Faria and Rayhan are nurses. They decide to set up a partnership offering a nursing service to older people.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [1] (a) One mark for direct service/tertiary occupation/health care occupation.
2. [4] (b) Any two advantages explained × 2 marks each: • easy to set up although a Deed of Partnership is advisable • capital is contributed by each partner so there is likely to be more capital than for a sole trader • each partner takes an active role and may bring special skills to the partnership • losses are shared between the partners according to the Deed of Partnership • all partners should contribute to the decision-making so problems and issues can be discussed and solutions found • cover is provided by each partner for the other partner for holidays, sickness. Any other relevant point.
3. [2] (c) Faria should receive twice as much of the profits as Rayhan. $105000 + 3 = $35000 Faria should receive $35000 × 2 (1 mark) = $70000 (1 mark). OFR applies.
4. [6] (d) Level 2 (4-6 marks) Has discussed both options and has given a reasoned recommendation. (If only one option is discussed, award 4 marks max). (No recommendation, award 5 marks max). Faria and Rayhan could use either of these ways of financing the purchase of the vehicles. Both methods would mean that they could avoid large capital expenditure when they might not have the money available or they might want to use their money for other purposes. If hire purchase were used, they would have to pay a deposit and monthly instalments to a finance company. At the end of the payment period the vehicles would be the assets of the business. They could use them while they were paying for them and the money earned while they were in use would help to pay for them. Hire Purchase, however, can be very expensive. They would not become the owners of the vehicles until they had finished paying for them. By that time they might want to replace them. If Faria and Rayhan decided to lease the vehicles they would be available straightaway. They would lease them for a short period and could have them replaced at regular intervals. The vehicles would be repaired if necessary as part of the lease agreement. Leasing, however, is expensive. There is no ownership involved and no initial deposit to be paid nor interest payments. As the two nurses may be dependent on these vehicles and as they may breakdown, I would recommend that Faria and Rayhan lease the vehicles as long as regular maintenance is included in the lease agreement. Level 1 (1-3 marks) Has commented on one or both options with/without a recommendation. Faria and Rayhan might use hire purchase. They will own the vehicles when they have paid for them. They pay a deposit and instalments. They can use them while paying for them. If they lease the vehicles they will not own them. Leasing is expensive. They might get new vehicles after one year. I recommend hire purchase. They will own the vehicles eventually.
5. [3] (e) (i) Any three ways × 1 mark each: • providing advice • offering a business loan • offering an overdraft • Internet/online banking • account facilities • regular bank statements • providing savings facilities. Any other relevant way.
6. [4] (ii) Any two reasons explained × 2 marks each : • they may wish to involve other people who might wish to invest money • they might want the protection of limited liability so that losses are limited to the amount they have invested in the business • they may want to raise additional capital from shareholders who would part-own the business • they may want to create a legal entity so that each partner is no longer responsible for the actions of the partnership • they may want the business to have continuity of existence – shares can be passed to other people • they still have control of the business by holding the majority of the shares. Any other relevant point explained.