IB BM HL 3.4.2 Profit and loss and balance sheets

[Maximum number: 5]

Call it Magic (CIM)

Call it Magic (CIM) is an online jewellery store that sells silver earrings. It has completed its first year of trading, during which it sold 1000 pairs of earrings. CIM's selling prices are low compared to those of other jewellery stores. The average unit cost per pair of earrings is $5, and overhead costs are already at a minimum level.

Table 1: Selected financial information for CIM for the year ended 31 December 2022

(a)

Using relevant information provided above and in Table 1:

[ 5 ]

(i)

calculate CIM's cost of goods sold, X, in 2022 (show all your working);

[ 2 ]

(ii)

calculating Y and Z, construct a profit and loss account for CIM , for 2022;

[ 3 ]

Y = Net profit before interest and tax = gross profit - expenses = $\$7000$ - $\$500$ = $\$6500$ .
Z = Sales revenue = cost of goods sold + gross profit = $\$5000$ + $\$7000$ = $\$12000$ .

Profit and loss account for CIM for the year ended 31 December 2022:

Item	$
Sales revenue	12000 (Z)
Cost of goods sold	5000
Gross profit	7000
Expenses	500
Net profit before interest and tax	6500 (Y)
Interest	0
Net profit before tax	6500
Tax	650
Net profit after interest and tax	5850
Dividends	500
Retained profit	5350

Apply own figure rule (OFR).
Award [0] if candidate presents an unrecognizable profit and loss account, or has three or more errors.
Award [1] if the candidate conveys some idea of a profit and loss account (up to two mistakes).
Award [2] if the candidate constructs a fully recognizable profit and loss account but has one mistake (either in calculation or presentation).
Award [3] if the candidate constructs an accurate profit and loss account in the IB prescribed format. No extra irrelevant figures are included.
N.B. Do not penalize for lack of $ signs in profit and loss account if signs have been included in the calculations of Z and Y.
Do not penalize lack of heading/title.

IB Business Management HL 3.4.2 Final Accounts Questions

Exam points

IB Business Management HL 3.4.2 Final Accounts Questions question 1

Question (a)

Question (i)

Question (ii)