Finance Revision

The benefits to business banking customers of commercial mortgages include:

• Ownership of business premises

• Short-term financing

• High liquidity

• No interest payments

Answer explanation

The correct choice, 'Ownership of business premises', highlights a key benefit of commercial mortgages, allowing businesses to own their property, which can enhance stability and investment potential.

Describe the benefits to business banking customers of asset finance

• No need for colleterial

• High interest rates

• Immediate of assets

• Preservation of working capital

Answer explanation

Preservation of working capital is a key benefit of asset finance, allowing businesses to acquire necessary assets without depleting cash reserves, thus maintaining liquidity for other operational needs.

Which of the following is true about both bank loans and government grants?

• Both are internal sources of finance

• Both have certain requirements to be met before finance is given

• Both require no repayment

• Both are paid in monthly instalments

Answer explanation

Both bank loans and government grants require applicants to meet specific criteria before receiving funds, making the statement about requirements true for both options.

Which statement is true about hire purchase?

• Involves renting an asset

• Return the asset at the end of the agreement

• Own the asset at the end of the agreement

• Does not involve monthly payments

Answer explanation

In a hire purchase agreement, the buyer makes regular payments and owns the asset at the end of the term. This distinguishes it from renting, where the asset is returned, and it involves monthly payments.

Which of the following is true about both leasing and hire purchase?

• Both allow an organisation to use an asset without large upfront payments

• Both are free of cost in the long term.

• Both require owning the asset immediately

• Both involve no monthly payments

Answer explanation

The correct choice states that both leasing and hire purchase allow an organization to use an asset without large upfront payments, making it easier to manage cash flow. The other options are incorrect.

Which of the following is NOT true about hire purchase (HP)?

• Involves renting the asset

• Own the asset at the end of the HP agreement term

• Can be expensive in the long term

• Is paying for the asset in monthly instalments

Answer explanation

The statement 'Involves renting the asset' is NOT true about hire purchase (HP) because HP allows you to eventually own the asset after completing the payment, rather than just renting it.

Which of the following is NOT a feature of a government grant?

• Does not have to be repaid

• Can get it again and again.

• Is often only 'one-off'

• Is an external sources of finance

Answer explanation

A government grant is typically a one-time financial aid that does not need to be repaid. While it can be applied for multiple times, it is not guaranteed to be received repeatedly, making 'Can get it again and again' the incorrect feature.

What does 'opening inventory' refer to?

• The value of inventory the business owns at the beginning of the year.

• The amount of goods returned to the business by customers.

• The value of inventory the business owns at the end of the year.

• The amount spent on raw materials/products.

Answer explanation

'Opening inventory' refers to the value of inventory a business owns at the beginning of the year, making the first answer choice correct. It is crucial for calculating the cost of goods sold and assessing inventory levels.

What does 'gross-profit' mean?

• The sales revenue minus the cost of sales.

• The overall profit or loss for the year.

• The amount spent on raw materials /products.

• The amount of goods returned goods returned to the business by customers.

Answer explanation

'Gross profit' is defined as the sales revenue minus the cost of sales. This calculation shows how much money a company makes after accounting for the direct costs associated with producing its goods.

Which formula is accepted as correct for calculating gross profit (GP)?

Sales Revenue - SR

Cost of Sales - COS

• GR = SR + COS

• GP = SR - COS

• GP = COS - SR

• GP = SR /COS

Answer explanation

The correct formula for calculating gross profit (GP) is GP = SR - COS. This means gross profit is derived by subtracting the cost of sales (COS) from sales revenue (SR), accurately reflecting profitability.