IB BM SL 3.4.2 Profit and loss and balance sheets

[Maximum number: 8]

Currently, LC manufactures ceiling fans in a building that is financed by long-term debt. LC is considering selling the building to pay off the long-term debt and moving production to a new building, which LC would lease.

Lusanka Company (LC)

Lusanka Company (LC) manufactures ceiling fans using a mass production process. Selected financial information for LC is shown in Table 1.

$Table 1: Selected financial information for LC for the year ended 31 December 2022 and as of 31 December 2022 (figures in \$000s)$

Table 1: Selected financial information for LC for the year ended 31 December 2022 and as of 31 December 2022 (figures in \$000s)

(a)

Using relevant information from Table 1:

[ 6 ]

(i)

calculate LC's net profit after interest and tax for the year ended 31 December 2022 (no working required);

[ 1 ]

net profit after interest and tax = $\$11000$ [sales revenue] - $\$6000$ [cost of goods sold] - $3 000 [expenses] - $150 [interest] - $370 [tax] = $1 480.

The correct answer is $\$1480$ . Candidates are not required to produce a profit and loss account, though they may without penalty (assuming that they arrive at the correct answer).

sales revenues

$\$11000$

< Cost of goods sold >

- $\$6000$

Gross profit

$\$5000$

< Expenses>

- $\$3000$

Net Profit before interest and tax

$\$2000$

< Interest>

$\$150$

Net Profit before tax

$\$1850$

< Tax>

$\$370$

Net profit after interest and tax

$\$1480$

Accept $1 480 or $1 480 000. Also, accept without a dollar sign.
Award [1] if a candidate provides the correct answer.

(ii)

construct a fully labelled balance sheet for LC as of 31 December 2022.

[ 5 ]

Balance sheet for LC as of 31 December 2022 (figures in $\$000$ s):

Item	Amount
Net fixed assets	3000
Cash	100
Debtors	900
Stock	1000
Total current assets	2000
Overdraft	200
Creditors	1300
Total current liabilities	1500
Net current assets (working capital)	500
Total assets less current liabilities	3500
Long-term liabilities (debt)	1500
Net assets	2000
Share capital	1000
Accumulated retained profit	1000
Equity	2000

N.B. if the candidate does not follow the IB prescribed format award a maximum of [3].
N.B. candidates should not be penalized for omitting the row "Long-term liabilities (debt)", or for writing "retained profit" omitting the word "accumulated".
Award [1] if the candidate demonstrated some understanding of what a balance sheet is.
Award [2] if the candidate constructs a largely recognizable balance sheet, but it does not balance, or it has two major problems of classification. If the balance sheet such as one described here but lacks a heading, award [2].
Award [3] for a largely accurate balance sheet that balances. There could be one misclassification. If it lacks a proper heading, deduct [1].
Award [4] if the candidate constructs an accurate balance sheet (that balances) according to the IB prescribed format. If it lacks a proper heading, still award [4].
Award [5] if the candidate constructs an accurate balance sheet (that balances) according to the IB prescribed format and the balance sheet is dated.
N.B. A minor misclassification that is numerically correct demonstrates that the candidate has sufficient understanding. In the spirit of positive marking, give the candidate credit.

(b)

Explain the impact on LC's profit and loss account of selling its current building and leasing a new one.

[ 2 ]

IB Business Management SL 3.4.2 Final Accounts Questions

Exam points

IB Business Management SL 3.4.2 Final Accounts Questions question 1

Question (a)

Question (i)

Question (ii)

Question (b)