Unit 3: Finance & Acc

Revision Booklet

IB Business Management
Task 1 Definitions
Without using your notes, define the terms below in your own words.
Capital Expenditure

Revenue Expenditure

Task 2 Sources of Finance

Create a mind map below to show the sources of finance, categorized under internal and external

Internal
External
Task 3 Business Ownership and Sources of Finance

Tick the appropriate sources of finance available to each type of business

Sole traders Partnership Private Public Non-Profit
Limited Limited Organisation
Company Company
Business Angels
Debt-Factoring
Donations/gifts
Grants/subsidies
Leasing/HP
Loans
Overdraft
Personal funds
Retained profit
Shares
Trade credit
Venture capital

Task 4 Short, medium and long-term finance

Tick the different sources of finance under the headings of short, medium and long term.

Short term Medium term Long term

Internal sources
Personal funds
Retained profits
Sale of fixed assets/ unused asset
External sources
Business Angels
Debentures
Debt factoring
Government grants & subsidies
Leasing
Loan capital
Overdrafts
Share capital
Trade credit
Venture capital
Task 5 Factors affecting the choice of finance

List the factors that a business needs to consider when choosing an appropriate source of finance.

Task 6 Costs

Define the following terms with examples

Fixed costs

Variable costs

Semi-variable costs

Direct costs

Indirect costs
Task 7 Costs

Complete the following table

Task 8 Revenue streams

List five sources of non- sales revenue

Task 8 Break-even analysis
IB Past Exam Question (May 2018 Q.2)
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Task 9 Final Accounts
IB Past Exam Question (May 2016 Q.1)

Rio Mobiliário (RM)

Rio Mobiliário (RM) is a Brazilian furniture manufacturer. It generates sales in South America,
North America and Europe. It has successfully outsourced production and distribution facilities
to North America.

Selected financial data for the year ended and as of 31 December 2015. All figures in millions of
Brazilian reals.

(a) Define the term outsourcing.

[2]
(b) (i) Calculate the gross profit X for RM (no working required).
[1]
(ii) Calculate Y and hence, calculate the net profit margin for RM (no working
required). [2]
(iii) Using relevant information from the table, construct a fully labelled balance
sheet for RM. [5]
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Task 10 Ratio Analysis

IB Past Exam Question (Nov 2016 Q.1)
Task 11 Cash flow forecast
IB Past Exam Question (May 2015 Q.2)
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Task 12 Causes of cash flow problems

List the main causes of cash flow problem

Task 13 Strategies to dealing with cash flow problems

Complete the following mind map

Improving
cash inflows
Reducing cash
outflows

Ways to deal
with cash flow
problems

Seeking
alternative
sources of
finance
Task 14 Investment Appraisal
IB Past Exam Question (Nov 2017 Q.4)
Grunsburg Textiles (GT)
Grunsburg Textiles (GT ) is a textile company founded by the paternalistic leader Henrik Steiner.
As the company grew, it became very committed to corporate social responsibility (CSR). “Our
aims,” GT says on its website, “include making profits, providing safe and secure employment,
contributing to society through investment in environmentally friendly production practices and
supporting ethical causes”. Many people believe that GT’s success is tied to its reputation for
taking care of its employees and for its commitment to CSR.
In 2015, GT purchased €44 million in new environmentally friendly equipment. It financed the
purchase with a bank loan. GT originally forecasted that the new equipment would generate €8
million in annual net cash flow. Instead, the actual increase in GT’s annual net cash flow from
the new equipment was only €6 million. The Chief Financial Officer (CFO), Elaine, warned
Henrik that unless net cash flow increased significantly, the average rate of return (ARR) would
be significantly lower than originally forecasted.
GT is struggling to make the loan payments and to have sufficient working capital. Elaine
determined that one way to shorten the working capital cycle is debt factoring. However, when
she approached several (debt) factors, she was discouraged by their proposed discount rates.
Elaine knows that the situation is worse than she had warned. If the economy were to weaken
and revenue to decline, she believes that the company could go out of business. Proposals for a
solution include cutting back on GT’s commitment to its employees and CSR practices.

(a)State any two stages of the working capital cycle. [2]

(b)(i) Calculate for GT:
the payback period for the €44 million investment in new equipment based on the forecasted
increase in net cash flow (show all your working). [2]
(ii) Calculate for GT:
the average rate of return (ARR) based on an annual increase in net cash flow of €6000 and
assuming an asset life of the new equipment of eight years (show all your working). [2]
(c)With reference to GT, explain one advantage and one disadvantage of debt factoring. [4]
(d)Examine Elaine’s proposals to cut back on GT’s commitment to its employees and CSR
practices. [10]
Task 15 Budgeting
List the importance of budgeting to an organization

Task 16 Cost and Profit centres/Variance Analysis

Explain the following terms
Cost centres

Profit centres

Favorable Variance

Adverse Variance