Section B Answer one question only. OR

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

1. [1] May unlock more funds than conventional sources of finance
2. [1] Provides a quick cash injection
3. [1] Avoids borrowing costs
4. [1] Helps to avoid/reduce debt
5. [1] Get cash but still retain full use of asset
6. [1] No maintenance costs
7. [1] Good option for a business in difficulty
8. [1] May support expansion/growth
9. [1] When lease ends payments end and there is an opportunity to immediately acquire latest advanced equipment – no assets to dispose of.
10. [1] Sale and leaseback allows a business to free up capital that has been invested in an asset and to use the monies raised in more profitable and immediate uses – an alternative form of finance
11. [1] Capital raised can be used in more profitable and immediate ways
12. [1] Provides an alternative form of finance
13. [1] Gives more flexibility for financial needs
14. [1] For example if a bakery decides to sell and lease back its oven the leasing company will take over the repair and maintenance costs
15. [2] It converts non-current assets into capital without the need to lose control of the asset – and so provide capital to purchase additional assets – in the case of a manufacturer the sale and leaseback of a building could supply finance to purchase the latest cutting-edge machines.
16. [2] It avoids costs traditionally associated with conventional debt financing – for real estate transactions costs such as valuation and bank fees are avoided – sale-leaseback arrangements may well offer more flexible lease terms than a traditional lease, mortgage, or bank loan agreement. The lessee and lessor can set their own lease lengths and lower interest payments.
17. [2] A business may have the opportunity to list the leased asset as an operating expense rather than a liability on the balance sheet – having fewer liabilities gives a business more eligibility to increase borrowings.
18. [2] It can reduce risk to a business – owning freehold property, for example, comes with its own risks, such as property price fluctuations – new/struggling businesses may want to avoid such price fluctuation.
19. [2] It increases liquidity – the injection of cash can be used to find new ventures and/or pay off outstanding debts and so improve the debt-to-equity ratio of the business.
20. [2] Budget is a quantitative expression of a plan of action over a specific period of time – it predicts revenues and expenditures – may include cash flows, revenues, liabilities, planned scale volume and other costs.
21. [2] Budgets need to provide controls and restraints – an analytical tool to reveal actual financial performance – return on assets with planned performance.
22. [2] Budgets are tools of financial management and control – set out specific expectations of results and so provide a standard to be used for performance evaluation.
23. [2] Business performance generally refers to making best use of resources to achieve corporate objectives, which may be economic or social, measured by a number of metrics – Key Performance Indicators (KPIs) such as profitability, productivity, market share, customer satisfaction.
24. [2] Hospitality sector businesses, such as hotels, focus on providing accommodation, food, and conference planning – profit maximisation is the fundamental goal, which requires resource allocation and management to be properly planned and controlled.
25. [2] Hotels, as with other commercial businesses, seek a return on assets and have specific performance targets, such as revenue per available room, average occupancy rate, profit/loss on food offers. Financial performance measures are used to reveal the extent to which ‘bottom line' targets are met but they also act as essential support methods to ensure that qualitative objectives, such as sustained customer satisfaction, are achieved.
26. [2] Budgets provide a set of financial targets related to specific objectives agreed in order to achieve corporate business goals - provide a framework and a discipline to those working in the business and a standard of assessment relating to those targets.
27. [2] Budgets provide the discipline to ensure resources are allocated as agreed and provide indicates when analysed of variation/deviations – evidence of which provides effective evidence of the extent to which business performance is acceptable or needs amendment or adjustment.
28. [2] Budgets provide a structured plan which can lead to better decision-making and goal achievement – provides financial stability and guidelines essential for assessing business performance – budgets provide a set of strategic plans of action which check and control decisions.
29. [2] Budgets provide a basis for the evaluation of goals and policies – which can lead to further decisions on spending – budgetary tracking of progress is a measure of monitoring and controlling of performance.
30. [2] Budgets are systematic and organised – providing appropriate management information the continuing performance of business sectors – a systematic and organised set of financial measures to assess the effectiveness of the plans and actions of the business.
31. [2] Budgets provide a business the ability share its operational process and budgetary process with important shareholders such as a governing body – board of directors – provide status updates on performance to investors.
32. [6] Judgements/conclusions/critical comments may be made at any point in an essay, not just in a concluding section.
33. [6] Judgement may be made that while budgets have the potential to provide an effective way to monitor and control the performance of a business it does depend on the rigour and robustness of the budgets used – data may be defective; assumptions and targets may be unrealistic.
34. [6] It might be concluded that budgets are only one of a range of financial performance measures, such as value chain analysis, benchmarking and cost optimisation and should be seen as part of a package of accounting techniques and their importance assessed as such.
35. [6] A judgement might be made that in order to capture the full picture of hotel performance the reliance on quantitative financial measures such as budgets could be misleading – traditional performance measures such as budgets taken in isolation may provide misleading signals.
36. [6] It might be concluded that organisations today need more holistic performance measures to give a more representative impression of an hotel's performance – e.g., is the hotel providing service excellence – does it embrace innovation – does it take health and safety seriously (Covid 19 challenges).
37. [6] It might be concluded that the use of budgets and resulting financial metrics, while important, does not necessarily provide the most effective way to monitor and control hotel performance – a more balanced scorecard approach is more appropriate for organisation and hotels today.