Advanced Business Calculations

Level 3

Model Answers
Series 4 2013 (ASE3003)

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Level 3 Advanced Business Calculations
Series 4 2013

How to use this booklet

Model Answers have been developed to offer additional information and guidance to Centres,
teachers and candidates as they prepare for LCCI International Qualifications.

(1) Model Answers – summary of the main points that the Chief Examiner expected to
see in the answers to each question in the examination paper,
plus a fully worked example or sample answer (where applicable)

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.

Pearson provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade.
Pearson accepts that candidates may offer other answers that could be equally valid.

© Pearson Education Ltd 2013

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LCCI IQ SERIES 4 EXAMINATION 2013
ADVANCED BUSINESS CALCULATIONS
LEVEL 3
MARKING SCHEME
_____________________________________________________________________________

DISTINCTION MARK 75%

MERIT MARK 60%
PASS MARK 50%

TOTAL 100 MARKS

Question 1
Syllabus Topic 1: Simple and compound interest (1.2), (1.3)

(a) Interest = £2,000,000 – £1,976,000 = £24,000 M1

Interest percent = £24,000 / £1,976,000 = 0.012146 = 1.2% M1

Percentage simple interest per annum = 0.012146 x 4 = 0.4858 = 4.9% M1 A1

(b) (i) Percent interest = (£5,000,000 - £4,650,000) / £4,650,000 = 0.07527 = 7.5% M1 A1

(ii) After two years (principle + interest) represents 1.07527 times the principle M1

After one year, by compound interest, this represents √1.07527 = 1.03695 M1

Rate of compound interest per annum = 3.695% = 3.7% A1

(c) Loss on investment = (€2,250,000 – €1,800,000) / €2,250,000 = 0.2 = 20% M1 A1

(Total 11 marks)

Question 2
Syllabus Topic 2: Stock exchanges (2.2), (2.4), (2.5)

(a) Percentage increase per annum = (£451 – £400) / (£400 x 3) = 0.425 = 4.25% M1 A1

(b) Increase per unit = £8,400 / 1,750 = £4.80 M1

Original cost per unit = £42.80 – £4.80 = £38.00 A1

(c) (i) Total cost of shares = 25,000 x £7.77 = £194,250 M1 A1

(ii) Annual dividend = 25,000 x £5 x 3½% = £4,375 M1 A1

(iii) Annual dividend percent = £4,375 / £194,250 = 0.2252 = 2.25% M1 A1

(d) For £100 of stock, the difference between the nominal value and the cost = £12 or 12% M1

Nominal value of the stock bought = £28,800 / 12% = £240,000 M1

Steve paid £240,000 – 28,800 = £211,200 A1

(Total 13 marks)

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Question 3
Syllabus Topic 3: Business ownership (3.2), (3.3)

(a) (i) Income from sales = 150,000 x £66 = £9,900,000 M1

Variable cost of manufacture = 150,000 x £49 = £7,350,000 M1

Total cost of manufacture = £1,955,000 + £7,350,000 = £9,305,000

Profit = £9,900,000 - £9,305,000 = £595,000 A1 A1

(ii) Contribution = £66 – £49 = £17 M1

Break-even point = £1,955,000 / £17 = 115,000 units M1 A1

(b) Fixed costs per unit = £78,000 / 65,000 = £1.20 M1

Total cost of distribution = £1.20 + £4.90 = £6.10 per unit A1

(c) Contribution = £27.50 – £18.80 = £8.70 M1

Profit / contribution = £126,150 / £8.70 = 14,500 M1

Break-even point = 125,000 – 14,500 = 110,500 units A1

(Total 12 marks)

Question 4
Syllabus Topic 4: Profitability and liquidity (4.2)

(a) Gross profit percentage on turnover = £71,820 / £299,250 = 0.24 = 24% M1 A1

(b) Net profit = £71,820 – £42,357 = £29,463 M1

Percentage return on capital = £29,463 / £420,900 = 7% M1 A1

(c) Average stock = ½ x (£17,000 + £14,500) = £15,750 M1 A1

(d) Cost of goods sold = net sales – gross profit = £299,250 – £71,820 = £227,430 M1

Rate of stockturn = £227,430 / £15,750 = 14.44 times p.a. M1 A1

(e) Average number of weeks in stock = 52 x £15,750 / £227,430 = 3.6 weeks M1 A1

(Total 12 marks)

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Question 5
Syllabus Topic 5: Investment appraisal (5.3), (5.4)

(a) Project One Project Two

£ £
Initial cost 1,000,000 1,700,000
Total revenue returns 1,800,000 3,000,000 M1
Total repair and maintenance costs 600,000 1,000,000
Total revenue returns net of costs 1,200,000 2,000,000 M1
Total net returns per annum 240,000 400,000 M1

Average rate of return = Net returns p.a. M1

Initial cost
0.24 0.235 A1 A1
24% 23.5% A1

(b) Inflow/(Outflow) Discount factor Present value

£ £
Cost (Year 0) (2,000,000) 1 (2,000,000) M1
Year 1 Net cash inflow 400,000 0.901 360,400 M1
Year 2 Net cash inflow 750,000 0.812 609,000
Year 3 Net cash inflow 750,000 0.731 548,250
Year 4 Net cash inflow 500,000 0.659 329,500
Net present value = (152,850) A1 A1

(c) For example: 1 / 0.901 = 1.1099 or 0.901 / 0.812 = 1.1096 M1

Percentage rate of return = 11% A1

(Total 13 marks)

Question 6
Syllabus Topic 6: Bankruptcy (6.2), (6.3), (6.4)

(a) (i) Received as secured creditor = 30% x £250,000 = £75,000 M1 A1

(ii) Owed as unsecured creditor = £250,000 - £75,000 = £175,000 M1

Received as unsecured creditor = £175,000 x 0.4 = £70,000 M1 A1

(b) (i) Rate = £21,000 / £60,000 = 0.35 = £0.35 M1 A1

(ii) Owed to unsecured creditors = £820,000 - £395,000 = £425,000 M1 A1

(iii) Paid to unsecured creditors = £0.35 x £425,000 = £148,750 M1

Total assets realised = £395,000 + £148,750 + £11,250 = £555,000 A1

(c) Received as unsecured creditor = £44,000 x 0.17 = £7,480 M1

Received in total = £7,480 + £28,500 = £35,980 A1

(Total 13 marks)

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Question 7
Syllabus Topic 7: Depreciation of business assets (7.2), (7.3)

(a) (i) Annual depreciation = (£195,000 - £15,000) / 4 = £45,000 M1 A1

(ii) Annual Accumulated Book value

depreciation depreciation at end of year
£ £ £
Initial cost 195,000
Year 1 45,000 45,000 150,000
Year 2 45,000 90,000 105,000
Year 3 45,000 135,000 60,000
Year 4 45,000 180,000 15,000
M1 M1 M1 A1

(b) (i) Accumulated depreciation in year 1 = annual depreciation in year 1 = £72,000 A1

(ii) Book value at the end of year 1 = £48,400 + £39,600 = £88,000 M1 A1

(iii) Initial cost of machine B = £88,000 + £72,000 = £160,000 M1 A1

(iv) Annual rate of depreciation = £21,780 / £48,400 = 45% M1 A1

(Total 13 marks)

Question 8
Syllabus Topic 8: Index numbers (8.3), (8.4), (8.5)

(a) (i) Weight Index Weight x Index

Item A 119 165 19,635 M1

Item B 97 147 14,259
Item C 84 99 8,316
300 42,210 M1 M1

Weighted index = 42,210 / 300 = 140.7 = 141 M1 A1r

(ii) The price of item A has increased by 65% since January 2000. A1 A1

(b) (i) Production was greatest in 2011. A1

(ii) Quantity relative for 2011 with 2009 as the base year = 1.10 x 1.05 = 1.155 M1 A1

(iii) Quantity relative for 2012 with 2010 as the base year = 1.05 x 0.88 = 0.924

Percentage decrease in production = 7.6% A1 A1

(iv) Production was least in 2009. A1

(Total 13 marks)

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