The table below shows results from an investigation by a business adviser. Three catering businesses serve the same office market. Each owner is deciding wh...
Question 1 Report
The table below shows results from an investigation by a business adviser. Three catering businesses serve the same office market. Each owner is deciding whether their present organisation gives enough cash for new kitchen equipment. Azeem operates as a sole trader, FF Catering is a partnership and PPS Lunches is a private limited company. All figures are for the year ending 31 December and are in £000. The adviser asks the owners to use the following information before they select an option.
| Business | Organisation type | Sales revenue (£000) | Costs (£000) | Capital introduced by owners (£000) |
|---|---|---|---|---|
| Azeem Bakes | Sole trader | 180 | 144 | 12 |
| FF Catering | Partnership | 260 | 221 | 30 |
| PPS Lunches Ltd | Private limited company | 310 | 267 | 55 |
(a) Calculate the profit made by FF Catering. [2]
(b) State two ways in which a partnership may obtain more finance than a sole trader. [2]
(c) Analyse why PPS Lunches Ltd may have introduced more owner capital than Azeem Bakes. [4]
Answer Details
(a) Profit equals sales revenue less costs:
\[£260000-£221000=£39000\]
FF Catering’s profit is £39 000 [2 marks].
(b) A partnership can obtain more finance because two or more partners can invest their own money [1] and partners may combine assets as security for finance [1]. Retaining profit from more than one owner or admitting additional partners are also valid. [2 marks]
(c) A private limited company can sell shares privately to shareholders, raising funds beyond one owner’s savings [1]. PPS has higher sales revenue and may require more equipment, stock or staff, increasing capital needs [1]. Limited liability may make people more willing to invest because personal losses are restricted [1]. However, more capital does not guarantee more profit; it must be used productively [1]. [4 marks]
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