Fig. 3 shows part of the balance sheet for AAA Ltd, a toy manufacturer. AAA Ltd is a private limited company. [Figure 3.0] Fig. 3 Balance Sheet BALANCE SHEET FOR AAA LTD AS AT 31 DECEMBER 2017 $000s Fixed (non-current) assets 350 Current assets 150 Current liabilities 90 Working capital ? Financed by: Bank loan 120 Share capital ? Use Fig. 3 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [1] (a)(i) What a business owes/have to pay back/debts owed
2. [4] (a)(ii) Calculate working capital = 60 000 (2)
3. [1] (a)(ii) Method 150 - 90 (1)
4. [2] (a)(ii) Calculate share capital = 290 000 (2)
5. [1] (a)(ii) Method 410 - 120 (1)
6. [4] (b) Up to 4 marks for justified reasoning (reasoning can be two-sided)
7. [4] (b) Yes - current assets are more important because they can be changed quickly into cash (1) especially cash in hand/cash in bank (1) then stock (1) being liquid assets (1) used for day-to-day running of the business (1) in order to make buy materials/pay wages/bills (1) whereas fixed assets takes a long time to sell these items (1) especially machinery (1) where demand may be limited (1)
8. [4] (b) No - fixed assets are more important as they are usually larger/long-term/last more than one year assets (1) such as land or machinery (1) that the business needs to continue its operations or production (1) as well as being for the expansion of the business (1) where banks are more willing to lend to a business with fixed assets (1) that could be used as collateral security (1)
9. [3] (c) Up to 3 marks for justified reasoning
10. [3] (c) When AAA Ltd is competing against another toy dealer (1) by making their toys appear better/different than that of their rivals (1) e.g. by saying that their toys are more durable (1) so that they can attract attention to them/increase sales of their own toys/choose them instead of other toy manufacturers (1) gaining a competitive advantage/edge (1) leading to brand loyalty and increasing market share (1) and eliminating the competition (1)
11. [8] (d) Level Mark Description
12. [7-8] (d) Candidate makes a recommendation with a thorough evaluation of whether (or not) to convert from an Ltd to a plc.
13. [5-6] (d) Candidate offers a satisfactory analysis of the advantages and/or disadvantages of conversion from an Ltd to a plc.
14. [1-4] (d) Candidate applies relevant knowledge and understanding to a private limited company and/or a public limited company.
15. [0] (d) No creditable response.
16. [8] (d) Changing to a public limited company enables the company to raise capital from many potential investors through the stock exchange and also may make it easier to raise money from its bankers.
17. [8] (d) Shareholders will continue to have the benefits of limited liability. Although ownership of the shares may change, the company is assured of continuity of existence.
18. [8] (d) With opportunities to acquire large amounts of capital, the company can benefit from economies of scale such as bulk buying and the latest technology for the manufacture of carpets. It will be able to take advantage of specialist management and directors from a wide range of expertise.
19. [8] (d) There are, however, some disadvantages to being a public limited company rather than a private limited company. The company may be subject to take-over bids from other companies. Ownership of shares is restricted in a private limited company and ownership of shares cannot be transferred without the consent of the other shareholders.
20. [8] (d) There is also the problem of separation of ownership from management – shareholders interested in short-term profits and not in long-term policies. The company may be so large that there is a loss of personal contact between management and workers and between customers and the company.
21. [8] (d) Example of evaluation: Overall, I recommend that AAA Ltd converts to a public limited company. A toy manufacturer cannot remain as a small business because it needs capital investment in the latest technology in order to remain competitive. It wishes to expand and so will need to raise significant amounts of capital that only a public limited company can do.