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GCSE
APPLIED BUSINESS
Unit 7 Business Finance

Wednesday 7 June 2017 Afternoon Time allowed: 1 hour

Materials For Examiner’s Use
For this paper you may use:
Question Mark
• a calculator.
1
Instructions 2
• Use black ink or black ball-point pen.
3
• Fill in the boxes at the top of this page.
• Answer all questions. TOTAL
• You must answer the questions in the spaces provided. Do not write
outside the box around each page or on blank pages.
• Do all rough work in this book. Cross through any work you do not want
to be marked.

Information
• The maximum mark for this paper is 60.
• The marks for questions are shown in brackets.
• You are reminded of the need for good English and clear presentation in
your answers. Quality of Written Communication will be assessed in
Questions 1(c), 2(c) and 3(c).

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Answer all questions in the spaces provided.

Total for this question: 20 marks

1 Read Item A and then answer the questions that follow.

Item A
A new type of gym

Alya thinks that not all gym users want to travel to large town centre gyms. She
thinks that gyms located near where people live would be successful. She
started a gym business in 2015, called The Local Gym, which is in a row of local
shops with lots of houses nearby.

Alya has been running The Local Gym for a year and is making a small profit.
The business is very busy at peak times and customers have needed to wait
before they could use some gym equipment. The property next door to
The Local Gym became vacant and Alya decided to rent it and buy more
gym equipment.

The Local Gym collects a membership fee of £20 per month from each
customer. Alya takes a salary of £1500 each month to cover her living
expenses. Her bank will allow the business an overdraft up to £9500.

1 (a) Alya has produced a cash-flow forecast (below) to include the purchase of the new
gym equipment. Complete the cash-flow forecast for The Local Gym by inserting
your answers in the shaded areas below.
[3 marks]
The Local Gym
Cash-flow forecast for the four months ending 31 July 2016
April May June July
£ £ £ £
Cash in
Membership fees 6 400 6 800 6 800 6 800
Total inflow 6 400 6 800 6 800 6 800
Cash out
Wages and salaries 4 280 4 360 4 360 4 360
Purchase of new gym equipment 25 000
Rent and other costs 900 900 900 900
Total outflow 5 260 5 260 5 260
Net monthly cash flow (23 780) 1 540 1 540 1 540
Opening balance 10 000 (12 240) (10 700)
Closing balance (13 780) (12 240) (9 160)

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1 (b) The cash-flow forecast shows a negative closing balance in April. Using Item A
and the cash-flow forecast in question 1(a), explain two actions that Alya could
take to solve this problem.
[8 marks]

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1 (c) Alya wants to increase The Local Gym’s profits as quickly as possible. As a
growing business, which is more important:

• making profits or
• avoiding cash-flow problems?

Use Item A and the cash-flow forecast in question 1(a) to justify your answer.
[9 marks]

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Total for this question: 20 marks

2 Read Item B and then answer the questions that follow.

Item B
Threats and opportunities

The Local Gym charges its members a fee of £20 per month. Alya has
calculated the following:

• fixed costs are £4880 per month

• variable costs are £4 per member per month
• break-even is 305 memberships.

The Local Gym has 352 members and Alya calculates that because of the
amount of gym equipment available, 380 members will be the maximum number
of members that the gym could accommodate.

Alya is concerned because another gym, located 3 miles away, has started
advertising in the area near to The Local Gym. The rent for The Local Gym is
also due to rise which will increase fixed costs to £5040 per month.

A local employer wants to offer gym membership to his staff. The employer has
10 staff and he would be prepared to pay £160 per month for his staff to use
The Local Gym.

2 (a) Complete the table below to identify for Alya whether the costs are fixed or
variable. Place one tick () in the appropriate column for each cost.
[3 marks]

Fixed cost Variable cost

Salary paid to Alya for running

The Local Gym

Wages paid to fitness instructors for

classes taught

Insurance of the gym

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2 ((b) The fixed costs of The Local Gym will increase to £5040 per month.
Using Item B, explain two appropriate actions that The Local Gym could take in
response to this increase in costs.
[8 marks]

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2 (c) Using Item B, recommend to Alya whether she should accept the local employer's
offer of £160 per month for his 10 staff to use The Local Gym. Give reasons for
your recommendation.
[9 marks]

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Total for this question: 20 marks

3 Read Item C and then answer the questions that follow.

Item C
Yasmeen makes an offer

Yasmeen owns a successful hairdresser and beauty therapists business and is

considering selling her business to invest in The Local Gym. In return for
investing £120 000, Yasmeen wants The Local Gym to sell beauty treatments
and expects a 50% share in the business.

Alya, the owner of The Local Gym, has produced the following financial
information for the year ended 31 May 2017.

The Local Gym

Statement of financial position (balance sheet)
for the year ended 31 May 2017

£ £
Non-current assets (fixed assets):
Equipment 125 000
125 000
Current assets:
Receivables (debtors) 3 600
Bank and cash 5 720
9 320
Less current liabilities:
Payables (creditors) 3 100
Net current assets 6 220
Total net assets 131 220

Financed by:
Capital and retained profits 131 220

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3 (a) Complete the income statement (profit and loss account) for The Local Gym for
the year ended 31 May 2017 by filling in the shaded boxes below.
[3 marks]

The Local Gym

Income statement (profit and loss account)
for the year ended 31 May 2017

£ £
Revenue (sales) 91 600
Less cost of sales 16 889
Gross profit

Expenses Wages 36 000

Insurance 4 800
Other expenses 6 000
Net profit

3 (b) Using Item C and your answer to question 3(a), explain how Yasmeen could use
The Local Gym's income statement (profit and loss account) and statement of
financial position (balance sheet) to decide if she should invest in the business.
[8 marks]

Income statement (profit and loss account)

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Statement of financial position (balance sheet)

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3 (c) Using Item C and your answers to questions 3(a) and 3(b), recommend to Alya
whether she should accept Yasmeen's offer. Give reasons for your
recommendation.
[9 marks]

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END OF QUESTIONS

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