IB Business Management HL 3.4.2 Final Accounts Questions

Practise 3.4.2 Final accounts in IB Business Management HL by connecting concepts to case evidence and decisions.

[Maximum number: 2]

Bip

Bip (BB)
Nicolás and Loura want to start up a vehicle rental business in Punta del Este, a seaside resort in the Southern Hemisphere. The business will operate as a partnership and be called Bip Bip (BB). Tourist numbers are very high during the summer (December to February months in the Southern Hemisphere); the beach and water sports attract many tourists. B B will rent out convertible cars, electric cars and minivans. BB will purchase these vehicles through a leasing scheme.
"Because most rental income will occur in a few months of the year, we must forecast our cash position during the slow months and we must follow a budget," says Loura. She has forecasted the following figures for the first six months of operation, beginning in December 2015. All revenues received and costs paid will be in cash. All cash sales are paid at the time of the vehicle rental.

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Due to the increasing importance of e-commerce, B B would like to offer an online booking service in addition to their website. Nicolás believes that an online booking service will allow B B to reach a wider national and international market, and will also reduce marketing costs. However, Loura argued that e-commerce also has some limitations.

After further discussion, Nicolás and Loura decided not to set up an online booking service. However, after May 2016, they will examine the budget and variances with care to determine if B B should offer an online booking service the following year.

Calculate the forecasted net profit, without any depreciation, for the first six months of operation (show all your working).

Method 1:

Profit = sales revenue - total costs
$\text{Sales revenue}=(11000 \times 3)+(1000 \times 3)=\$36000$

Total costs = overheads + variable costs + leasing fee
$\text{Total costs}=(2000 \times 6)+(1500 \times 3)+(300 \times 3)+(5000 \times 3)=\$32400$

Forecasted net profit:
$\$36000-\$32400=\$3600$

Method 2, allowing OFR:
$\text{Closing balance in May} - \text{opening balance in December}$ $\$4600-\$1000=\$3600$

A candidate may calculate monthly profit for all six months:

This approach is acceptable, even if a total for all six months is not produced.

Award [1] for working and [1] for the correct answer. Award up to a maximum of [2].
For the monthly-profit approach, award [1] for working and [1] for the correct answer if all six months are correct, though OFR does apply.

Item	Dec	Jan	Feb	Mar	Apr	May
Revenue	11000	11000	11000	1000	1000	1000
Expenses	8500	3500	8500	2300	7300	2300
Net profit	2500	7500	2500	(1300)	(6300)	(1300)

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IB Business Management HL 3.4.2 Final Accounts Questions

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IB Business Management HL 3.4.2 Final Accounts Questions question 1