe DJI method can help you to structure your conclusion in three parts:

Decision

Justify

In the future

Make one! Which is the best option, preferred strategy, most suitable approach?

Why is this the best and most suitable option? What evidence/context supports this decision? Why did you not choose the alternative? What factor(s) could influence the success of your chosen option?

What further actions may be considered in the future?


Consider the question from activity six

Evaluate the actions Lilly could take to ensure that her business can break-even by the end of year 2 (12 marks)

Decision

Justify

In the future

1

2

3

4

5

6

7

Section A of the exam focuses on Personal Finance

The time allowed for the Unit 3 exam is 90 minutes

There are three sections in the examination – A, B and C

Discuss, Assess, Analyse and Evaluate questions all require context

There are 120 marks available on the paper

There is no formula sheet provided for the exam

A calculator is not allowed in the exam

FictionFact

Activity 8: Fact or FictionWhat do you know about the Unit 3 examination?

NOTES



Worked Answer – Assess question (Personal Finance)


Lynne is 32 years old, a homeowner and is in full time employment. She recently received inheritance from her late grandfather worth £8000 and has decided to use this as a deposit to purchase a brand-new Audi TT Coupe worth over £30,000. To finance the remainder of the purchase Lynne is considering whether to take out a hire purchase agreement with the car dealership or apply for a personal loan.

Assess which of these two options is most suitable for Lynne. (10 marks)

Examiner Commentary

One option for Lynne would be to apply for a personal loan. This would mean that she would borrow a lump sum of money from a lender e.g. a bank and then she would repay this amount over a set term plus interest.

An advantage of Lynne using a personal loan is that it would not be secured against the value of her car. This means that Lynne would own her new car from day one of the purchase.

One disadvantage of a personal loan is that her application is not guaranteed to be accepted. This will depend on Lynne’s credit history. However, given that Lynne is a home owner and has full time, permanent employment her chances of getting the loan would be pretty good.

A second disadvantage is the amount that Lynne needs to borrow - £22,000 minimum – she may find it difficult to get an unsecured personal loan unless she uses another asset e.g. her house for security. In addition to this, as the amount she wishes to borrow is high for a personal loan Lynne is likely to be charged more. She could expect an APR of around 7%.

The alternative for Lynne is to take out a hire purchase agreement with the car dealership. This would require her to pay a deposit and then regular monthly payments over a set term. At the end of this the car would be Lynne’s to keep.

The main advantage of hire purchase is that Lynne would be almost guaranteed to be accepted for this, even if she had issues with her credit history, which is unlikely. However, she will be expected to put down a deposit on the car, usually around 10% of the purchase price which in this case would be £3,000. This would not be a problem for Lynne as she has the inheritance money available to her and could put down a bigger deposit to reduce the interest she needs to pay on the agreement.

In addition to this a hire purchase agreement is likely to be much quicker for Lynne to set up than the personal loan as it will be done directly through the car dealership and given that she has the deposit ready to go, she could make the purchase in a very short space of time. For both options open to Lynne she will need to pay interest. Hire purchase rates are usually very competitive as the dealership will be keen for Lynne to choose this option. There is the possibility that the APR could be cheaper than on a personal loan and furthermore, depending upon the size of the deposit there are some 0% APR finance deals available that would mean Lynne would incur no additional cost of borrowing providing that she keeps up with the repayments.

Considering both options and the fact that Lynne has a significant deposit available she would be better to opt for a hire purchase agreement at the lowest possible APR rate available.

Student demonstrates clearknowledge and understanding of the first option.

An advantage of this option isidentified in the context of the scenario and developed.

The student now considers a disadvantage of this option, in context. The answer is well developed to assess the significance of this point in context.

A second disadvantage is considered in which the student makes excellent use of both knowledge and context to judge the significance of this point.

The second option is now considered demonstrating a good understanding of the concept.

The first advantage is developed in context well. The student makes use of their knowledge of hire purchase and uses this to calculate the deposit required. This is a strong paragraph which provides balance to this option.

A further advantage is given for this option, again linked throughout to the scenario and developed well.

The second part of this paragraph weighs up the factor of the interest charged; acknowledging the fact that this would impact on both options but making a judgement on which option would be better.

The final paragraph makes a clear judgement of the best option and would be awarded a level 3 response.



Worked Answer – Evaluate question (Business Finance)


Helen has recently opened a coffee shop and wine bar in her home town, it has been operating for five months. Helen has calculated that her business is operating below its break-even output and is making a loss.

Evaluate the options Helen might take to ensure that her new business starts to make a profit. (12 marks)

Examiner Commentary

When a business operates below break-even, as in Helen’s case, it will be in a position where the total costs are greater than the total revenue. To make a profit she would need to either increase the money coming into the business (revenue) or decrease the money going out of the business (costs), or both.

One option Helen could consider would be to look at ways to increase her total revenue. One way she could achieve this is by increasing her selling price. However, Helen is in the early stages of her new business and will be trying hard to establish customer loyalty, perhaps with an introductory pricing strategy. If she decided to increase her prices she may find that her customers go elsewhere, and sales fall therefore impacting negatively on her break-even output.

The alternative way to increase revenue would be for Helen to try and increase her sales volume. Helen could consider using low cost forms of advertising to boost customer interest e.g. social media and leaflet drops in the local area. She could also consider special offers, discounts or a loyalty scheme to build more interest in her business. This in turn would mean that her coffee shop and wine bar would be busier and additional promotion through ‘word of mouth’ may also happen therefore increasing sales further.

The second option for Helen would be to review her total costs. As this is a new business it is likely that she will have invested heavily in the start-up as she has needed to purchase equipment e.g. coffee machine and fixtures & fittings for the coffee shop and wine bar. As a result, it is unlikely at this stage in the businesses development that Helen can do very much about her costs – other than avoiding wastage of stock e.g. food/cakes that are unsold.

It is possible that Helen could look for alternative suppliers to reduce variable costs but, as a new business, she is probably wanting to build a relationship with them and establish loyalty. In the longer term this may benefit her more as she may find that they are more willing to offer her credit facilities and possibly discounts.

Although there are a few options open to Helen it is still very early days for her new business. It is therefore unsurprising that the business has failed to break even after just 5 months of operation especially given that Helen’s start-up costs will have been high to open the premises and stock it appropriately.

At this stage Helen would be advised to focus on promoting and maximising sales in the business to ensure that the popularity of it grows. At such an early stage in the businesses development it is vital for her to build interest, gain customer loyalty and ensure sales are maintained. Providing she has sufficient cash in the business she should not worry too much about profit at this stage.

Helen will have produced a range of financial forecasts before opening her business and therefore providing she is closely monitoring these, against her current performance, she should be confident that her business is progressing as planned.

A good opening paragraph demonstrating a solid understanding of break-even and the meaning of operating below this point.

This paragraph looks at a second option for Helen and focuses on the cost part of the BE formula. To break the answer down in this way demonstrates thorough knowledge and understanding.

The impact of each suggestion is developed well and shows the interrelationship between the various parts of break-even analysis.

Having considered a number of options in context the student makes a very valid point about the expectations of the business 5 months in. Excellent point.

Based on the options presented the student concludes which would be the best choice and justifies why this would be the case, again this is in context.

Further development of the conclusion to explain the importance of future monitoring for the business results in a top level 4 answer being awarded.

The student wastes no time in focusing on the options for Helen and presents them in relation to the BE formula. There is a good use of context with well-developed points to consider the impact of this option.

The student now considers the second aspect of the revenue formula (quantity) and again makes strong links to the scenario to support this. Good development of points, using connectives, to consider impact.


extension activitiesTiming is essential in the examination. You have 25 minutes to complete each of the following sets of questions.

Q1 Assess which option, a bank overdraft or a bank loan, would be most suitable for Stephen to use. (10 marks)

SET ONE – Section AStephen is just finishing his final year at university and is preparing to move to London to start his new job. He has found a property that he would like to rent, however the landlord requires a deposit of £1200 to secure it. Stephen does not have any savings to use and needs to access money quickly to avoid losing the flat he has found.

Q2 Evaluate whether Sue should maintain her savings or clear her credit card debt. (12 marks)

Sue has savings of £3000 invested in an ISA. She is keen to keep the savings for ‘emergency’ funds. Over the course of the last 12 months she has generated a credit card bill of £2800 and currently repays the minimum payment each month. Her friend has suggested that it would be more ‘cost effective’ to clear her credit card as it is an expensive debt. Sue is worried about losing her savings.



Q1 Assess the difficulties that could be caused by Paul offering credit to customers when trying to improve cash flow. (10 marks)

SET TWO – Section BPaul’s mobile car valeting business has gone from strength to strength since it opened 12 months ago. He has managed to win several highly profitable contracts from large organisations that allow him to carry out multiple car valets for their employees on site. Each contract requires Paul to spend money in advance to source the materials needed to carry out the work and he then receives payment from the company within 28 days. This is causing Paul problems with his cash flow.

Q2 Evaluate whether break-even analysis would be a useful decision-making tool for Richard to use to assess the optimum opening period for his business. (12 marks)

Richard’s love of the outdoors inspired him to set up his own ‘Glampsite’ in the Lake District. The luxury holiday pods are open for 10 months of the year (closed Dec – Jan). However, he has found that despite the facilities whatever the weather, the business is still very seasonal. He has calculated that 75% of his revenue is earned during the summer months (Jun – Aug) and has therefore decided to review his opening times across the year.



appendices

Appendix 1Examination Overview

Appendix 2Our Top Tips for Exam Success

ContentsAppendix 1 Examination Overview page 50Appendix 2 Our top tips for exam success page 50Appendix 3 Understanding the demands of the different style questions page 51Appendix 4 Key Terms (Personal Finance) page 52Appendix 5 Key Terms (Business Finance) page 54Appendix 6 Business Finance Formula Sheet page 57Appendix 7 Revision Checklist (Personal Finance) page 58Appendix 8 Revision Checklist (Business Finance) page 60

The 1 and 2 mark questionsKeep answers brief Key term only (1 mark)Likely to require two content points (2 marks) e.g. ‘Give two ways’ or ‘Identify two methods’OR it could be an ‘Outline’ question - Point + development e.g. ‘Outline one benefit’

The 6 mark ‘Discuss’ QuestionTwo 6 mark questions, one in each sectionRequires balancePros and cons/advantages & disadvantagesLinked to the scenario well

The 8 mark ‘Analyse’ QuestionOne 8 mark question in section BLinked to the scenario throughoutA number of points (balance), developed well

The 10 mark ‘Assess’ QuestionThere will be two 10 mark questions, one in each section.There will be multiple points to examine e.g. ‘two options’ or ‘the effects on’Important that both sides are addressed, with pros and cons for each

The 12 mark ‘Evaluate’ QuestionThere will be two 12 mark questions, one in each sectionA quarter of the total marksRequires a structured, extended responseFully justified conclusion

Appendix 3Understanding the demands of the different question styles

Unit 3 Examination Section A Section B

Content Personal Finance Business Finance

Mark allocation (100 marks) 36 marks 64 marks

Time allowed (2hrs) 40 – 45 minutes 75 – 80 minutes

Read the question carefully

Timing

‘3 step approach’ on calculation questions

Produce a well-balanced argument for 6 marks+

Use the scenario to put knowledge into context, make use of calculations if appropriate

When there are two or more elements to the question ensure pros and cons are given for each one

Provide a justified conclusion on the extended 12mark answers

12

3

4

5

6

7


Appendix 4Key Terms – Personal Finance

Key Term Definition

Methods of PaymentCash Notes and coins in a wide range of denominationsDebit Card Issued by banks with payments for goods and services being deducted directly from a current accountCredit Card Issued by financial institutions allowing customers to delay payments for goods and servicesCheque A written order to a bank to make a specific payment for a specific amount of money from one person’s account to another accountElectronic transfer Payment is transferred directly from one bank account to anotherDirect debit An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods or services received e.g. electricity billStanding order An agreement made with a bank to transfer a fixed sum of money to a third-party account on a set date on a regular basis e.g. a fixed loan repaymentPre-paid card Money is uploaded onto a card with transactions then being withdrawn to reduce the balanceContactless card Cards with an embedded chip and antenna that enable consumers to wave their card over a reader at the point of sale for an automatic transactionCharge card Issued by financial institutions allowing customers to delay payments for goods and services for a short period of time with the balance being paid off in full at each statement dateStore card Issued by a retail outlet to allow customers to delay payments for goods and services – similar to a credit card but only for the store(s) specifiedMobile banking The ability to carry out financial transactions using mobile devices such as phones or tabletsBankersAutomatedClearing Service(BACS) Faster A system that allows the transfer of payments directly from one bank account to another inPayment 3 working days (unless faster payment is available)Clearing HouseAutomatedPayment Systems A system that allows the transfer of payments directly from one bank account to (CHAPS) another usually on the same day

Types of Current AccountsStandard This type of account provides full day-to-day banking facilities e.g. cheque book, debit card, easy access to your money and an authorised overdraft facilityPackaged, premium This type of account usually has an annual fee or additional charge in return for offering extra incentives. These benefits can vary but may include offers such as discounted home insurance, no fee overdraft, and premium access to popular event ticketsBasic This account offers limited features and would be typically held by a person with no credit history in the UK or a poor credit historyStudent These are designed to assist young people and students to become prudent with their personal finances. They may come with bonus features, such as interest free overdraft facilities

Types of BorrowingOverdraft Allows an individual to withdraw money from a current account that they do not actually havePersonal Loan Allows an individual to borrow a set amount of money which is to be repaid in regular instalments, with interestHire Purchase Allows an individual to have use of an item immediately but pay for it in regular instalments. The property is only owned by the individual when the final instalment has been paidMortgage A long-term loan to fund the purchase of assets e.g. property and will be repaid over a long period e.g. 25 yearsCredit cards Allows an individual to pay for goods or services on card with a statement issued at the end of each month. The balance can be paid in full without incurring interest or in smaller amounts with interest chargePayday loan A short-term source of finance that can help to bridge the gap between the present moment in time and receiving a wage

Types of Saving and InvestmentIndividual Savingsaccount (ISA) A tax-free way to save or investDeposit andsavings accounts An account where interest is paid on the balancePremium bonds A government scheme that allows individuals to save, up to a set amount, in bonds. No interest is earned but the bond is placed into a regular draw for cash prizesBonds and gilts These are fixed term securities where the individual lends money to companies and governments in return for interest paymentsShares Investments in business in return for equity. The shareholder becomes a part owner of the businessPensions Long term savings plans where individuals make regular contributions through their working life. This is then repaid upon retirement, either as a lump sum or regular payments

Types of InsuranceCar To cover both theft and accidents – there is a legal requirement to insure any car that is on the road and this protects the driver, passengers and other road users.Home and contents Home – covers the physical building against events like a fire or flood damage. Contents – covers the physical items inside the house and when they are used away from home.Life assurance Life assurance – an ongoing policy to pay a lump sum upon death.and insurance Life insurance – a policy for a set period of time (e.g. mortgage term) to pay a lump sum if you die within that period.Travel Protects individuals or groups while abroad. Cover usually includes illness, loss or theft of property, cancellation and emergencies up to predetermined limitsPet Protects the owners of pets against some or all of the expenses associated with treating an injured or sick animal e.g. vet feesHealth Covers individuals, families or employees against medical expenses including assessments, treatments and loss of earnings. In the UK, this can pay for private treatment or payment plans for routine visits e.g. to the dentist

Types of Financial InstitutionBank of England The UK’s central bank with responsibility for maintaining a healthy level of financial stability for the UK as a wholeBanks An organisation that handles financial transactions and stores money on behalf of its customersBuilding societies Organisations that handle financial transactions and store money on behalf of its members. Members (account holders) are part owners of the building society and have a right to vote and receive information on the running of the society


Credit unions Not-for-profit organisations that handle financial transactions and store money on behalf of their membersNational Savingsand Investment A government backed organisation that offers a secure savings optionInsurance companies Businesses that protect against the risk of loss in return for a premium. They are profit making organisationsPension companies Businesses that sell policies to individuals, wither privately or through employers, to allow them to save now to fund retirement in the futurePawnbrokers Businesses or individuals who loan money against the security of a personal asset e.g. an item of jewelleryPayday Loans Organisations that offer a short-term source of finance to bridge a gap between now and next receiving a wage

Methods of Communication with CustomersBranch A physical place where the customer will visit to carry out transactionsOnline banking The use of the internet to carry out banking transactions

Telephone banking The use of a telephone to carry out banking transactions which may use either an automated service or require a customer advisorMobile banking The use of mobile devices e.g. mobile phones and tablets, to conduct financial transactions

Providers of Financial Information and GuidanceCitizens Advice An organisation, run by charities, that offers advice on a wide range of issues both financial and non-financialIndependent financial Professionals who offer independent advice to their clients on financial matters e.g. savings, advisor (IFA) mortgages and investmentsPrice comparison Websites that collate prices for similar goods and services within an industry allowingsites consumers to select the best dealsMoney advice service A government organisation set up to offer free and impartial financial advice in the UKDebt counsellors A professional who offers independent advice on how best to manage debtIndividual VoluntaryArrangements A government organisation that allows an individual to declare themselves bankrupt while(IVAs) bankruptcy agreeing to pay all or part of the money they owe to creditors

Appendix 5Key Terms – Business Finance

Key Term Definition

The Purpose of AccountingAccounting Accounting involves the recording of financial transactions, planned or actual, and the use of these figures to produce financial information.Income Income is the money coming into a businessCapital income Capital income is the money invested by the owners or other investors, used to set up the business or buy additional equipment e.g. loan, mortgage, shares, owner’s capital, debentures (medium to long-term sources of capital income)Revenue income Revenue income is the money that comes into the business from performing its day-to-day function - selling goods or providing a service e.g. sales (cash or credit), rent received, commission received, interest received, discount receivedExpenditure Expenditure is the money spent by a business

Capital Expenditure Capital expenditure is used to buy capital items, which are assets that will stay in the business for a long period of time.Non-current assets Tangible items that will appear on the statement of financial position and include things like land, premises, equipment and vehicles.Intangible assets Cannot be touched but add value to the business e.g. goodwill, patents, trademarks and brand namesRevenue expenditure Spending on items on a day-to-day or regular basis. These expenses are shown on the statement of comprehensive income e.g. inventory, rent, rates, heating & lighting, water, insurance, salaries, wages, bank charges, interest paid, depreciation allowance, discount allowed

Sources of Business FinanceRetained profit Profit = Sales Revenue – Total Cost Money kept in the business to fund future expenditureNet current assets Current Assets – Current Liabilities Shows the money available in the business to fund day-to-day expenditureSale of assets Selling an item of value in order to achieve a cash injectionOwner’s capital Money invested in the business from the owner’s personal savingsLoans Money borrowed from a financial institution normally for a set period of time and for a specific purposeCrowd-funding Attracting investment from a large number of speculative investors many of whom may invest relatively small amountsMortgages Long-term loans, normally around 25 years, that are secured against a specific asset e.g. a buildingVenture capital Investment from an experienced entrepreneur in return for a stake in the businessDebt factoring Selling the debts of a business to a third party in order to receive a quick cash injectionHire purchase Paying to use an asset in instalments to spread the cost over its useful lifeLeasing Paying to use an asset in instalments however the ownership of the asset remains with the supplier throughout the lease agreementTrade credit A period of time, offered by suppliers, to allow the customer to purchase now and pay later.Grants A lump sum provided to a business by the government or another organisation to be used for a specific purposeDonations Sums of money given voluntarily to a charity or social enterprisePeer to peer lending Involves one business lending money to another business person in return for interest paymentsInvoice discounting Reductions offered to customers making a product or service cheaper. Usually applied as a percentage of the total value

Break-Even and Cash Flow ForecastsBreak-even analysis Break-even is the point at which a business is not making a profit or a loss. The money received from sales is the same as the money being spent on costs. Total Revenue = Total CostsVariable costs are costs that change with the level of output e.g. raw materialsSemi-variable costs Part of the cost stays the same and part varies in relation to the degree of business activity e.g. a worker paid a fixed rate of pay but in addition may receive variable amounts of overtimeFixed costs are costs that do not vary with output. They remain the same e.g. rentTotal costs = Fixed Costs + Total Variable CostsTotal revenue The total amount of money coming in from sales. Total Revenue = Selling price x quantity soldTotal Sales The amount of sales made in a set time period e.g. one year. It can be expressed as value (monetary) or volume (quantity)Selling price per unit The amount a customer will pay for each unit purchasedSales in value Sales expressed as a monetary value e.g. £Sales in volume (units) Sales expressed as a quantity e.g. units


Cash flow forecast A cash flow forecast tries to predict the cash flowing into and out of a business. A healthy cash flow is crucial to the survival of a businessCash inflows/ Money coming into the business from various sources e.g. cash sales, credit sales, loans, receipts capital introduced, sale of assets and bank interest receivedCash outflow/ Money going out of a business for various purposes e.g. cash purchases, credit purchases, payments rent, rates, salaries, wages, utilities, purchase of assets, VAT and bank interest paidOpening balance The amount of cash available in a business at the end of the start of the monthClosing balance The amount of cash available in a business at the end of the month. To calculate: Opening balance + net cash flowLiquidity Measures a firm’s ability to meet short-term cash payments

Staements of Comprehensive Income and Financial PositionStatement ofcomprehensive SOCI shows the trading position of the business which is used to calculate gross profit. It thenincome takes into account all of the expenses to calculate the profit or loss for the year.Accrual is when an expense is paid after the period to which it relates.Prepayment is when an expense is made in advance of the period to which it relates.Statement of SOFP provides a snapshot of the net worth of a business at a particular moment in time,financial position normally at the end of the financial year. It is a summary of everything a business owns (assets) and everything it owes (liabilities).Non-current assets Non-current assets are items of value that are owned by the business and likely to be held for more than one year e.g. premises and fixtures & fittings.Current assets Current assets are items of value that are owned by the business whose value is likely to fluctuate on a regular basis e.g. inventories, trade receivables, prepayments, cash in the bank and cash in hand.Current liabilities Current liabilities are things owed by the business that must be repaid within a 12-month period e.g. overdrafts, accruals and trade payables.Non-current Non-current liabilities are things a business owes that will take longer than one year to repay liabilities e.g. mortgages and bank loans.Depreciation Depreciation is an accounting concept used to spread the cost of an asset over it’s useful life. Assets appear on the statement of financial position at a realistic value (net book value) and the annual monthly amount by which the assets are depreciated is included as an expense on the statement of comprehensive income.Straight-linedepreciation Asset is depreciated by a set amount each yearReducing balance Asset is depreciated by a set % of its remaining value each year. The percentage will be setdepreciation by a senior account and means that the asset will be depreciated by a lower amount as it ages

Ratio AnalysisGross Profit Margin This ratio looks at gross profit as a percentage of sales turnover.Mark-up This ratio calculates gross profit as a percentage of the cost of sales.Net Profit Margin This ratio shows the net profit as a percentage of sales.Return on Capital This ratio shows the percentage return a business is achieving from the capital invested toEmployed (ROCE) generate the return.Current Ratio This ratio shows a business the amount of current assets it owns in relation the amount of current liabilities it owes.Liquid Capital Ratio This ratio gives a more accurate reflection of the true liquidity of a business as it removes the least liquid of all current assets from the equation i.e. inventories.Trade Receivable This ratio measures, on average, how long it takes for debtors to pay and is expressed as aDays number of days.Trade Payable This ratio shows, on average, how long it takes a firm to pay for goods and services boughtDays on credit and is expressed as a number of days.Inventory Turnover This ratio shows the average amount of time an item of stock is held by a business and is expressed as a number of days.

Appendix 6Formula Sheet

Specification Reference Formula Equation

E1 - Cash Flow Forecasts

E2 -Break-Even Analysis

F1 - Statement ofComprehensive Income

F2 - Statement ofFinancial Position

F3 - Measuring Profitability

F4 - Measuring liquidity

F5 - Measuring Efficiency

Net Cash FlowClosing balance

Total Revenue

Revenue

Net Current Assets

Gross Profit Margin

Current Ratio

Inventory Turnover

Total Costs

Gross Profit

Net Assets

Mark-Up

Liquid Capital Ratio

Profit Margin

Trade Receivable Days

Return on CapitalEmployed

Trade Payable Days

Cost of Goods Sold

Profit/Loss for the year

Capital Employed

Balance Sheet (what needs to balance?)

Net Book Value

ProfitTotal contributionContribution (per unit)Profit (using contribution)Break-even outputMargin of Safety

Total Cash Inflow – Total Cash OutflowOpening balance + Net Cash Flow

Selling Price x Quantity Sold

Unit price x Quantity sold

Current Assets - Current Liabilities

Gross Profit/Revenue x 100

Current Assets/Current Liabilities

Average Inventory/Cost of Sales x 365

Fixed costs + Total Variable costs

Sales Revenue – Cost of Goods Sold

Non-current assets + Net current assets - Long term liabilities

Gross Profit/Cost of Sales x 100

Current Assets - Inventory/Current Liabilities

Profit/Revenue x 100

Trade Receivables/Credit Sales x365

Profit/Capital Employed x 100

Trade Payables/Credit Purchases x 365

Opening Inventory + Purchases – Closing InventoryGross Profit – expenses + other income

Opening Capital + Profit for the Year less drawingsNet Assets = Capital Employed

Cost - Depreciation

Total revenue – Total costsSales Revenue - Total Variable CostsSelling Price – Variable Cost (per unit)Contribution per unit x margin of safetyTotal Fixed Costs / Unit ContributionActual Sales – Break-even level of output


A1 Functions and role of moneyFunctions of money: Unit of accountMeans of exchangeStore of valueLegal tender

Role of money is affected and influence by a number of factors:Personal attitudes towards risk, reward, borrowing, spending & savingLife stages (childhood, adolescence, young adult, middle age, old age),key features of each stage, financial needs and implications at each stageCulture, including religious and ethical beliefsLife events can vary the personal life cycle from individual to individualExternal influences/trends and the financial-related effectsInterest rate, cost of borrowing versus reward of saving

Planning expenditure, common principles to be considered in planning personal finances:To avoid getting into debtTo control costsAvoid legal action and/or repossessionRemain solventMaintain a good credit ratingAvoid bankruptcyTo manage money to fund purchasesGenerate income and savingsSet financial targets and goalsProvide insurance against loss or illnessCounter the effects of inflation

A2 Different ways to payThe use of money as a payment method, advantages and disadvantages of:CashDebit cardCredit cardChequeElectronic transferDirect debitStanding orderPre-paid cardsContactless cardsCharge cardsStore cardsMobile banking

Topic Notes/ covered

Happy/ done

Banker’s Automated Clearing Services (BACS) Faster Payment Service (FPS)Clearing House Automated Payment System (CHAPS)

A3 Current AccountsDifferent types, features, advantages and disadvantages, different services offered:StandardPackaged, premiumBasicStudent

A4 Managing Personal FinanceSuitability of different financial products and services against individual needs.Different types, features, advantages and disadvantages, different services offered:OverdraftPersonal loansHire purchaseMortgagesCredit cardsPayday loans

Different types of saving and investment features, advantages and disadvantages:Individual savings accounts (ISAs)Deposit and savings accountsPremium bondsBonds and giltsSharesPensionsRisks and rewards of savings versus investment

Different types of insurance products, features, advantages and disadvantages:CarHome and contentsLife assurance and insuranceTravelPetHealth

B Explore the personal finance sectorB1 Features of financial institutionsTypes of organisations and their advantages and disadvantages:Bank of EnglandBanksBuilding societiesCredit unionsNational savings and investmentsInsurance companiesPension companiesPawnbrokersPayday loans


Happy/ doneAppendix 7

Revision Checklist – Personal Finance


B2 Communicating with customersMethods of interacting with customers, advantages and disadvantages:BranchOnline bankingTelephone bankingMobile bankingPostal baking

B3 Consumer protection in relation to personal financeFunction, role and responsibilities of:Financial Conduct Authority (FCA)Financial Ombudsmen Service (FOS)Financial Services Compensation Scheme (FSCS)Office of Fair Trading (OFT)Legislation – consumer credit

B4 Information guidance and adviceFunction, role and responsibilities, advantages and disadvantages of:Citizens AdviceIndependent financial advisor (IFA)Price comparison websitesMoney advice serviceDebt counsellorsIndividual Voluntary Arrangements (IVAs)Bankruptcy


Happy/ done


Happy/ done

Appendix 8Revision Checklist – Business Finance

C Understanding the purpose of accountingC1 Purpose of accountingRecording transactionsManagement of business (planning, monitoring and controlling)Compliance (preventing fraud, compliance with law and regulations)Measuring performanceControl - assisting with the prevention of fraud, trade receivables andtrade payables

C2 Types of incomeCapital income:LoanMortgagesSharesOwner’s capitalDebentures

Revenue income:Cash salesCredit salesRent receivedCommission receivedInterest receivedDiscount received

C3 Types of expenditureCapital expenditure:Non-current assets – tangible (land, buildings and premises, machineryand equipment, vehicles, fixtures and fittings)Intangible (goodwill, patents, trademarks, brand names)

Revenue expenditure:InventoryRentRatesHeating and lightingWaterInsuranceAdministrationTelephonePostageStationerySalariesWagesMarketingBank chargesInterest paidStraight-line depreciationReducing balance depreciationDiscount allowed

D Select and evaluate different sources of financeD1 Sources of financeAdvantages, disadvantages, short term and long term:InternalRetained profitNet current assetsSale of assetsExternalOwner’s capitalLoansCrowd-fundingMortgagesVenture capital


Debt factoringHire purchaseLeasingTrade creditGrantsDonationsPeer to peer lendingInvoice discounting

E Break-even and cash flow forecastsE1 Cash flow forecastsInflows/receiptsCash salesCredit salesLoansCapital introducedSale of assetsBank interest receivedOutflows/paymentsCash purchasesCredit purchasesRentRatesSalariesWagesUtilitiesPurchase of assetsValue Added Tax (VAT)Bank interest paidPrepare, complete, analyse, revise and evaluate cash flowUse of cash flow forecasts for planning, monitoring, control, target settingBenefits and limitations of cash flow forecasts

E2 Break-even analysisCostsVariableSemi-variableFixedTotalSalesTotal revenueTotal salesSelling price per unitSales in value and/or unitsCalculating using/manipulating break-even formula (units and/or salesvalue), completion of break-even chart, break-even pointIdentification of area of profit, area of lossIdentify and calculate margin of safety (units and value)Calculation of total contribution, contribution per unit benefits and limitations

Use of break-even for planning, monitoring, control, target settingPrepare, complete, analyse, revise and evaluate break-even

F Complete statements of comprehensive income and financial position and evaluate business performance (Sole Traders)F1 Statement of Comprehensive IncomePurpose and useCompletion, calculation and amendment to include gross profit (revenue,opening inventories, purchases, closing inventories, cost of goods sold),calculation of profit/loss for the year (expenses, other income)Adjustments for depreciation (straight-line and reducing balance method)Adjustments for prepayments, accrualsInterpretation, analysis and evaluation of statements

F2 Statement of financial positionPurpose and useCompletion, calculation and amendment of statement using vertical presentation to include:Non-current assets (tangible and intangible, cost, depreciation and amortisation, net book value)Current assets (inventories, trade receivables, prepayments, bank, cash)Current liabilities (bank overdraft, accruals, trade payables)Net current assets/liabilitiesNon-current liabilities (bank loan and mortgage)Net assetsCapital (opening capital, transfer of profit or loss, drawings, closing capital)Adjustments for straight line (cost x%), depreciation, reducing balance(cost – depreciation to date x%)Adjustments for prepayments and accrualsInterpretation, analysis and evaluation of statements

F3 Measuring profitabilityCalculation, interpretation and analysis of:Gross profit margin: (gross profit/revenue) x 100Mark-up: (gross profit/cost of sales) x 100Profit margin: (profit/revenue) x 100Return on capital employed (ROCE): (profit/capital employed) x 100

F4 Measuring liquidityCalculation, interpretation and analysis of:Current ratio: current assets/current liabilitiesLiquid capital ratio: (current assets – inventory)/current liabilities

F5 Measuring efficiencyCalculation, interpretation and analysis of::Trade receivable days: (trade receivable/credit sales) x 365Trade payable days: (trade payables/credit purchases) x 365Inventory turnover: (average inventory/cost of sales) x 365

F6 Limitations of ratiosLimitations of ratios when assessing business performance


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