Edexcel Business A Level Paper 2 (Theme
2 & 3) Questions
1. What are Retained profits?
A. Profits distributed to shareholders as dividends B. Profits that the owners have
reinvested into the business after paying costs and taxes C. Profits used to pay off
short-term debts D. Profits generated from the sale of assets
Correct Answer: B
Rationale: Retained profits are a significant source of internal finance, allowing a
business to fund its growth and operations without incurring debt or issuing new
equity.
1. What are Owners' funds?
A. Money borrowed from banks or financial institutions B. Money put in by the owners
themselves C. Funds raised through issuing shares to the public D. Grants received
from the government
Correct Answer: B
Rationale: Owners' funds, also known as owner's equity or capital, represent the
money directly invested by the business owners, which is a primary source of initial
funding.
1. What is Sale of assets?
A. A regular method of generating revenue for a business B. A one-off way to raise
money, generally used during financial struggles C. A method of acquiring new assets
for business expansion D. A strategy to reduce the overall debt of a business through
regular payments
Correct Answer: B
, Rationale: Selling assets is often a last resort for businesses facing financial
difficulties, as it provides a quick influx of cash but reduces the company's productive
capacity.
1. What are the Benefits of owners funds?
A. High interest on loans and loss of control B. Avoids interest on loans and owners
keep complete control C. Unlimited amount can be raised and no risk involved D.
Requires security in the form of assets and regular updates
Correct Answer: B
Rationale: Using owners' funds avoids the cost of interest payments associated with
loans and allows the owners to maintain full control over the business without
external influence.
1. What are the Disadvantages of owners funds?
A. Unlimited amount can be raised and no risk involved B. Avoids interest on loans and
owners keep complete control C. If it fails after remortgaging, they could lose their
house; limit to amount raised D. Requires security in the form of assets and regular
updates
Correct Answer: C
Rationale: The primary disadvantages are the personal financial risk to the owners,
especially if personal assets are used as collateral, and the limited amount of capital
that can typically be raised from personal funds alone.
1. Which of the following is an example of Short term finance?
A. Issuing shares B. Debentures C. Overdrafts for daily expenses D. Mortgages
Correct Answer: C
Rationale: Short-term finance is typically used for immediate, day-to-day operational
needs and is expected to be repaid within a year. Overdrafts provide flexible access to
funds for short periods.
1. Which of the following is an example of Medium term finance?
2 & 3) Questions
1. What are Retained profits?
A. Profits distributed to shareholders as dividends B. Profits that the owners have
reinvested into the business after paying costs and taxes C. Profits used to pay off
short-term debts D. Profits generated from the sale of assets
Correct Answer: B
Rationale: Retained profits are a significant source of internal finance, allowing a
business to fund its growth and operations without incurring debt or issuing new
equity.
1. What are Owners' funds?
A. Money borrowed from banks or financial institutions B. Money put in by the owners
themselves C. Funds raised through issuing shares to the public D. Grants received
from the government
Correct Answer: B
Rationale: Owners' funds, also known as owner's equity or capital, represent the
money directly invested by the business owners, which is a primary source of initial
funding.
1. What is Sale of assets?
A. A regular method of generating revenue for a business B. A one-off way to raise
money, generally used during financial struggles C. A method of acquiring new assets
for business expansion D. A strategy to reduce the overall debt of a business through
regular payments
Correct Answer: B
, Rationale: Selling assets is often a last resort for businesses facing financial
difficulties, as it provides a quick influx of cash but reduces the company's productive
capacity.
1. What are the Benefits of owners funds?
A. High interest on loans and loss of control B. Avoids interest on loans and owners
keep complete control C. Unlimited amount can be raised and no risk involved D.
Requires security in the form of assets and regular updates
Correct Answer: B
Rationale: Using owners' funds avoids the cost of interest payments associated with
loans and allows the owners to maintain full control over the business without
external influence.
1. What are the Disadvantages of owners funds?
A. Unlimited amount can be raised and no risk involved B. Avoids interest on loans and
owners keep complete control C. If it fails after remortgaging, they could lose their
house; limit to amount raised D. Requires security in the form of assets and regular
updates
Correct Answer: C
Rationale: The primary disadvantages are the personal financial risk to the owners,
especially if personal assets are used as collateral, and the limited amount of capital
that can typically be raised from personal funds alone.
1. Which of the following is an example of Short term finance?
A. Issuing shares B. Debentures C. Overdrafts for daily expenses D. Mortgages
Correct Answer: C
Rationale: Short-term finance is typically used for immediate, day-to-day operational
needs and is expected to be repaid within a year. Overdrafts provide flexible access to
funds for short periods.
1. Which of the following is an example of Medium term finance?
