Page 277 - Cambridge IGCSE Business Studies

21: Income statements

Revision checklist Exam practice questions

● Profit is the difference between the revenue 1 Consider the information below for Company A and
earned from sales and all the costs of Company B. Both companies are located in Country Y.
producing and distributing the goods and Company A is a manufacturer of components used in the
services sold. car industry. Company B is a manufacturer of leather goods
● Profit is the return to owners/shareholders such as belts and watch straps. Sabrina is looking to invest
as a reward for risking their investment $10,000 in one of these companies.
in the business. Some of the profit will be
paid to owners and some will be retained
Trading Account
in the business to finance future operations
and plans.
Company A Company B
● The income statement shows how the $ $
gross profit and profit of a business have Revenue 72,000 83,000
been calculated. This information is useful
Cost of sales
to several different stakeholder groups. 32,000 41,000

Expenses 22,000 30,000
Profi t
18,000 12,000
Retained profi t
15,000 3,000
a What is meant by ‘revenue’? [2]
b Identify two examples of an overhead cost. [2]
c Identify and explain two reasons why profi t is
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important to businesses such as Companies A and B. [4]
d Identify and explain two uses of Company A’s
income statement to any two stakeholder groups. [6]

e In which company do you think Sabrina should invest
her $10,000? Justify your answer. [6]

2 Victory Machines (VM) is a manufacturer of motorcycles. The
data below shows the market data for motorcycles and VM’s
revenue and profi t data for the motorcycles it produces.

VM’s financial data Market data for
for motorcycles in motorcycles in
2012 2012

Revenue 5% share of the market $8,500,000
Profit $84,000 $3,400,000
Dividends paid $70,000 –

Retained profit $14,000 –