Practice 1.2 Types of business entities with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
FreshSteps Foundation
FreshSteps Foundation is a non-profit social enterprise based in Kenya that installs small-scale water filtration systems in rural communities. It operates as a private limited company (Ltd) but reinvests all surplus profits to expand its social impact rather than paying dividends.
Its business objectives include achieving financial sustainability and maintaining a minimum return on capital employed (ROCE) of 5% to fund future installations without relying heavily on grants.
Table 1: Statement of Profit or Loss for FreshSteps Foundation for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 2,600 |
| Cost of sales | 1,300 |
| Operating expenses | 1,050 |
| Depreciation expense | 100 |
| Interest expense | 40 |
| Tax | — (tax-exempt) |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 3,500 |
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
Calculate the gross profit for FreshSteps Foundation. Show all your working.
State why FreshSteps Foundation is tax exempt.
Calculate the current ratio for FreshSteps Foundation. Show all your working.
Calculate the payback period for the new project. Show all your working.
Explain one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.’s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| Revenue | 120,000 |
| Cost of goods sold | 70,000 |
| Operating expenses | 30,000 |
| Cash inflows | 45,000 |
| Cash outflows | 60,000 |
| Opening cash balance | 5,000 |
State two sources of finance used by EcoPod Ltd.
Calculate the net profit for the month. Show all your working.
Calculate the closing cash balance. Show all your working.
Identify one internal stakeholder and explain how they may be affected by EcoPod Ltd.’s cash flow problems.
Outline one advantage of operating as a private limited company.
LynxJet PLC (LJ)
LynxJet PLC (LJ) is a public limited company operating short-haul domestic flights in East Africa. LJ was founded by former military pilots and is known for its punctuality, strict safety protocols, and no-frills service.
Its low prices and reliable schedule make it especially popular with commuters and small business owners. LJ is listed on the Nairobi Securities Exchange and is majority-owned by institutional investors.
Define the term public limited company.
Solveta Ltd.
Solveta Ltd. is a private limited company that manufactures eco-friendly packaging materials for global e-commerce businesses. The company recently launched a major marketing campaign to enter three new export markets. This campaign involved substantial investment in promotion, pricing adjustments, and changes to distribution (place) to align with regional consumer expectations.
To fund this expansion, Solveta used a mix of retained profit, a medium-term loan, and newly issued share capital. While sales revenue has increased, rising logistics and distribution costs have impacted short-term liquidity. The finance department has released Solveta’s statement of financial position and asked the marketing and finance teams to assess its implications for profitability and cash flow.
Figure 1. Solveta Ltd. Statement of financial position as at 30 June 2024
| Item | $ |
|---|---|
| Assets | |
| Non-current assets | |
| Property, plant and equipment | 600,000 |
| Less: Accumulated depreciation | (150,000) |
| Net non-current assets | 450,000 |
| Current assets | |
| Cash | 60,000 |
| Debtors | 85,000 |
| Stock | 105,000 |
| Total current assets | 250,000 |
| Total assets | 700,000 |
| Liabilities | |
| Current liabilities | |
| Bank overdraft | 12,000 |
| Trade creditors | 48,000 |
| Short-term loan | 40,000 |
| Total current liabilities | 100,000 |
| Non-current liabilities | |
| Borrowings—medium term | 180,000 |
| Total liabilities | 280,000 |
| Net assets | 420,000 |
| Equity | |
| Share capital | 300,000 |
| Retained earnings | 120,000 |
| Total equity | 420,000 |
Explain one reason Solveta Ltd. may have chosen to use more than one source of finance for its international marketing campaign.
Suggest one element of the marketing mix Solveta adjusted to support its international expansion
Calculate the current ratio and acid test ratio for Solveta Ltd. Show all your working.
Outline what these liquidity ratios suggest about Solveta’s short-term financial position.
Comment on how Solveta’s cost and revenue structure may affect its profitability.
EcoFreight SolutionsEcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 *(figures in 000) || :--- | :--- || Sales revenue | 4,200 || Cost of sales | 2,400 || Operating expenses | 1,100 || Depreciation expense | 150 || Interest expense | 60 || Tax | 80 |Table 2: Additional Financial Information| Item | Amount ($000) || :--- | :--- || Capital employed | 5,500 || Current assets | 920 || Current liabilities | 800 || Initial investment for new project | 1,200 || Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
Calculate the payback period for the new automated sorting hub project. Show all your working.
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
FlexiFreeze Ltd.
FlexiFreeze Ltd. is a medium-sized business that manufactures portable solar-powered refrigeration units for off-grid medical and disaster relief use. It was originally set up as a partnership but restructured into a private limited company (Ltd) after receiving a contract from an international NGO. The company’s business purpose is to deliver low-cost, high-impact refrigeration solutions to underserved communities while achieving sustainable long-term growth.
In Q2 2024, the business launched a new production facility to meet rising demand. While this supported its growth and evolution, it also strained liquidity. Some stakeholders, including suppliers and staff, have expressed concerns about delayed payments and overtime demands.
The finance team has provided the final income statement for Q2 2024 and a comparison with budgeted figures, alongside a cash flow forecast to assess short-term financial pressures.
Table 1: Budgeted vs Actual Income Statement – Q2 2024
| Item | Budgeted (£) | Actual (£) |
|---|---|---|
| Sales revenue | 950,000 | 900,000 |
| Cost of goods sold | 520,000 | 580,000 |
| Operating expenses | 310,000 | 330,000 |
| Net profit | 120,000 | — |
Table 2: Cash Flow Forecast – July 2024
| Item | Amount (£) |
|---|---|
| Opening balance | 40,000 |
| Cash inflows | 250,000 |
| Cash outflows | 295,000 |
| Closing balance | — |
—
Calculate the actual net profit for Q2 2024 Show all your working.
Comment on how the company’s cash flow and profit results might affect its relationship with stakeholders.
Suggest one risk FlexiFreeze Ltd. may face as it expands.
Analyse how the company’s business purpose may influence strategic financial decisions as it grows.
BlueSky Media (BSM)
BlueSky Media (BSM) is a start-up founded by Maya, who runs the business as a sole trader. The company specializes in producing digital content for small businesses, including video production, social media management, and website design. Due to the growing demand for BSM’s services, Maya is considering expanding the business and has several options: forming a partnership with another content creator, incorporating as a private limited company (Ltd), or even transitioning into a cooperative with other freelancers.
Maya’s decision will significantly impact the business structure, growth potential, and risk management strategies. As BSM expands, Maya also sees the opportunity to pursue contracts with government agencies, which would involve more rigorous legal and financial requirements.
Identify the sector in which BlueSky Media operates.
Identify one potential advantage of operating as a sole trader.
Analyze the benefits and drawbacks of transitioning BlueSky Media from a sole trader to a private limited company (Ltd).
Discuss how Maya’s choice of business structure could impact the growth and sustainability of BlueSky Media in the long term.
NaturFresh Cooperative (NFC)
NaturFresh Cooperative (NFC) is an agricultural cooperative based in Spain, jointly owned by local farmers. NFC markets fresh organic produce across Europe, experiencing significant recent market growth due to rising consumer demand for healthy foods.
To maintain its competitiveness, NFC emphasizes its unique selling proposition (USP) of providing fresh, sustainably grown, locally sourced produce. NFC regularly conducts primary market research to better understand customer preferences and refine its product offerings.
NFC’s financial team highlighted concerns about low liquidity ratios, which management plans to address urgently. They also recognize that the cooperative’s strong reputation and brand name are critical intangible assets essential to sustaining growth.
To further enhance its competitive position, NFC is considering implementing a comprehensive customer loyalty program, encouraging repeat purchases and strengthening customer relationships across its European markets.
Define the term ‘primary market research’.
Explain two advantages of NFC operating as a cooperative.
Explain two reasons why intangible assets are important for NFC’s continued growth.
Explain two benefits to NFC of implementing a customer loyalty program.
Recommend two strategies NFC could use to improve its liquidity ratios without compromising its USP or market growth.
EcoFreight Solutions
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
Calculate the payback period for the new automated sorting hub project. Show all your working.
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Practice 1.2 Types of business entities with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
FreshSteps Foundation
FreshSteps Foundation is a non-profit social enterprise based in Kenya that installs small-scale water filtration systems in rural communities. It operates as a private limited company (Ltd) but reinvests all surplus profits to expand its social impact rather than paying dividends.
Its business objectives include achieving financial sustainability and maintaining a minimum return on capital employed (ROCE) of 5% to fund future installations without relying heavily on grants.
Table 1: Statement of Profit or Loss for FreshSteps Foundation for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 2,600 |
| Cost of sales | 1,300 |
| Operating expenses | 1,050 |
| Depreciation expense | 100 |
| Interest expense | 40 |
| Tax | — (tax-exempt) |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 3,500 |
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
Calculate the gross profit for FreshSteps Foundation. Show all your working.
State why FreshSteps Foundation is tax exempt.
Calculate the current ratio for FreshSteps Foundation. Show all your working.
Calculate the payback period for the new project. Show all your working.
Explain one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.’s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| Revenue | 120,000 |
| Cost of goods sold | 70,000 |
| Operating expenses | 30,000 |
| Cash inflows | 45,000 |
| Cash outflows | 60,000 |
| Opening cash balance | 5,000 |
State two sources of finance used by EcoPod Ltd.
Calculate the net profit for the month. Show all your working.
Calculate the closing cash balance. Show all your working.
Identify one internal stakeholder and explain how they may be affected by EcoPod Ltd.’s cash flow problems.
Outline one advantage of operating as a private limited company.
LynxJet PLC (LJ)
LynxJet PLC (LJ) is a public limited company operating short-haul domestic flights in East Africa. LJ was founded by former military pilots and is known for its punctuality, strict safety protocols, and no-frills service.
Its low prices and reliable schedule make it especially popular with commuters and small business owners. LJ is listed on the Nairobi Securities Exchange and is majority-owned by institutional investors.
Define the term public limited company.
Solveta Ltd.
Solveta Ltd. is a private limited company that manufactures eco-friendly packaging materials for global e-commerce businesses. The company recently launched a major marketing campaign to enter three new export markets. This campaign involved substantial investment in promotion, pricing adjustments, and changes to distribution (place) to align with regional consumer expectations.
To fund this expansion, Solveta used a mix of retained profit, a medium-term loan, and newly issued share capital. While sales revenue has increased, rising logistics and distribution costs have impacted short-term liquidity. The finance department has released Solveta’s statement of financial position and asked the marketing and finance teams to assess its implications for profitability and cash flow.
Figure 1. Solveta Ltd. Statement of financial position as at 30 June 2024
| Item | $ |
|---|---|
| Assets | |
| Non-current assets | |
| Property, plant and equipment | 600,000 |
| Less: Accumulated depreciation | (150,000) |
| Net non-current assets | 450,000 |
| Current assets | |
| Cash | 60,000 |
| Debtors | 85,000 |
| Stock | 105,000 |
| Total current assets | 250,000 |
| Total assets | 700,000 |
| Liabilities | |
| Current liabilities | |
| Bank overdraft | 12,000 |
| Trade creditors | 48,000 |
| Short-term loan | 40,000 |
| Total current liabilities | 100,000 |
| Non-current liabilities | |
| Borrowings—medium term | 180,000 |
| Total liabilities | 280,000 |
| Net assets | 420,000 |
| Equity | |
| Share capital | 300,000 |
| Retained earnings | 120,000 |
| Total equity | 420,000 |
Explain one reason Solveta Ltd. may have chosen to use more than one source of finance for its international marketing campaign.
Suggest one element of the marketing mix Solveta adjusted to support its international expansion
Calculate the current ratio and acid test ratio for Solveta Ltd. Show all your working.
Outline what these liquidity ratios suggest about Solveta’s short-term financial position.
Comment on how Solveta’s cost and revenue structure may affect its profitability.
EcoFreight SolutionsEcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 *(figures in 000) || :--- | :--- || Sales revenue | 4,200 || Cost of sales | 2,400 || Operating expenses | 1,100 || Depreciation expense | 150 || Interest expense | 60 || Tax | 80 |Table 2: Additional Financial Information| Item | Amount ($000) || :--- | :--- || Capital employed | 5,500 || Current assets | 920 || Current liabilities | 800 || Initial investment for new project | 1,200 || Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
Calculate the payback period for the new automated sorting hub project. Show all your working.
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
FlexiFreeze Ltd.
FlexiFreeze Ltd. is a medium-sized business that manufactures portable solar-powered refrigeration units for off-grid medical and disaster relief use. It was originally set up as a partnership but restructured into a private limited company (Ltd) after receiving a contract from an international NGO. The company’s business purpose is to deliver low-cost, high-impact refrigeration solutions to underserved communities while achieving sustainable long-term growth.
In Q2 2024, the business launched a new production facility to meet rising demand. While this supported its growth and evolution, it also strained liquidity. Some stakeholders, including suppliers and staff, have expressed concerns about delayed payments and overtime demands.
The finance team has provided the final income statement for Q2 2024 and a comparison with budgeted figures, alongside a cash flow forecast to assess short-term financial pressures.
Table 1: Budgeted vs Actual Income Statement – Q2 2024
| Item | Budgeted (£) | Actual (£) |
|---|---|---|
| Sales revenue | 950,000 | 900,000 |
| Cost of goods sold | 520,000 | 580,000 |
| Operating expenses | 310,000 | 330,000 |
| Net profit | 120,000 | — |
Table 2: Cash Flow Forecast – July 2024
| Item | Amount (£) |
|---|---|
| Opening balance | 40,000 |
| Cash inflows | 250,000 |
| Cash outflows | 295,000 |
| Closing balance | — |
—
Calculate the actual net profit for Q2 2024 Show all your working.
Comment on how the company’s cash flow and profit results might affect its relationship with stakeholders.
Suggest one risk FlexiFreeze Ltd. may face as it expands.
Analyse how the company’s business purpose may influence strategic financial decisions as it grows.
BlueSky Media (BSM)
BlueSky Media (BSM) is a start-up founded by Maya, who runs the business as a sole trader. The company specializes in producing digital content for small businesses, including video production, social media management, and website design. Due to the growing demand for BSM’s services, Maya is considering expanding the business and has several options: forming a partnership with another content creator, incorporating as a private limited company (Ltd), or even transitioning into a cooperative with other freelancers.
Maya’s decision will significantly impact the business structure, growth potential, and risk management strategies. As BSM expands, Maya also sees the opportunity to pursue contracts with government agencies, which would involve more rigorous legal and financial requirements.
Identify the sector in which BlueSky Media operates.
Identify one potential advantage of operating as a sole trader.
Analyze the benefits and drawbacks of transitioning BlueSky Media from a sole trader to a private limited company (Ltd).
Discuss how Maya’s choice of business structure could impact the growth and sustainability of BlueSky Media in the long term.
NaturFresh Cooperative (NFC)
NaturFresh Cooperative (NFC) is an agricultural cooperative based in Spain, jointly owned by local farmers. NFC markets fresh organic produce across Europe, experiencing significant recent market growth due to rising consumer demand for healthy foods.
To maintain its competitiveness, NFC emphasizes its unique selling proposition (USP) of providing fresh, sustainably grown, locally sourced produce. NFC regularly conducts primary market research to better understand customer preferences and refine its product offerings.
NFC’s financial team highlighted concerns about low liquidity ratios, which management plans to address urgently. They also recognize that the cooperative’s strong reputation and brand name are critical intangible assets essential to sustaining growth.
To further enhance its competitive position, NFC is considering implementing a comprehensive customer loyalty program, encouraging repeat purchases and strengthening customer relationships across its European markets.
Define the term ‘primary market research’.
Explain two advantages of NFC operating as a cooperative.
Explain two reasons why intangible assets are important for NFC’s continued growth.
Explain two benefits to NFC of implementing a customer loyalty program.
Recommend two strategies NFC could use to improve its liquidity ratios without compromising its USP or market growth.
EcoFreight Solutions
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
Calculate the gross profit for EcoFreight Solutions. Show all your working.
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
Calculate the payback period for the new automated sorting hub project. Show all your working.
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.