Cambridge IGCSE and O Level Business Studies

22 Statement of financial position

Answers to Coursebook activities
Activity 22.1 (page 277)
1 Net assets = capital employed.
2 Working capital.

Activity 22.2 (page 279)

Statement of financial Non-current Current asset Current Non-current Owner’s
position item asset liability liability equity
Inventories ✔
Bank loan ✔
Share capital ✔
Machinery ✔
Overdraft ✔
Trade receivables ✔
Retained profit ✔
Premises ✔
Trade payables ✔
Debenture ✔

Test yourself (page 279)

1 Something a business owns that will be used for more than one year, e.g. premises.
2 Something a business owes that it expects to pay within the next 12 months.
3 Inventories, trade receivables.
4 Trade payables, overdraft.
5 This is their working capital – important to have more cash coming in from current assets than going
out through current liabilities.

Activity 22.3 (pages 280–81)

1 Trade receivables = 30
2 Trade payables = 16
3 Borrowed money from a bank or other lender.
4 Working capital.
5 Non-current assets = 100
6 Value on the statement of financial position is what the asset is worth to the business, not what it might
be able to sell the asset for. Land/buildings shown at original cost of these assets to the business –
usually increase in value over time so market value might be much higher than the statement of
financial position value.
7 What the company owes to the owners of JB Plastics.
8 Source of finance to buy new non-current assets/finance expansion plans.
9 Corporation tax.
10 Shareholders.
© Cambridge University Press 2018 Chapter 22 Answers to Coursebook activities 1
Cambridge IGCSE and O Level Business Studies

Test yourself (page 281)

1 Capital employed shows owners’ equity and non-current liabilities.
2 Current assets and current liabilities changed because some inventories were sold and new inventories
were bought. Cash from some trade receivables was paid to the business and other credit customers
were added. Business paid some suppliers and received credit for more recent purchases so trade
payables are different. Cash is constantly flowing into and out of the business so the cash and bank
balances are different.
3 If the business makes a loss then the retained profit on the most recent statement of financial position is
less than the previous year.

Case study (page 281)

a Monies owed by the business that it expects to pay within the next 12 months, e.g. trade payables.
b (3090 − 2966)/2966 × 100% = 4.2%
c Non-current assets increased. MHC must have bought more of these assets. Non-current liabilities
decreased. MHC must have repaid some of its borrowing. Retained profit increased. MHC must have
made profit in 2012.
d Important source of internal finance used to buy non-current assets. ‘Best’ source of finance because
no cost.

Exam-style practice questions (page 282)

1 a Owners’ liability for business debts is limited to the amount invested in the company (1). Cannot be
forced to use personal wealth to finance the debts of the company (1). [Total: 2]
b Money invested in the business by the owners of a limited company. [2]
c Non-current assets are resources owned by the business (1) which will be used for a period longer
than one year (1). SSF needs a factory to make its products in (1), needs machinery to make the
products (1), needs vehicles to transport the products to customers (1), needs computers to control
inventory and finance, etc.(1) [Total: 4]
d Banks (1), if SSF asks for a loan the banks will want to know the value of its non-current liabilities (1),
if existing borrowing is high then the banks might think SSF is too risky. However, would also look
at non-current assets as land/buildings might be used as collateral against any further borrowing (1).
Shareholders (1), as owners of the company want to know how much the business is worth (1), can
also see if the business is well managed (1), e.g. does it have good working capital (1)? [Total: 6]
e Net current assets is SSF’s working capital (1), value of working capital decreased (1) by 35% (1),
means that more cash left the business than came into the business (1). If the trend continues, SSF
might have a cash shortage (1), might not be able to pay debts, might have to use an overdraft (1), this
can be expensive (1). Net current assets are positive so not currently a problem (1). [Total: 6]
2 a Land, buildings, machinery and vehicles. [2]
b Monies owed by the business to lenders. Do not expect to repay this amount within next year. [2]
c Inventories (1), raw materials, part-finished goods, finished goods (1). Trade receivables (1), money
owed to the business by customers who have been sold goods on credit (1). [Total: 4]
d Non-current liabilities increased (1) by 0.1 (1), BJ must have borrowed money long term (1), net
current assets decreased (1) from 0.2 to (0.2) (1) OR BJ might have cash-flow problems (1). [Total: 6]
e Internal stakeholders might use the information to identify problems (1), probably have a better
understanding of the financial information (1), internal stakeholders know how statements of
financial position figures have changed and therefore have a better idea of how the business is
currently performing (1). External stakeholders might not understand the statements of financial
position (1), information becomes out of date as soon as the statement of financial position is
produced, external stakeholders will not know how the figures have changed (1). Statement agreeing
or disagreeing supported by relevant points (1). [Total: 6]
© Cambridge University Press 2018 Chapter 22 Answers to Coursebook activities 2