Analyse the advantages of using different methods to measure the size of a business.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2020). The mark or mark type is shown in brackets.

1. [8] (a) Level 4 (7-8 marks): Good analysis of the advantages of using different methods to measure the size of a business.
2. [8] (a) Level 3 (5-6 marks): Some analysis of the advantages of using different methods to measure the size of a business.
3. [8] (a) Level 2 (3-4 marks): Some application of methods to measure the size of a business.
4. [8] (a) Level 1 (1-2 marks): Knowledge and understanding of business size.
5. [8] (a) Content for K&U, Application & Analysis: Clear understanding of business size. Reference to methods to measure the size of a business. There are several ways of measuring the size of a business which may give different results and may suggest different advantages. These advantages (and possibly limitations) may be referenced after each method is described and analysed. Advantages may be identified in a concluding section. Different methods to measure the size of a business include: Number of employees – can be used to judge the size of similar businesses but capital-intensive business can be very large without employing a large number of employees. Revenue – useful when comparing firms in the same industry but some businesses may sell high value products while others sell low value products, so the measurement is skewed. Capital employed – the amount of capital investment needed for the business to function. Larger businesses will need to employ more capital to buy the assets needed to run. Market capitalisation or share capital – the number of issued shares × the market price of each share. Only applies to limited companies. A public limited company will have more share capital than a private limited company due to selling shares on a stock market. Market share – used to compare businesses in the same market. Can be based on total value or total volume of goods sold. Shows the sales of a business as a proportion of all sales of that type of product. Number of outlets - a large business would have more shops than a small business, possibly being a national or international chain rather than existing in a localised area. Analysis of advantages of using different methods: Using one or a limited number of measures could give a misleading picture. Using only value of output or value of sales when comparing business that sell different products. Accept any other valid response.
6. [12] (b) Level 4 (9-12 marks): Effective evaluation of whether a partnership is the best legal structure for an accountancy business.
7. [12] (b) Level 3 (7-8 marks): Limited evaluation of whether a partnership is the best legal structure for an accountancy business.
8. [12] (b) Level 2 (3-6 marks): Application and analysis of whether a partnership is the best legal structure for a business.
9. [12] (b) Level 1 (1-2 marks): Knowledge and understanding of partnership / legal structure.
10. [12] (b) Content for K&U, Application, Analysis & Evaluation: Clear understanding of partnership. Clear understanding of legal structure. Reference to whether a partnership is the best legal structure for a business. Analysis: Capital - partners provide start-up capital. More partners mean more money in the business, so better flexibility / potential for growth. This means more potential profit, equally shared between the partners. Flexibility - easier to form, manage and run and less strictly regulated than companies. Partners (not shareholders) decide how the business is run so have more flexible management. Shared Responsibility – allows partners to use their abilities. May split the work according to skills and specialise more than a sole trader could. Decision Making – is shared and partners can help each other out when needed. More business ideas and better problem solving. Disagreements - different ideas on how the business runs. Disagreements and disputes might harm the business and relationship of partners. Deed of partnership reduces risk and gives procedures for disagreements. Agreement – all partners must agree which can restrict management of the business. Sole traders free to decide what they want. In limited companies the directors must follow the will of the shareholders. Unlimited liability - each partner shares liability and financial risks. May put off potential partners. LLP benefits from advantages of limited liability, with the flexibility of the partnership model. Taxation – partners pay tax like sole traders and are self-employed. They pay higher personal taxation than they would in a limited company. Profit Sharing – Partners share profits equally, regardless of respective efforts. Evaluation: The context is an accountancy (small financial services) business. This could be shown by reference to the services offered by this type of business. Candidates may question what the term 'best legal structure' means. Does it mean the best structure for successful performance / for the owners / for that type of business / for the consumers? Might success depend on different skills of partners, the amount of capital injected into the partnership, the degree of co-operation on decision-making? Might a partnership prove limiting leading to the move to a private limited company. Is there a need to gain limited liability by become a Ltd or PLC business? Is there a need for being a PLC to provide even more capital? Will the factors influencing success of a business such as quality of management, motivation and morale of employees, core competencies within the business be more easily supplied by becoming a PLC. Accept any other valid response.