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9609 · 1.2.2

Business ownership — practice questions

Practice and worked examples for 9609 Business ownership. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Two architects want to expand nationally, need $2m for offices and IT. Compare partnership vs Ltd vs PLC.

Show solution outline

Partnership: Unlimited liability risky with $2m debt; limited to partners' personal assets for finance — insufficient.

Ltd: Limited liability protects personal homes; can sell private shares to investors; no stock exchange — harder to raise full $2m quickly.

PLC: Public share issue can raise $2m+; cost and regulation (accounts published, AGM) — justified if national brand ambition.

Recommendation: Ltd initially; convert to PLC when expansion requires public capital — unless private equity available.

Worked example 2

Anjali and Ben are in a partnership. Their partnership deed specifies the following terms:

  • Anjali receives an annual salary of $25,000.
  • Interest is paid on capital at a rate of 5% per annum. Anjali's capital is $80,000 and Ben's is $50,000.
  • Remaining profits are shared in the ratio 3:2 (Anjali:Ben).

In 2023, the business made a net profit of $120,000. Calculate the total amount each partner received.

Show solution outline

The calculation follows the order specified in the partnership deed: salaries, then interest on capital, then profit share.

Step 1: Start with Net Profit Net Profit = $120,000

Step 2: Subtract Partner Salaries Anjali's Salary = $25,000 Profit remaining after salary = $120,000 - $25,000 = $95,000

Step 3: Calculate and Subtract Interest on Capital

  • Anjali's Interest: 5% of $80,000 = 0.05 * 80,000 = $4,000
  • Ben's Interest: 5% of $50,000 = 0.05 * 50,000 = $2,500
  • Total Interest on Capital = $4,000 + $2,500 = $6,500 Profit remaining for distribution = $95,000 - $6,500 = $88,500

Step 4: Distribute Remaining Profit (Appropriation) Profit is shared in the ratio 3:2 (Anjali:Ben).

  • Total parts = 3 + 2 = 5
  • Value of one part = $88,500 / 5 = $17,700
  • Anjali's share of profit = 3 * $17,700 = $53,100
  • Ben's share of profit = 2 * $17,700 = $35,400

Step 5: Calculate Total Income for Each Partner

  • Anjali's Total Income = Salary + Interest on Capital + Share of Profit = $25,000 + $4,000 + $53,100 = $82,100

  • Ben's Total Income = Salary (none) + Interest on Capital + Share of Profit = $0 + $2,500 + $35,400 = $37,900

Final Answer: Anjali received a total of $82,100 and Ben received a total of $37,900.

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