Grade 9 Business Studies
Grade 9 Business Studies
Grade 9 Business Studies
Business and
Entrepreneurship
Education
(BEE)
n
Professor Vassen Naëck - Head, Curriculum Implementation,Textbook Development and Evaluation
Design
Nishi Manic - Graphic Designer, MIE
ISBN: 978-99949-53-83-7
Acknowledgement
- Rajendra Korlapu-Bungaree (Senior Lecturer, MIE) for proof reading.
Consent from copyright owners has been sought. However, we extend our apologies to those we might have overlooked.
All materials should be used strictly for educational purposes.
ii
Foreword
With the Grade 9 textbooks, we now complete textbook production for Grades 1-9 in the context of
the Nine Year Continuous Basic Education (NYCBE) project of the Ministry of Education and Human
Resources, Tertiary Education and Scientific Research. The textbooks are designed in line with the
National Curriculum Framework (NCF) and the syllabi for Grades 7, 8 and 9 which are accessible on the
MIE website, www.mie.ac.mu.
These textbooks build upon the competencies learners have developed in Grades 7 and 8, based on the
philosophy of the NCF for the NYCBE. The content and pedagogical approaches allow for incremental
and continuous improvement of the learners’ cognitive skills using contextualised materials which
should be highly appealing to the learners.
The writing of the textbooks involved several key contributors, namely academics from the MIE and
educators from Mauritius and Rodrigues, as well as other stakeholders. We are especially appreciative
of comments and suggestions made by educators who were part of our validation panels, and whose
opinions emanated from long-standing experience and practice in the field.
The development of textbooks has been a very challenging exercise for the writers and the MIE. We
had to ensure that the learning experiences of our students are enriched through approaches which
appeal to them, without compromising on quality. I would, therefore, wish to thank all the writers and
contributors who have produced content of high standard thereby ensuring that the objectives of the
National Curriculum Framework are skilfully translated through the textbooks.
Every endeavour involves several dedicated, hardworking and able staff whose contribution needs to be
acknowledged. Professor Vassen Naëck, Head, Curriculum Implementation and Textbook Development
and Evaluation provided guidance with respect to the objectives of the NCF, while ascertaining
that the instruction designs are appropriate for the age group targeted. I also acknowledge the efforts
of the graphic artists who put in much hard work to maintain the quality of the MIE publications. My
thanks also go to the support staff who ensured that everyone receives the necessary support and work
environment conducive to a creative endeavour.
I am equally thankful to the Ministry of Education, Human Resources, Tertiary Education and Scientific
Research for actively engaging the MIE in the development of textbooks for the reform project.
I wish enriching and enjoyable experiences to all users of the new set of Grade 9 textbooks.
Dr O Nath Varma
Director
Mauritius Institute of Education
iii
Preface
Our children and young people are the backbone of the socio-economic development of our country.
To progress towards a balanced, active and productive lifestyle, young people must make sense of
the importance of their economic wellbeing and recognise that the aim of the BEE Curriculum is to
develop their knowledge and understanding of the dynamic business and economic environment in
which they live. The youth must also appreciate that being exposed to Business and Entrepreneurship
Education not only allows them to develop the knowledge, skills and values but also gives them the
right to shape their future economic wellbeing responsibly.
In line with the educational reform in 2016, we have the pleasure to present the Grade 9 Business
and Entrepreneurship Education textbook to the educators and our learners. This BEE textbook is
multidisciplinary and integrates three distinct key academic subjects of 21st Century Learning, namely,
Business & Entrepreneurship Education, Economics, and Accounting. Using the Framework for 21st
Century Learning, we have strived towards the holistic development of the learner by developing
teaching and learning materials that would create dynamic and exciting moments of teaching and
learning.
Though the textbook consists of fourteen units, it is purposely brief. Thus, essential concepts have
been covered without burdening students and educators with unnecessary detail at Grade 9 level.
Most importantly, it prepares learners for the National examinations at the end of the year.
Whether the learner is assisted by the teacher in the classroom or opts for independent learning, both
ways can be highly interesting. The concepts are presented in simple and straightforward manner
and are all followed by easy to more challenging activities. In every unit, the learners’ competency
is assessed through MCQs, true/false statements, short-answer questions, matching exercises, fill-in-
the-blanks exercises, and short case studies. Additional practice questions are included at the end of
each unit.
The array of units in the Grade 9 textbook has been mindfully chosen to ensure that learners are
exposed to important concepts before they move to upper secondary classes, either in the same field
of study, or any other. At this level, BEE expose learners to knowledge and understanding of business,
economics and accounting, and facilitates the development of decision-making and critical thinking
skills.
A sound knowledge of BEE fundamentals is needed for success. We are confident that the BEE
textbook will enable young learners to acquire and enhance their business skills and develop an
entrepreneurial spirit.
Educators are encouraged to use active methods of engaging students to enhance their creativity
and innovative skills. We wish both teachers and learners success.
The Authors
iv
Table of contents
Unit 1 Business organisations 1
1.1 Forms of business organisations 2
1.2 Company 3
1.2.1 How to set up a company 3
1.2.2 Features of a company 6
1.2.3 Advantages of a company 7
1.2.4 Disadvantages of a company 7
1.3 Cooperatives 9
1.3.1 How to set up a cooperative 9
1.3.2 Features of a cooperative 9
1.3.3 Advantages of a cooperative 10
1.3.4 Disadvantages of a cooperative 10
1.4 Franchise 11
1.4.1 How to set up a franchise 12
1.4.2 Features of a franchise 13
1.4.3 Advantages of a franchise 13
1.4.4 Disadvantages of a franchise 13
1.5 Selecting the right business organisation for my enterprise 16
Unit 4 Marketing 41
4.1 Marketing 42
4.1.1 Selling vs marketing 42
v
4.2 Knowing your market 43
4.2.1 Market research 44
4.3 Elements of Marketing 45
4.3.1 Product 45
4.3.2 Price 47
4.3.3 Promotion 48
4.3.4 Place 50
4.4 Entrepreneurs and E-marketing 52
4.4.1 Methods of E-marketing 52
4.4.2 Importance of E-marketing 52
vi
Unit 8 Spending, Savings and Borrowing 97
8.1 Spending 98
8.1.1 Factors affecting spending 100
8.2 Savings 102
8.2.1 Factors affecting savings 102
8.3 Borrowing 103
8.3.1 Factors affecting borrowing 104
vii
Learner's Goal Checklist
Educators may print this Learner's Goal Checklist for their student to evaluate the different
levels of learning.
Topic ________________________________________________________________________
I learnt that...
3
viii
Business Organisations
Unit 1
Business
Organisations
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will learn about various forms of business organisations
which are usually set up by entrepreneurs as well as their advantages and
disadvantages. You will, then, discuss about selecting a particular form of
business organisation to set up an enterprise.
1
Unit 1
Setting up one’s own enterprise requires selecting an appropriate form of business organisation.
A business organisation is an enterprise which provides goods and/or services to consumers,
usually with the aim of making profits. There are different forms of business organisations and
the common ones are sole trading, partnership, company, cooperative and franchise. Each type
of business organisation differs from each other because they have different features in terms
of ownership, raising of capital, risks and sharing of profits or losses.
Business organisations
2
Business Organisations
1.2 Company
Setting up a company involves a number of steps to follow. Entrepreneurs usually ask some
basic questions before setting up a company.
Laura and Ben had to understand the following terms before setting up a company.
4
Business Organisations
Types of company
Private
1 A business that raises capital from a small number of
Limited
shareholders such friends and/or relatives.
Company
Application
to the Certificate of
Registration
Registrar of Incorporation
Companies
Steps Requirements
Application To set up a company, owners must fill up application forms which
1
forms are available at the Registrar of Companies.
Activity 1
State two documents that should be prepared by a company for its registration. Use the
table below to present your answer.
Registration of a company
Documents required
Document 1
Document 2
Features of a company
A company must be incorporated at the Registrar of
1 Registration Companies. It, then, gets a separate legal identity from the
owners’ identity.
6
Business Organisations
There are several advantages that entrepreneurs may enjoy by setting up companies. They are
explained in the table below.
Advantages of a company
2 Separate legal identity Companies have a distinct identity from the shareholders.
Setting up companies may have certain disadvantages. They are explained below.
Disadvantages of a company
7
Unit 1
Activity 2
Activity 3
Match each term in column A with the corresponding definition in column B.
Write your answers in the table which follows.
Column A Column B
Memorandum of
A 1 A voucher that represents a unit of capital.
Association
A legal document which provides details such as
B Board of Directors 2
the names of a company and its shareholders.
Column A A B C D E
Column B
8
Business Organisations
1.3 Cooperatives
A number of cooperatives exist in Mauritius, for example, in the agricultural sector. It has
helped several small entrepreneurs to improve their business activities.
Application
to the Certificate of
Registration
Cooperatives Registration
Division
A cooperative has the following features which are explained in the table below.
Features of a cooperative
The cooperative must be registered at the Cooperatives
1 Registration
Division.
9
Unit 1
Cooperative de L’Ouest
Ownership and Members join together to share ideas and help each other to
2
control manage the cooperative.
2 Low profits Profits are usually low because prices charged are usually low.
10
Business Organisations
Activity 4
Activity 5
The small farmers of La Savanne decided to join in together to grow their small enterprises.
Advantage 1
Advantage 2
1.4 Franchise
A franchise business is usually a well-established and famous enterprise. They are found in
different parts of the world and are known worldwide.
Franchisor
There are a number of franchise businesses in different sectors in Mauritius. For example, KFC
is a franchise business.
11
Unit 1
Two friends, June and Koy, who had some capital were discussing about setting up an
enterprise. On one hand, they wanted to start up a clothing boutique and create their
own strong brand. On the other hand, they thought of starting up an enterprise that
sells world-renowned branded fashion clothing store that would be run as a franchise
business.
Activity 6
In the space provided, write down one example of a franchise business that exists in
Mauritius in the following sectors.
12
Business Organisations
Features of a franchise
3 Existing product Most supplies are purchased directly from the franchisor.
3 Profits to franchisor Part of the profits has to be paid to the franchisor each year.
13
Unit 1
Activity 7
Read the case study below and answer the following questions.
For five years, Aryaan worked in a restaurant as a manager, selling pizzas. He developed an
interest to set up his own pizza shop with his own brand name but he was also aware that
he could set up a franchise. He thought about the capital
that he would require, the risks involved and the benefits
of an already existing renowned brand name. Aryaan
searched for more information on existing franchise
businesses around the world. He was attracted by the
benefits of a franchise business but was held back by the
investment required and the interference of the franchisor
in his business matters.
Identify two reasons for setting up a franchise rather than one’s own enterprise.
Reason
1
Reason
2
Activity 8
State two advantages and two disadvantages of setting up the following types of business
organisations.
Company
Advantages
1. ______________________________________________________________________
2. ______________________________________________________________________
Disadvantages
1. ______________________________________________________________________
2. ______________________________________________________________________
14
Business Organisations
Franchise
Advantages
1. ______________________________________________________________________
2. ______________________________________________________________________
Disadvantages
1. ______________________________________________________________________
2. ______________________________________________________________________
Multinationals
15
Unit 1
Choosing the right business organisation is one of the most important decisions an
entrepreneur has to make before setting up an enterprise. The factors that influence
entrepreneurs' decisions are found in the diagram below.
Ownership
and
control
Continuity Risks
Right business
organisation
for my
enterprise
Registration
and Expansion
procedures
Entrepreneurs are usually influenced by a number of factors in selecting the appropriate type
of business organisation. The entrepreneur should ask the following questions before taking a
decision.
Some entrepreneurs enjoy taking risks but others may be unwilling to do so. Some entrepreneurs
change their type of organisation because they must raise more capital to grow their enterprise.
Others might be discouraged because registration is complicated and registration fees are
expensive.
16
Business Organisations
Question 1
17
Unit 1
Question 2
Read the case study below and carry out the activity that follows in the space provided.
Harris and Saaran set up a private company limited, H & S Co Ltd, to launch
a line of fashion clothes. Supported by a strong team of employees, the
enterprise grew successful. One of its best T-shirts, branded as “San Smith”,
became very popular in several foreign countries. The company received
several proposals to franchise the popular designer clothes.
Franchise
(b) State one difference between a private limited company and a public limited company.
….…………………………………………………………………………………………
….…………………………………………………………………………………………
(c) Some entrepreneurs have showed interest in setting up a franchise to sell “San Smith”
T-shirts produced by H & S Co Ltd. Identify and explain two reasons an entrepreneur
would prefer a franchise business rather setting up his own enterprise.
Reason 1
Reason 2
KEY TERMS
Cooperative is a business organisation which is owned and managed jointly by its members
who share the profits or benefits.
Franchise is an enterprise that has a license from a franchisor to sell its products or services.
18
The entrepreneur as a leader
Unit 2
The
entrepreneur
as a leader
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will learn the functions, responsibilities and qualities
of an entrepreneur. You will also discover the role of stakeholders in an
enterprise and how entrepreneurs manage risks in an organisation.
19
Unit 2
Planning
Controlling Organising
Functions of an
entrepreneur
Leading Staffing
Functions Explanation
The process of choosing a business idea,setting objectives and anticipating
Planning
risks.
Bringing in resources into the organisation to meet the objectives set by the
Organising
entrepreneur.
Staffing Hiring people to work in the enterprise.
Ensuring that tasks are being done according to the expectations of the
Controlling
entrepreneur.
Activity 1
Fanny is the owner of Sunrise Enterprise. She is also the ………………… of the
business. She sets the ………………………….. of the business . ……………………….
and ………………… are two functions that Fanny undertakes in the enterprise. She
organises the ……………………………. so that production can take place on time. She
leads the employees and …………………… them to work harder.
1
Keep
accounting
6 records 2
Handle Recruit and
customers train workers
The
entrepreneur
is responsible
5 to
Look after the
3
Promote the
finance of the
products
enterprise 4
Order raw
materials or
goods for
resale
21
Unit 2
Activity 2
Read the case study below and answer the questions which follow.
Responsibility 1 ___________________________________________________________
Responsibility 2 ___________________________________________________________
Responsibility 3 ___________________________________________________________
Successful entrepreneurs have a number of qualities. One distinct quality is the ability to lead
the enterprise. The following are the qualities that make the entrepreneur successful.
5 Self-confident - The entrepreneur believes in his abilities to achieve the goals of the enterprise.
6 Passionate - The entrepreneur is motivated and has a strong drive to make the business successful.
2.2 Stakeholders
The table below describes stakeholders, their roles and their objectives.
Objectives of
Stakeholders Role of stakeholders
stakeholders
• To maximise profits
1 Owners Owners set up enterprise.
• To expand the business
23
Unit 2
Activity 3
Column A Column B
A Society 1 People who work in an enterprise and are interested in earning high wages.
B Owners 2 People who manage and organise the activities of an enterprise.
Authority and institutions that regulate the operations of an
C Employees 3
enterprise through legislations.
Pressure groups and members of the public who are interested in
D Stakeholders 4
the operations of the business and its impact on the community.
People or firms who provide materials, components and
E Managers 5
services to the business.
F Government 6 People who have put their money as capital in the enterprise.
G Suppliers 7 Buyer of goods and services provided by enterprise on the market.
Individuals or groups that have an interest in the success and
H Consumers 8
progress of a company.
Column A A B C D E F G H
Column B
Businesses are usually exposed to risks. Any factor that Business risk refers to any factor that
threatens an enterprise’s ability to achieve its goals is called represents a threat to an enterprise’s
business risk. ability to achieve its goals.
There are many types of risks that a business might face. These can be grouped into four types
as explained below:
Activity 4
For each of the following situations, match Column A with the Types of risks faced by
Trois Soleils pastry shop.
Column A 1 2 3 4
Type of risks
Managing risks is an important task to every entrepreneur. Five steps of risks management are:
25
Unit 2
Business risks can occur at any time. It can be at the start of a business or even when launching
a new product on the market. Entrepreneurs who have the ability to bear any kind of risk and
who react positively to risky situations are better prepared entrepreneurs.
The table below analyses how to deal with some business risks.
Setting high
To make prior
Price of the price without
Sales fell and so calculation
4 To increase revenue product anticipating
revenue fell before setting
increased customer
price
behaviour
Table 4: Dealing with risks
Activity 5
Decrease price Locate factory in a remote area Pollution level not measured
Further fall in sales Buy cheap raw materials Control cost
26
The entrepreneur as a leader
2. A person who organises, manages and assumes the risks of starting and operating a
business to make a profit is called a(n)
A entrepreneur B investor C trader D shareholder
Answer ________
3. Ensuring that tasks are done according to the expectations of the entrepreneur is
known as
A planning B controlling C organising D staffing
Answer ________
Answer ________
27
Unit 2
7. Risks related to the safety of employees in the workplace are associated with
A strategic risks
B operational risks
C compliance risks
D financial risks Answer ________
KEY TERMS
Business risks refer to any factor that represent a threat to an enterprise’s ability to
achieve its goals.
Stakeholders are people, groups or organisations that take interest in activities and
decisions taken by a business.
28
Entrepreneurial skills
Unit 3
Entrepreneurial
skills
Learning Objectives:
On completing this unit, you will be able to:
29
Unit 3
3.1 Communication
The communication process shows the flow of information from the sender (the transmitter)
to the receiver (the recipient). It is illustrated below.
Message
Channel
Sender Receiver
Feedback
Figure 1: The communication process
Medium of
1 communication 4
Sender: the person who passes Receiver: the person to whom
on information to others. the message is sent.
5 Feedback
Feedback: the reply from the receiver to confirm receipt and understanding of the message.
Activity 1
Read the short case study below and answer the questions which follow.
________________________________________________________________
________________________________________________________________
Sender: _________________________________________________________
Receiver: ________________________________________________________
________________________________________________________________
(d) What is the importance of feedback when people communicate with each other?
________________________________________________________________
________________________________________________________________
31
Unit 3
Effective communication is a two-way process between the sender and the receiver, where a
feedback is provided.
No Yes No
Yes Yes
However, there are different circumstances where communication tends to be ineffective. This
occurs when there are disruptions or failures in the communication process.
No No No
No No
Ineffective communication can have serious consequences for enterprises. Below are some
common causes of ineffective communication.
32
Entrepreneurial skills
Activity 2
For each of the following, tick ( ) the appropriate column to indicate whether it is an
example of effective or ineffective communication.
Effective Ineffective
communication communication
Chan, the entrepreneur, while
1 discussing about a new product in a
meeting, receives immediate feedback.
Eric has sent an email to a supplier but
2
receives no reply.
Forms of communication
Non-verbal
Verbal (Body language) Written Visual
In choosing an appropriate communication method, factors such as speed, cost, the target
audience, importance of a written record, importance of feedback are taken into consideration.
34
Entrepreneurial skills
Activity 3
Write down each of the following forms of communication under the correct heading
in the table below.
Written including
Verbal communication Visual communication
electronic communication
Group discussion
35
Unit 3
Entrepreneurs communicate with stakeholders both inside and outside the business. Therefore,
communication can be classified as internal and external.
Communication
Activity 4
For each of the following, tick ( ) the appropriate column to indicate whether
internal or external communication is taking place.
Internal External
communication communication
Ria, the owner is holding a conversation with the
(a)
machine operator.
(b) Advertisement for a new product in the newspaper.
(c) An entrepreneur sends a quotation to a customer.
(d) Meeting employees to discuss safety issues at work.
Informing customers about a promotional offer on
(e)
the website of the enterprise.
Asking an employee to pass on a message to his
(f )
colleague.
36
Entrepreneurial skills
People working in an enterprise may have different opinions and perceptions leading to
conflicts.
Entrepreneurs should be aware of types of conflicts that may arise during business activities.
37
Unit 3
Activity 5
Activity 6
Read the case study below and answer the questions which follow.
Mira is the owner of a florist shop. She has been operating her small enterprise for three
years and has loyal customers. Mira decided to form a partnership with her friend Jenny in
order to expand the enterprise.
(c) State three ways Mira could use to reduce the conflicts in her enterprise.
(1) ________________________________________________________________
(2) ________________________________________________________________
(3) ________________________________________________________________
38
Entrepreneurial skills
Question 1
Identify which form of communication (verbal, written or visual) is being used in the table below.
Form of
communication
(a) Two employees are talking about a lost order.
Question 2
Column A Column B
When enterprises communicate with stakeholders
A Communication 1
outside the business.
A situation in which there is a disagreement or
B Effective communication 2
disapproval with another person or within a group.
The exchange and flow of information, ideas,
C Internal communication 3
thoughts and feelings from one person to another.
Exchange of information takes place among people
D External communication 4
within the enterprise itself.
A two-way process between the sender and the
E Conflict 5
receiver, where a feedback is provided.
Column A A B C D E
Column B
39
Unit 3
Question 3
Read the case study below and answer the questions which follow.
(c) Did Jeremy choose the right communication method to place the order from
the supplier? Explain your answer.
________________________________________________________________
________________________________________________________________
________________________________________________________________
(d) Suggest a more effective communication method that Jeremy could have used in this case.
Give reasons for your answer.
________________________________________________________________
________________________________________________________________
________________________________________________________________
KEY TERMS
Effective communication is a two-way process between the sender and the receiver
where a feedback is provided.
40
Marketing
Unit 4
Marketing
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will learn about marketing and the difference between
selling and marketing. You will be exposed to the importance of market and
market research. You will, also, discover the key elements of marketing. The
opportunities offered by e-marketing are also addressed in this unit.
41
Unit 4
4.1 Marketing
Marketing is the process of identifying the needs of customers Marketing is the process of
and attempting to satisfy them. Businesses carry out marketing identifying the needs of customers
in one form or another as it is an important business activity. and attempting to satisfy them.
The role of marketing is to ensure that the product of a business meets customers’ needs and
wants. Effective marketing is essential to the success of an enterprise.
Kate is an entrepreneur who makes pickles. Her friend, Davis, comes to visit her and they have
the following conversation.
42
Marketing
The figure below illustrates some of the main differences between selling and marketing.
Selling
• Emphasis is on the product.
• Product first, then customer - first, the business
makes the product and then tries to sell it.
Marketing
• Emphasis is on the customer's needs.
• Customer first, then the product - first the business identifies
the customer's needs and wants and then produces them.
Competitors:
Who are my competitors and what should I do to compete with them?
Channel of distribution:
How will the products be sold?
Example, through sales agents, in shops or the internet.
Advertising media:
How will the products be advertised?
Example, in newspapers, billboards or social media.
Activity 1
44
Marketing
Activity 2
_____________________________________________________________________
_____________________________________________________________________
Reason 1 ___________________________________________________________
Reason 2 ___________________________________________________________
Reason 3 ___________________________________________________________
THE 4 Ps OF MARKETING
4.3.1 Product
Product refers to the goods and services produced by Product refers to the goods and
services produced by an enterprise
an enterprise to satisfy customers' needs or wants. The
to satisfy customers' needs or wants.
entrepreneur should make his product marketable.
A marketable product is a product
A marketable product is a product which consumers which consumers need and will be
need and will be ready to buy. ready to buy.
45
Unit 4
Attractive
packaging
Good Convenient
labelling to use
practices What makes and user
friendly
a product
marketable?
Provides
customer Affordable
satisfaction
Activity 3
3. Hema makes party snacks which she sells to her neighbours and nearby shops.
State three characteristics that you consider will make the party snacks a marketable product.
Characteristic 1: ___________________________________________________________
Characteristic 2: ___________________________________________________________
Characteristic 3: ___________________________________________________________
46
Marketing
4.3.2 Price
Entrepreneurs should sell their products at convenient prices. Price refers to the amount
of money paid by the
Price refers to the amount of money paid by the customer when customer when buying a
buying a good or service. good or service.
The entrepreneur should consider some factors when setting the price.
2 Ability to pay - Low prices are charged for low income groups and
higher prices to high income groups.
There are a range of pricing methods. Below are some common pricing methods an entrepreneur
can adopt.
Setting a low price to attract customers to buy a new product. This is known
as penetration pricing.
Setting a high price for a high quality product that is unique on the market.
This is known as premium pricing.
Setting the price by adding up cost per unit to % of profits. This is known
as cost plus pricing.
Reducing the price of a product or service for a short period of time. This is
known as promotional pricing.
Activity 4
Match each pricing method in column A with the corresponding situation in column B.
Write your answers in the table which follows.
Column A Column B
Column A A B C D E
Column B
4.3.3 Promotion
48
Marketing
There are several ways to promote a product. The entrepreneur needs to decide about effective
ways to do so. They are explained in the table below.
Activity 5
49
Unit 4
4.3.4 Place
An entrepreneur needs to find ways to distribute his/her products Place is about selecting
to customers. This is known as place. Place, as an element of an appropriate channel of
distribution for products to
marketing, is about selecting an appropriate channel of distribution
reach customers.
for products to reach customers.
A channel of distribution refers to the link a product passes through before it reaches the
consumer.
Entrepreneurs need to deliver products to consumers at the right time and in the right place.
This will make products available to customers convieniently, that is, whenever and wherever
it is suitable to them.
Below are some common distribution channels that enterprises usually adopt.
Producer Consumer
2. The producer (Enterprise) sells to the retailer who sells to the consumer.
3. The producer (Enterprise) sells to the wholesaler who supplies to the retailer who sells
to the consumer.
Activity 6
For each of the following, identify the missing term in the distribution channel that could
be used by the enterprise.
A shoe making
Producer Consumer
enterprise
51
Unit 4
With the advent of technology, entrepreneurs are making use of E-marketing refers to the
process of marketing a
internet as a tool to market their products and services. This is known
product using internet.
as electronic marketing (e-marketing) or online marketing.
The following are methods of e-marketing usually used by enterprises to promote their products.
It allows buying and selling at odd hours, for instance, even when
shops are closed.
Activity 7
Activity 8
Read the case study below and answer the questions which follow.
NewPaint
_____________________________________________________________________
Importance 2 ___________________________________________________________
_______________________________________________________________________
53
Unit 4
Question 1
3. Newsletters, catalogues and leaflets are most closely associated with ____________.
A pricing C market research
B distribution D promotion
Answer:______
5. Rohan is a chef in a local restaurant. He has given a press release to the local media and
has also invited press reporters for a lunch in his restaurant.
Rohan is engaging in ______________.
A public relations C personal selling
B advertising D sales promotion
Answer:_______
6. Price is important because
A it is a cost to business C it brings revenue to the business
B it is a method of advertising D it is easy to calculate
Answer:________
Question 2
Read the case study below and answer the questions which follow.
Mike’s business
After working for several years in a prestigious hotel, Mike decided to start his own business. He
made sauces and vinaigrettes that he sold at the local market.
Originally selling just a few flavours, Mike now offers a range of new products. He has developed
a brand name for his products known as MSV sauces and has
set a low price to attract more customers. Posters are found in
shops where Mike’s products are sold. His products are mostly
sold through local shops, market fairs and online. He does not
use any artificial ingredients. Mike buys his ingredients, such as
chili peppers, locally. He believes in supporting local farmers to
help the economy.
(c) Explain why Mike has set a low price for his products.
_____________________________________________________________________
_____________________________________________________________________
(d) According to you, what other two methods of promotion Mike could have used to
increase sales?
Method 1: ____________________________________________________________
Method 2: ____________________________________________________________
(e) Identify and explain two factors that might have influenced the choice of the
distribution channel used to sell MSV products.
Factor 1: ____________________________________________________________
Factor 2: ____________________________________________________________
55
Unit 4
Question 3
Match each term in column A with the corresponding definition in column B. Write
your answers in the table which follows.
Column A Column B
Communicating with customers to encourage them buy the
A Marketing 1
products of an enterprise.
B Market research 2 The process of marketing a product using internet.
C Product 3 The amount of money paid by the customer for a good or service.
The process of identifying needs of customers and attempting to
D Price 4
satisfy them.
The goods and services produced by an enterprise to satisfy
E Promotion 5
customers' needs or wants.
The process of collecting and analysing data about customers
F Place 6
and the market.
Selecting an appropriate channel of distribution for products to
G E- marketing 7
reach customers.
Column A A B C D E F G
Column B
KEY TERMS
Marketable product is a product which consumers need and will be ready to buy.
Market research is the process of collecting and analysing data about customers
and the market.
Price refers to the amount of money paid by the customer when buying a good
or service.
Unit 5
Business
Plan
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will learn about the importance of a business plan to
entrepreneurs and the different components of the document. You will
also be involved in writing a simple business plan for an enterprise.
57
Unit 5
Kevin’s friend, Ruben, strongly advised him to prepare a business plan if he was to start up
his enterprise. Ruben explained to him that a well-prepared business plan was the key to the
success of an enterprise. The latter wanted to own and manage a supermarket that would sell
a variety of farm and home-made products. Kevin wanted to know about the importance of a
business plan.
Entrepreneurs themselves
Users of
Other Potential
business
stakeholders investors
plans
Banks
Figure 1: Users of business plan
58
Business Plan
A business plan can be used as a guide, as well as a decision-making tool for the entrepreneur. The
business ideas of the entrepreneur can be written down in detail. The reasons are explained in the
table below.
Activity 1
Read the following mini story and state whether the following
statements are True or False.
Bella is planning to open a shop to sell honey and home-made jam.
A friend advised her to write a business plan.
59
Unit 5
The business plan consists of different components. They are shown below.
1. Information about the enterprise
Components
5. Finance of a business 2. Human resources
plan
4. Marketing 3. Operations
Benny was quite hesitant to write down his business plan as he did not know how to start
doing it. He was advised by his friend, Mita, an experienced businesswoman, to ask a set of key
questions. The questions are always related to the content of the business plan. The questions
are found below.
Questions that should be considered before preparing a business plan
The table below shows the type of information that is usually found in different components of
the business plan.
Tick ( ) the appropriate column in which the details of the business plan should be found.
(a) Advertising
Business aim
(b)
and objectives
Channels of
(c)
distribution
Description of
(d)
the product
Expected
(e) expenses/
revenue
Name of the
(f )
enterprise
61
Unit 5
Activity 3
For each of the information in column 1, write down the component in which it
should be explained in detail.
Why would a bank refuse to give a loan despite having the business
plan of an enterprise?
62
Business Plan
Below is a business plan of an entrepreneur, Zaha, who started a Fashion boutique. Zaha prepared
this business plan to apply for bank loan. The information in a business plan was presented in an
orderly manner and for two consecutive years to show her progress.
Expected expenses Rs 500 000 per year Rs 700 000 per year
Expected revenue Rs 1 200 000 per year Rs 1 800 000 per year
Question 1
In March 2020, Jean Ping is planning to set up a company, North West Company Ltd, to produce
and sell hand-made miniature ships. Below are some details provided by Jean Ping about the
enterprise.
Details Year 1
Name of the enterprise North West Company Ltd
Contact details [email protected]
Incorporation date of the enterprise 01 March 2020
Description of the products Hand made miniature ships
Start-up capital required Rs 3 million
Expected expenses Rs 1 million per year
Expected revenue Rs 3 million per year
You have been requested to assist Jean Ping to prepare a business plan.
(a) Identify five pieces of information that you would find important to include in a business plan.
Information to
be included in
the business
plan
KEY TERMS
Business plan is a document that contains a detailed plan to set up and develop
an enterprise.
64
Demand and Supply
Unit 6
Demand
and Supply
Learning Objectives:
In this unit you will learn about demand and supply as well as the factors
affecting them. You will also read demand and supply diagrams and identify
the equilibrium position.
65
Unit 6
People usually satisfy their needs and wants by buying goods and
A market is a where
services found in markets. A market is where buyers and sellers buyers and sellers meet
meet to exchange goods and services against a payment. Some to exchange goods and
examples of markets are shopping malls, vegetable market fairs, services against a payment.
supermarkets as well as shopping websites like Ebay, AliExpress
and Amazon.
Figure 1: A market
There are markets for all types of goods and services. A few examples are given below.
Market
Goods Services
Shopping
Shops Supermarkets Clinic Cinema
websites
Activity 1
(b) A buyer purchases goods and services to satisfy his needs only.
6.2 Demand
Effective demand is the
When people express their willingness to buy commodities, it
willingness and ability to
represents a demand for a commodity. For example, if people want buy a commodity at a given
to buy coconut water, there will be a demand for it. price over a given period of
time.
However, effective demand takes place only when buyers have
both the willingness and ability to buy a commodity at a given
price over a given period of time. If buyers are willing but not Note: Commodities,
able to purchase coconut water, there will be no demand for the also known as
commodity. products, consist of
goods and services.
Activity 2
Tick ( ) the appropriate columns and state whether demand is effective or not.
Effective /
Willingness Ability
No Demand
Sara has Rs 20. She is willing to
(a)
buy a pair of dholl-puri at Rs 12.
Jeremie has Rs 200. T-shirts are
(b) being sold for Rs 150. He does not
want to buy any.
Ricardo is willing to buy a plot of
(c)
land but he is short of Rs 150 000.
Julia has Rs 400. She is willing to
(d)
buy a dress costing Rs 375.
67
Unit 6
When prices fall, consumers usually increase their demand and The law of demand states that
when prices rise, the demand is reduced. This is known as the law of more is bought at a lower price
than higher price and vice-versa.
demand which states that more is bought when prices are low and
vice versa. Thus, there is an inverse relationship between price and
the quantity demanded. Law of demand
P Qd
P Qd
Table 2: Law of demand
Activity 3
(a) Use arrows ( ) or ( ) to illustrate the law of demand in the table below.
P Qd ……………………
P …………………… Qd
(b) Hence, the law of demand states that there is ……………………. (a direct / an inverse)
relationship between price and quantity demanded.
Group discussion
Turn to a partner in the classroom. One student should act as a seller and
the other as a buyer (with limited income). Discuss about situations where
price increases and decreases and how does the buyer reacts in each
situation.
68
Demand and Supply
The demand curve is drawn from the demand schedule. The A demand schedule is a table
demand schedule is a table which shows the quantity demanded which shows the quantity
demanded of commodities at
of commodities at given prices.
given prices.
15 3
20 2
25 1
D
0 Quantity demanded (units)
69
Unit 6
Activity 4
Below is the demand schedule of ‘Maxim Mervei’, a business selling a mauritian snack.
The quantity demanded of ‘Maxim Mervei’ at different prices are presented in a demand
schedule as follows.
Price per unit (Rs) Quantity demanded of ‘Maxim Mervei’ per day (units)
5 80
10 60
15 40
20 20
Draw and label the demand curve of ‘Maxim Mervei’ on the graph below.
70
Demand and Supply
Demand for a commodity can be affected by a set of factors, namely, price of the product itself and
other factors (income of the consumer, population, tastes and preferences, as well as climate). These
are summarised below.
* Income of consumer
* Population
* Tastes and preferences
* Climate
71
Unit 6
Activity 5
State two factors that affect the demand of the following commodities.
(c) Cars
A change in price of a commodity causes a movement along its demand curve. The table below
illustrates movements along a demand curve.
B D
15
A
10 A 10
5 C
D
D
0 40 60 Quantity 0 Quantity
60 80
(units) (units)
Quantity Quantity
Price (Rs) Price (Rs)
demanded (units) demanded (units)
10 60 10 80
15 40 5 60
Activity 6
A change in 'other factors' affect demand and causes shifts of the demand curve either to its
right or to its left. (Shifts are not caused by changes in price of the commodity). Below are
examples of shifts in demand curve.
Shift of the
Example Diagram
demand curve
Price(Rs)
An increase in income
of the consumer may D1 Note that price
1
encourage people to D
does not change.
buy more clothes
The demand curve
shifts to its right. A B
10
Climate
More fans are D1
2 D
demanded in
o
summer 40 60 Quantity (Units)
Activity 7
The diagrams below show shifts of the demand curve. Tick ( ) the column
that represents the shift of the demand curve for each change in demand.
Price (Rs)
D1
D
Diagram A:
Rightward shift of the
demand curve
A B
10
D1
D
O
40 60
Quantity (Units)
Price (Rs)
D
D1
Diagram B:
Leftward shift of the
B A demand curve
10
D
D1
O
40 60
Quantity (Units)
74
Demand and Supply
6.3 Supply
Sellers are motivated to earn profits. Therefore, more The law of supply states that a rise in the
commodities are offered for sale when prices are high and price of a commodity will raise quantity
supplied, and vice versa.
less are offered when prices are low. This is known as the law
of supply.
The table below summarises the law of supply. It shows a direct relationship between price and
quantity supplied.
Law of supply
P Qs
P Qs
Activity 8
P Qs ……………………
P …………………… Qs
(b) Hence, the law of supply states that there is ……………………. (a direct / an inverse)
relationship between price and quantity supplied.
75
Unit 6
The supply curve is drawn from the supply schedule. The supply A supply schedule is a table
schedule is a table which shows the quantity supplied of which shows the quantity supplied
commodities at given prices. of commodities at each price.
10 40
15 60
20 80
The supply curve is a diagram that shows the quantity supplied The supply curve is a diagram
at each price. The supply curve slopes upward from the left to the that shows the quantity supplied
right as illustrated below. at each price.
Price (Rs)
S
S
O
Quantity supplied (units)
76
Demand and Supply
Activity 9
The quantity supplied of T-shirts at different prices are presented in a supply schedule
as follows:
5 20
10 40
15 60
20 80
77
Unit 6
The supply of commodities is also affected by factors other than price, such as costs of
production, technology, climate as well as tax.
* Cost of production
* Technology
* Climate
* Taxes
Figure 5: Factors affecting supply
Each factor is explained below.
Some factors
Explanation
affecting supply
Price of the product A rise in price of the product will raise the quantity supplied and
1
itself (main factor) vice versa.
Activity 10
Pritish grows cauliflowers, which he offers for sale. Due to heavy rains, half of his crops was destroyed.
Tick ( ) the factor(s) that affect the supply of cauliflowers.
A change in price of a commodity causes a movement along its supply curve. The table below
illustrates movements along a supply curve.
S S
B C
15 10
10 A 5 D
S S
0 40 60 Quantity 0 20 40 Quantity
(units) (units)
79
Unit 6
A shift of the supply curve is caused by changes in 'other factors' affecting supply. The supply
curve can either shift to its right or to its left. (Shifts are not caused by changes in price of the
commodity). Examples are given below.
Shift of the supply
Example Diagram
curve
Cost of production
Note that price
A fall in cost of Price (Rs) does not change.
production would
1
encourage suppliers S
to produce more. S1
Therefore, supply will
increase. The supply curve A B
10
Technology shifts to its right
S
Use of better S1
technology to produce O 40 60
2 Quantity (Units)
cars would facilitate
the production process.
This would increase
supply.
Group discussion
Think-Pair-Share
If there is a high supply and low demand for a certain good, will the
price likely be high or low?
If there is a low supply and high demand for a certain good, will the
price likely be high or low? Justify your answer(s).
80
Demand and Supply
Activity 11
The diagrams below show shifts of the supply curve. Tick ( ) the column that
represents the shift of the supply curve for each change in supply.
Price (Rs)
S
S1
Diagram A:
Rightward shift of the
A B supply curve
10
S S1
o
40 60 Quantity (Units)
Price (Rs)
S1
S
Diagram B:
Leftward shift of the
D C supply curve
10
S1
S
o
40 60 Quantity (Units)
81
Unit 6
The demand and supply curves can be drawn on the same diagram. They are drawn from the
following demand and supply schedules.
5 90 10
25 50 50
30 40 60
50 20 85
The demand and supply diagrams have been drawn from the above demand and supply
schedules.
Price (Rs)
D S
Labelling the DEMAND and
E SUPPLY diagram
25 Equilibrium point
The diagram is labelled as follows:
• 0 – the point of origin
• X-axis as Quantity traded (units)
S D • Y- axis as Price (Rs)
O • The demand curve as DD
50 Quantity traded (units)
• The supply curve as SS
Figure 6: Demand and supply curves
82
Demand and Supply
Activity 12
(a) Using the given demand and supply schedules, draw a demand and supply diagram
on the graph below.
(b) Identify the equilibrium point and label it as E.
10 160 20
45 100 100
70 60 160
80 40 180
83
Unit 6
Question 1
1. The law of demand states that there is …………………..relationship between price and
quantity demanded.
A direct B inverse
C any D few
Answer…………
84
Demand and Supply
Question 2
Kiriko Enterprise manufactures boxing shoes. The demand and supply schedules are below.
(a) Draw and label the demand and the supply curves.
(b) Identify
(i) the equilibrium price: _________ (ii) the equilibrium quantity: ___________
KEY TERMS
Demand curve is a diagram that shows the quantity demanded of commodity at each
price.
Effective demand is the willingness and ability to buy a commodity at a given price
over a given time period.
Equilibrium point is where the demand and supply curves meet each other.
Law of demand states that more is bought at lower prices than at higher prices and
vice versa.
Law of supply states that a rise in price of a product will raise quantity supplied and
vice versa.
Market is where buyers and sellers meet to exchange goods and services against a
payment.
Seller (or supplier) is one who offers goods and services, usually, to make profits.
Supply curve is a diagram that shows the quantity supplied an entrepreneur is willing
to sell at each price.
Supply is the quantity of a commodity offered for sale by sellers on the market at a
given price and time.
Supply schedule is a table which shows the quantity supplied of commodities at each
price.
86
Money and Banking
Unit 7
Money
and Banking
Learning Objectives:
In this unit, you will learn about money and its characteristics as well as
functions. You will also be introduced to commercial banks and central banks
as well as learn their functions.
87
Unit 7
7.1 Money
The forms of money that have been used in trade have changed tremendously over time. In
ancient civilisations, trade took place through the barter system.
This involves direct exchange of commodities without using The barter system involves
the direct exchange of
money. For barter to take place there should be double coincidence
commodities where there
of wants. This involves two individuals who should agree to sell is double coincidence of
and buy each other’s commodity i.e. what a person desires to sell wants.
should be exactly what the other person wishes to buy.
BARTER
Gradually, money evolved into commodity money, metallic money, notes and coins, and
eventually into a plastic to cashless society.
Direct exchange Gold Gold and silver coins Paper money Cheques
of products Cattle Metal coins Payment cards
Wheat Electronic transfers
Cowrie shells
Precious stones
Activity 1
(c) Gold and silver coins are the only forms of commodity money.
Activity 2
Shrina and Yeshu wish to trade fresh fruits against manure. Shrina has three tons of fresh
fruits and Yeshu has one ton of manure. However, they did not agree about the quantities
to be exchanged.
(a) Identify one reason why the barter system could not take place.
_______________________________________________________________
(b) Tick ( ) the medium that would help to trade the exact quantities of fruits and
manure.
89
Unit 7
The forms of money used in the past had several inconveniences. Every commodity which was
used as money had its limitations. Therefore, for anything to be used as money, it must have
the following characteristics.
Acceptable
Money must be generally acceptable and / or recognised by
those who use it.
Divisible
Money should be made available in smaller units for smaller
transactions. For example, a Rs 100 note can be divided
into four Rs 25 notes, as well as ten Rs10 coins.
Scarce
Money must be limited in supply to retain its value.
90
Money and Banking
Functions
Explanation Example from the case
of money
Standard • Money allows people to buy on If Kelly chose to buy the laptop on hire
of deferred credit, that is, buying now and purchase, she would have paid the
payment paying later. total amount over 36 months.
91
Unit 7
Activity 3
From the list below, identify the function of money for each example given below.
Save at the
bank for further
studies
Keep records
of income and
expenses
Repay a loan
at the bank
Buy accessories on
the internet and pay
with credit card
92
Money and Banking
7.2 Banks
Banks assist people and enterprises to carry out their financial transactions. A bank is an
institution which accepts deposits, provides loans and offers other financial services. There are
two main types of banks, namely commercial bank and central bank.
Commercial banks play a very important role in helping enterprises A commercial bank
in Mauritius to carry out their business transactions. A commercial accepts deposits, give
bank accepts deposits, give loans and provides other financial loans and provides other
services to private individuals and firms. financial services to private
individuals and firms.
Examples of some commercial banks in Mauritius are:
Commercial banks carry out several functions and offer a wide range of services to its customers.
Their functions are outlined below.
Give Accept
loans deposits
Functions of
commercial banks
Provide Assist
advice to customers
customers in making
payments
Activity 4
Activity 5
94
Money and Banking
The central bank carries out numerous functions, some of which are explained below.
Setting rules and The central bank sets rules and regulations that banks
1
regulations should strictly follow.
Monitoring the banking The central bank ensures that government decisions and/or
2
system policies about financial activities are being implemented.
Acting as Government’s
3 The central bank manages the funds of the government.
banker
The central bank issues and controls notes and coins that
4 Issuing notes and coins
circulate in a country.
Keeping gold and Central bank safeguards and controls the gold and currency
6
currency reserves reserves of a country.
Activity 6
(c) Central banks issue and control the supply of notes and coins.
95
Unit 7
1. To each of the functions below, draw arrows to match the respective functions that
central and commercial banks undertake.
Functions of bank
KEY TERMS
Barter system involves the direct exchange of commodities where there is double
coincidence of wants.
Commercial bank accepts deposits, give loans and provides other financial services to
private individuals and firms.
96
Spending, Savings and Borrowing
Unit 8
Spending,
Savings and
Borrowing
Learning Objectives:
In this unit, you will learn about how people use their income either on
spending and/or savings. People also borrow money to satisfy their needs
and wants. The unit also presents the factors that influence an individual’s
spending, savings or borrowing.
97
Unit 8
8.1 Spending
Read the story of ‘Madhav the architect’ to understand the nature of spending, saving
and borrowing.
Spending Savings
Income
- Tax
= Disposable
Income
98
Spending, Savings and Borrowing
Housing
Food
Clothes
Leisure activities
Figure 3: Spending
Spending
+ Savings
= Income
Figure 4: Income
Activity 1
Assume Ying earns Rs 15 000 monthly. The table below shows the spending and saving
for the months of May to September.
Complete the table below by finding the savings of Ying for each month.
99
Unit 8
When people’s earnings and/or past savings are not enough to meet their expenses, they have
the options of either borrowing money to spend in the present or postponing their expenses
for the future.
The amount of money that a consumer spends depends on several factors. These are explained
below.
100
Spending, Savings and Borrowing
Tax Information
The table below shows four individuals with different incomes and the tax paid by them.
Income per Tax exempt Taxable Income tax per annum (Rs)
year (Rs) (Rs) income (Rs) 15% tax on income
Mr D’Souza and Ms Bina did not pay any tax for the year. Mrs Grace and Mr Bhurtun paid taxes
on their taxable income.
Activity 2
(e) A banker will retire soon. He can spend more now than in the future.
101
Unit 8
8.2 Savings
Purpose of savings
The amount of money that a consumer saves depends on several factors. These are:
Activity 3
(c) People save money for different reasons like future projects, _________________,
(d) A fall in the rate of interest will cause people to save _____________.
8.3 Borrowing
Relatives Financial
and Borrowing institutions:
friends banks
103
Unit 8
Individuals are motivated to borrow money for several reasons. These are explained below.
TAX INFORMATION
An individual is exempt of paying taxes when taking a loan to
purchase or build a first house.
Activity 4
104
Spending, Savings and Borrowing
Question 1
Question 2
Mr Ming has the following spending patterns, saving and borrowing in the table below.
Complete the table below to find Mr Ming's savings for months November and December.
Reason 1 __________________________________________________________
Reason 2 ___________________________________________________________
105
Unit 8
(c) Give two reasons an individual would borrow from friends or a bank.
Reason 1 ___________________________________________________________
Reason 2 __________________________________________________________
Question 3
KEY TERMS
Borrowing refers to taking money from a person or financial institution which must be
repaid in the future.
Disposable income is amount of income available for spending after taxes are paid.
106
International Trade
Unit 9
International
Trade
Learning Objectives:
In this unit, you will learn the basis of trade while discovering about home
and international trade. You will also learn about the importance of trading
with other countries.
107
Unit 9
9.1 Trade
MONEY
CONSUMER
AIM: Satisfy needs FIRMS
& wants AIM: make profits
PRODUCTS
Activity 1
(a) Trade refers to the ______________ and ______________ of goods and services.
(b) Sellers trade in products with the aim of making ________________.
(c) Firms can be both _______________ and ________________ of goods and
services.
(d) Consumers buy products with the aim of _________________ needs and
_____________.
(e) Trade usually occurs in exchange of ______________ .
108
International Trade
Entrepreneurs often aim to have a maximum of customers. Some of them target not only local
customers, but also foreign ones. Thus, trade can take two forms: home trade and international
trade.
Home trade takes place when goods and services are bought
Home trade is the buying and
and sold within the country itself. It is also known as local trade.
selling of goods and services
For instance, Li Wang carries out home trade when he buys raw within the country itself.
materials from local suppliers and sells the finished products to
local customers.
Buyer Seller
Home Trade
109
Unit 9
takes place.
Enterprises are usually actively involved in business activities such as exports and imports of
goods and services.
9.3.1 Exports
Export refers to the sale of goods and services to foreign countries. Export refers to the sale of
Exports are usually highly desirable for enterprises and the goods and services to foreign
government because it brings money inflows into the country. countries.
EXPORTS (CLOTHING)
Seller Buyer
MONEY INFLOWS
110
International Trade
9.3.2 Imports
IMPORTS (CARS)
Buyer Seller
MONEY OUTFLOWS
Figure 6: Mauritian imports
Activity 2
(a) Home trade is the buying and selling of goods and services locally.
(b) Businesses can only sell their products locally.
International trade is the buying and selling of goods and services from
(c)
foreign countries.
(d) Exports lead to an outflow of money from the country.
(e) Goods and services bought from another country are known as imports.
International trade is an important economic activity in a country for the following reasons:
Question 1
Answer the following questions.
(a) Tick ( ) to indicate which of the following is an export and an import for Mauritius.
Export Import
(a) Tourists visite Mauritius for holidays
Question 2
Group discussion
KEY TERMS
112
Business Organisations
Unit 10
Recording
transactions
in the ledger
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will record business transactions (cash, bank and credit) in
the ledger while following the double entry principle.
113
Unit 10
Business transactions can be in the form of cash, bank and credit. These transactions are
recorded using the double entry system.
Double entry system implies that each transaction affects two accounts: one account has a
debit entry and the other account has a credit entry. This is also known as the dual aspect
principle.
All accounts are kept in a book called the ledger. It is a book which A ledger is a book which
consist of diffeent accounts. consists of different accounts.
The IN items
(Receipts into the business)
Recorded on Debit (Dr) side (left side)
Dr ................ Account Cr
Date Details Amount Date Details Amount
Rs Rs
114
Recording transactions in the ledger
Identify whether the cash transaction is a receipt of cash into the business or a
Step 1
payment in cash by the business.
Worked Example
Step 1 Step 2
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Purchases Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
115
Unit 10
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Electricity Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Furniture Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Cash Account Cr
Date Details Amount Date Details Amount Note: All transactions
20X8 Rs 20X8 Rs that include cash
Jan 01 Capital 30 000 Jan 09 Purchases 10 000 should be recorded in
one same cash
Jan 20 Electricity 1 500
account.
Jan 24 Furniture 10 000
116
Recording transactions in the ledger
Activity 1
Record each of the following transactions using the double entry system.
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Capital Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Cash Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Sales Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
117
Unit 10
Dr ........................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ........................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ........................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ........................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
A bank transaction is a transaction that occurs when money A bank transaction is a transaction
is received or paid by cheque. that occurs when money is received or
paid by cheque.
118
Recording transactions in the ledger
Identify whether the bank transaction is a receipt into the business or a payment
Step 1
by the business.
Worked Example
Step 1 Step 2
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Step 3
Feb 01 Capital 50 000
Posting in
the ledger
Dr Capital Account Cr
accounts.
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
(b)
Year Receipt Payment Account Account
Transaction
20X8 of cheque by cheque debited credited
Bought goods paying by
Feb 13 Purchases Bank
cheque Rs 25 000
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Purchases Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Furniture Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
(d)
Year Receipt Payment Account Account
Transaction
20X8 of cheque by cheque debited credited
Paid insurance Rs 12 000
Feb 24 Insurance Bank
by cheque
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Insurance Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Bank Account Cr
Date Details Amount Date Details Amount Note: All transactions
that are done through
20X8 Rs 20X8 Rs
the bank should be
Feb 01 Capital 50 000 Feb 13 Purchases 25 000 recorded in one same
Feb 17 Furniture 20 000 bank account.
Feb 24 Insurance 12 000
120
Recording transactions in the ledger
Activity 2
Record each of the following transactions using the double entry system.
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Capital Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Bank Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Advertising Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
121
Unit 10
Dr .................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr .................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr .................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr .................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
122
Recording transactions in the ledger
Credit purchases are goods bought by a business but whose Credit purchases are goods
bought by a business but for
payment is done later to the supplier (also known as a creditor). It is
which payment is done later.
recorded as trade payable.
Credit sales are goods sold by a business, but receipts are obtained Credit sales are the sale
later from the customer (also known as a debtor). It is recorded as of goods by a business but
trade receivable. receipts are obtained later.
Credit purchases will affect two accounts: One is the purchases account and the other
account goes by the name of the credit supplier.
Credit sales will affect two accounts: One is the sales account and the other account goes by
the name of the credit customer.
Credit purchases will affect two accounts: one is Purchases Account and the other is known
by the name of the credit supplier (trade payable).
Example 1
On 02 June, goods were bought on credit for Rs 50 000 from a supplier, Paul et Virginie Store.
123
Unit 10
Dr Purchases Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
20X8 Rs 20X8 Rs
Activity 3
On 08 June, goods were bought on credit for Rs 60 000 from a supplier, ‘Kari Mélanz’.
Record the transaction in the account provided below.
Dr Purchases Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
20X8 Rs 20X8 Rs
124
Recording transactions in the ledger
Activity 4
On 11 June, goods were bought on credit for Rs 35 000 from a supplier, Kitchen Planet
Company Ltd.
Record the transaction in the account provided below.
Dr Purchases Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Kitchen Planet Company Ltd Account (Trade payable) is credited (right side)
Dr ......................... Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Activity 5
125
Unit 10
Credit sales will affect two accounts: one is Sales Account and the other is known by the
name of the credit customer who owes the business (trade receivable).
Example 1
[Neel] Account
1st Account (Rs 75 000) to be debited
(trade receivable)
Dr Neel Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Sales Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
126
Recording transactions in the ledger
Activity 6
On 12 September 20X8, goods were sold on credit for Rs 25 000 to a customer, Kiran.
Record the transaction in the account provided below.
[Kiran] Account
1st Account (Rs 25 000) to be debited
(trade receivable)
Dr Kiran Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr Sales Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Activity 7
On 02 February 20X8, goods were bought on credit for Rs 58 000 from a supplier, Kesto
Company Ltd.
Record the transaction in the account provided below.
20X8 Rs 20X8 Rs
Dr Sales Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
127
Unit 10
Activity 8
Record the following transactions in the ledger accounts of Kim for the month of April 20X9.
(a) April 01 - Started business with cash in hand Rs 40 000.
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
128
Recording transactions in the ledger
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
20X8 Rs 20X8 Rs
129
Unit 10
Question 1
Answer ________
2. ‘There is a debit entry in one account (left side) and a corresponding credit entry in
another account (right side)’. Which one best describe the above statement?
Answer ________
3. The enterprise gets credit facilities from its suppliers. It buys goods now and pays later.
This is known as …………..
Answer ________
Answer ________
Answer ________
130
Recording transactions in the ledger
Question 2
Record the following transactions in the ledger accounts below.
(a) April 01 - Started business with cash at bank Rs 90 000.
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
Dr ................. Account Cr
Date Details Amount Date Details Amount
Rs Rs
131
Unit 10
Question 3
For each of the transaction below, state which of the accounts are to be
debited or credited.
Account to Account to
be debited be credited
KEY TERMS
Credit purchases are goods bought by a business but for which payment is done
later.
Credit sales are the sale of goods by a business but receipts are obtained later.
132
Balancing of accounts
Unit 11
Balancing of
accounts in
the ledger
Learning Objectives:
On completing this unit, you will be able to:
133
Unit 11
After the bookkeeper records all business transactions in ledger accounts, each of the accounts
must be balanced. The exercise of balancing an account consists of several steps.
Step 3 Record the same amount as balance b/d on the opposite side below the total.
Dr Cash Account Cr
Date Details Rs Date Details Rs
Mar 01 Capital 25 000 Mar 02 Furniture 10 000
Mar 09 Sales 14 000 Mar 05 Purchases 7 000
Mar 12 Rent 2 000
Mar 31 Balance c/d 20 000
39 000 39 000
Apr 01 Balance b/d 20 000
The balance brought down (b/d) of the above cash account is on the debit side.
This means the above cash account has a debit balance.
Dr Capital Account Cr
Date Details Rs Date Details Rs
Mar 01 Cash 30 000
Jan 31 Balance c/d 80 000 Mar 28 Bank 50 000
80 000 80 000
Feb 01 Balance b/d 80 000
134
Balancing of accounts
Dr Purchases Account Cr
Date Details Rs Date Details Rs
Jun 04 Cash 25 600
Jun 20 Reena 5 400
Jun 23 Sarah 2 000 Jun 30 Balance c/d 33 000
33 000 33 000
Jul 01 Balance b/d 33 000
Dr Sales Account Cr
Date Details Rs Date Details Rs
Sep 05 Bank 28 000
Sep 17 Roland 20 000
Sep 30 Balance c/d 53 000 Sep 24 Catherine 5 000
53 000 53 000
Oct 01 Balance b/d 53 000
Activity 1
Work out the balances (balance c/d and balance b/d) of the following accounts for the
month of January.
Dr Reena Account Cr
Date Details Rs Date Details Rs
Jan 10 Cash 100 Jan 03 Purchases 2 000
Jan 15 Cash 900 Jan 21 Purchases 3 300
Jan 30 Bank 1 300
Dr Sarah Account Cr
Date Details Rs Date Details Rs
Jan 06 Sales 5 400 Jan 10 Cash 250
Jan 19 Sales 1 200 Jan 15 Bank 2 650
Jan 30 Bank 3 100
135
Unit 11
Activity 2
Work out the balances of the following accounts for the month of February 20X8.
Dr Cash Account Cr
Date Details Rs Date Details Rs
Feb 01 Capital 15 000 Feb 05 Purchases 9 500
Feb 12 Sales 2 600 Feb 17 Rent 2 000
Feb 28 Drawings 1 000
Dr Bank Account Cr
Date Details Rs Date Details Rs
Activity 3
Work out the balances of the following accounts for the month of February 20X8.
Dr Capital Account Cr
Date Details Rs Date Details Rs
Feb 01 Cash 15 000
Feb 02 Bank 25 000
136
Balancing of accounts
Dr Purchases Account Cr
Date Details Rs Date Details Rs
Feb 05 Cash 9 500
Dr Sales Account Cr
Date Details Rs Date Details Rs
Feb 12 Cash 2 600
Feb 19 Girish 1 500
Dr Rent Account Cr
Date Details Rs Date Details Rs
Feb 17 Cash 2 000
When balance b/d of an account is on the credit side, it is said that the account has a
credit balance. (e.g, loan, sales, interest received and capital)
When balance b/d of an account is on the debit side, it is said that the account has a
debit balance. (e.g, land and building, furniture, vehicles, cash)
137
Unit 11
Question 1
2. The total on the debit side of an account is greater than its total on the credit side.
What does this mean?
A the account has a debit balance
B the account has a credit balance
C the account cannot be balanced
D the account has no balance
Answer ________
Question 2
(a) The _________________________ of account is the difference between the total of debit
entries and the total of credit entries.
(b) An account is said to have a debit balance when the total of debit entries is
_________________________ than total of credit entries.
(c) An account is said to have a credit balance when the total of debit entries is
_________________________ than total of credit entries.
138
Balancing of accounts
Question 3
2.
Dr Capital Account Cr
Date Details Rs Date Details Rs
Jan 01 Cash 10 000
3.
Dr Meera Account Cr
Date Details Rs Date Details Rs
Jan 15 Cash 1 000
4. Dr Bank Account Cr
Date Details Rs Date Details Rs
Jan 03 Cash 2 000 Jan 04 Equipment 10 000
Jan 06 Sales 3 000
139
Unit 11
Question 4
An inexperienced bookkeeper prepared the following bank account. It contains several errors.
You are required to rework it in the blank bank account given below.
Dr Bank Account Cr
20X8 Rs 20X8 Rs
Dr Bank Account Cr
20X8 Rs 20X8 Rs
140
Unit 12
Trial
Balance
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will identify debit and credit items in the ledger. Using
these items, you will then learn and practise how to prepare a trial balance.
141
Unit 12
Hello Anil.
It is nice to see that you have recorded your
transactions and balanced your ledger accounts.
142
Trial Balance
The format of a trial balance is presented below. It consists of the debit and credit
transactions recorded in the appropriate column.
Mobicom Enterprise
Trial Balance as at 30 September 20X9
Debit Credit
Title of Account
(Rs) (Rs)
Capital 50 000
Bank 13 500
List of ledger accounts
Equipment 20 000
Purchases 25 600
Wages 5 500
Rent 4 500
86 900 86 900
The trial balance can be extracted from a list of ledger balances. It can be obtained by following
the steps below.
Record them as debit item or credit item in their respective columns in the trial
Step 2
balance.
Step 3 Add each column and check if the debit side agrees with the credit side.
1
1 What does debit balances represent?
Debit balances are recorded in the debit column of the trial balance. The balance b/d is
found on their debit side of the ledger account.
2
2 What does credit balances represent?
Credit balances are recorded in the credit column of the trial balance. The balance b/d is
found on their credit side of the ledger account.
144
Trial Balance
The trial balance below has been extracted from the ledger accounts found below numbered 1 to 6.
Trial Balance
Debit Credit
Title of Account
(Rs) (Rs)
1 Cash 5 100
2 Capital 15 000
3 Purchases 9 500
4 Sales 2 600
5 Rent 2 000
6 Drawings 1 000
17 600 17 600
Ledger accounts
Activity 1
A list of ledger accounts is given in the following table. State whether each of the
account has a debit or a credit balance. Write your answer in the second column.
The first item has been done for you as an example.
Capital Credit
Cash
Bank
Purchases
Sales
John (supplier)
Rajen (Customer)
Advertising
Interest received
Drawings
146
Trial Balance
Worked example
The following balances are available from the ledger of Surya, an entrepreneur who
buys and sells potted plants, as at 30 June 20X9.
Surya’s trial balance is prepared as follows:
Surya Enterprise
Trial Balance as at 30 June 20X9
Cash 2 750
Capital 20 000
Vehicles 15 000
Purchases 9 300
Rent 5 100
Ravi (Trade payable) 7 800
Sales 10 450
Raj (Trade receivable) 1 500
Utilities 750
Wages 2 300
Interest received 250
Drawings 1 800
38 500 38 500
147
Unit 12
Activity 2
From the following list of balances, prepare the trial balance of Jerry’s enterprise,
dealing in craft products, as at 31 August 20X9.
Jerry Enterprise
Trial Balance as at 31 August 20X9
Activity 3
From the following list of balances taken from the books of Milka, an entrepreneur
dealing in dairy products, prepare the trial balance as at 30 September 20X9.
Milka Enterprise
Trial Balance as at 30 September 20X9
148
Trial Balance
Activity 4
From the following list of balances taken from the books of Eddie, an entrepreneur
dealing in cosmetics, prepare the trial balance as at 30 September 20X9.
Eddie Enterprise
Trial Balance as at 30 September 20X9
Capital 40 000
Cash 11 700
Vehicle 27 000
Sales 82 200
Purchases 51 600
Trade receivables 4 300
Trade payables 1 900
Wages 6 500
Insurance 1 700
Motor expenses 8 900
Drawings 12 400
Both the debit and the credit sides of the trial balance should always be
equal to each other. Do you agree?
149
Unit 12
Question 1
5. If ledger accounts are correctly prepared using the double entry system, what
should be the result of the trial balance?
A total of debit balances should exceed the total of credit balances
B total of debit balances should be less than the total of credit balances
C total of debit balances should be equal to the total of credit balances
D trial balance should not agree
Answer ________
150
Trial Balance
Question 2
(a) The trial balance is a list of ledger _________________________ and their respective
balances at a given date.
(b) At the end, the trial should _________________________.
(c) Balances of assets are entered in the _________________________ column of the trial
balance.
(d) Balances of income are entered in the _________________________ column of the
trial balance.
(e) The _________________________ account may have either a debit balance or a credit
balance.
Question 3
From the following ledger accounts of Sammy is an entrepreneur buying and selling
garden furniture made from recycled plastic, extract a trial balance as at 31 July 20X9.
151
Unit 12
Sammy Furniture
Trial Balance as at 31 July 20X9
152
Trial Balance
Question 4
Avi, an entrepreneur, prepared the following trial balance as at 30 September 20X9 for his
paper recycling business. The trial balance did not agree. You are required to rewrite the
trial balance correctly.
Avi
Trial Balance as at 30 September 20X9
Cash 800
Capital 10 000
Purchases 5 800
Sales 8 000
Drawings 6 000
21 100 14 900
Avi
Trial Balance as at 30 September 20X9
153
Unit 12
Question 5
Rico
Trial Balance as at 30 November 20X9
Capital 75 000
Equipment 90 000
Purchases 54 600
Sales 76 400
Rent 11 200
Drawings 9 700
Rico
Trial Balance as at 30 November 20X9
154
Income Statement
Unit 13
Income
Statement
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will learn about the meaning of an income statement and
its different parts. You will then have the opportunity to practise recording
in the income statement to find whether the enterprise has made profits
or incurred losses.
155
Unit 13
The time line below shows an accounting year usually consisting Note: An accounting
year is any period of
of 12 months for which an income statement is prepared.
12 months for which
records are kept and
profit is calculated.
Accounting Year: A period of 12 months
1 October 2018 Dec 2018 Feb 2019 Apr 2019 June 2019 Aug 2019
Nov 2018 Jan 2019 Mar 2019 May 2019 July 2019 30 September 2019
Income Statement
In preparing this part of the income statement, you will use the following important terms:
Revenue
(Sales)
I Gross Profit/Loss
Note: If revenue is greater
Gross profit is the difference between revenue and costs of sales. than cost of sales, gross
profit is obtained.
If cost of sales is greater
Gross Profit/Loss = Revenue – Cost of sales than revenue, gross loss is
obtained.
Worked example 1
The following information is extracted from the books of Jemma, an entrepreneur. An income
statement (trading account section) is prepared for the year ended 30 September 20X9.
Revenue Rs 10 000
Cost of sales Rs 7 500
Income Statement (trading account section) for the year ending 30 September 20X9
Rs
Revenue 10 000 Cost of sales Rs 7 500 is deducted
from revenue Rs 10 000 to obtain a
Less Cost of sales* (7 500) gross profit of Rs 2 500.
Gross Profit 2 500
*Figures within brackets denote that they must be deducted from the above amount.
157
Unit 13
Activity 1
The following information is extracted from the books of Jemila, an entrepreneur making
eco-friendly bags. Prepare the income statement (trading account section) for the year
ended 28 February 20X0:
Jemila
Revenue Rs 143 000 Income Statement for the year ending 02 February 20X0
Cost of sales Rs 101 000
Rs
Revenue
Less Cost of sales
II Cost of sales
Cost of sales refers to the amount spent to obtain the goods that have been sold during the
accounting year.
Closing inventory is the amount of goods that enterprises usually hold at the end of the
accounting year. It is deducted from the calculation of cost of sales.
Inventory
Figure 5: Inventory
158
Income Statement
Worked example 2
Below is a calculation of cost of sales involving inventory. Carla had the following information:
Rs
Purchases 4 000
Opening inventory 1 000
Closing inventory 2 000
Below is the format of the income statement (trading account section), including inventories:
Income Statement for the year ending 31 January 20X1
Rs Rs
Revenue 9 500
Less Cost of sales:
Opening inventory 1 000
Add Purchases 4 000
5 000
Less Closing inventory (2 000) (3 000)
Gross profit 6 500
Activity 2
Suzy Chu
From the information Income Statement for the year ending 30 April 20X2
provided, find the missing Rs Rs
figures the of income Revenue 10 000
statement of Suzy Chu for the
year ended 30 April 20X2. Less Cost of sales:
159
Unit 13
Activity 3
Rose
From the information provided,
Income Statement for the year ending
prepare the income statement of 31 May 20X3
Rose, an entrepreneur selling solar
panels, for the year ended 31 May Rs Rs
20X3:
160
Income Statement
A simple format of the income statement (profit and loss section) is as follows:
Claudio
Income Statement for the year ending 31 January 20X4
Rs Rs
Gross profit 60 000
61 500
Less Expenses:
Salaries 16 000
Fuel 7 600
Stationery 1 400
161
Unit 13
Activity 4
From the information provided, prepare the income statement (profit and loss section)
of Jean, an entrepreneur, for the year ended 31 May 20X5:
Jean
Rs Income Statement for the year ending 31 May 20X5
Rs Rs
Gross Profit 19 600
Gross Profit
Commission
Add Other income
received 1 200
Interest received 300
Wages 3 500
Rent 4 000 Less Expenses
Insurance 1 600
Motor expenses 2 100
Activity 5
From the information provided, prepare the income statement (profit and loss section)
for Pierre, an entrepreneur, for the year ended 30 June 20X6:
Pierre
Rs Income Statement for the year ending 30 June 20X6
Gross Profit 21 700 Rs Rs
Interest received 100 Gross Profit
Commission received 900 Add Other income
Salaries & wages 6 000
Rent 8 500
Insurance 2 400
Fuel 2 100
Less Expenses
Stationery 900
162
Income Statement
Hema
Income Statement for the year ended 31 January 20X9
Rs Rs
Revenue 42 200
Trading Account
28 330
19 000
Less Expenses
Rent 3 000
Stationery 200
The above income statement shows that Hema has earned Rs 8 500 as net profit for the year.
163
Unit 13
Worked Example 3
Appropriate items have been selected from the above trial balance and the income statement
of Marie has been prepared for the year ended 30 June 20X9.
Marie
Income Statement for the year ending 30 June 20X9
Rs Rs
Revenue 68 900
Less Cost of sales
Opening inventory 2 600
Add Purchases 31 800
34 400
Less Closing inventory (3 200) (31 200)
Gross Profit 37 700
Note: Assets
Add Other income (equipment, trade
Commission received 3 600 receivables and
cash in hand),
41 300 liabilities (trade
Less Expenses payables), capital
and drawings are
Rent 9 300
not entered in the
Salaries & wages 14 200 (23 500) income statement.
Net profit for the year 17 800
164
Income Statement
Activity 6
Sam is in the business of buying and selling shoes for school kids. The trial balance as at
30 April 20X9 is provided as follows.
Sam
Trial Balance as at 30 April 20X9
Debit Credit
Rs Rs
Capital 30 000
Vehicles 16 000
Trade receivables 14 500
Trade payables 2 100
Cash in hand 1 900
Inventory at 01 May 20X8 3 100
Revenue 37 800
Note: Inventory at
Purchases 22 100 30 April 20X9 was
Interest received 200 valued at Rs 2 100.
Salaries 9 000
Fuel 3 500
70 100 70 100
Prepare the Sam's income statement for the year ended 30 April 20X9.
Sam
Income Statement for the year ending 30 April 20X9
Rs Rs
Revenue 37 800
Less Cost of sales
Gross Profit
Add Other income
Interest received 200
Less Expenses
Question 1
1. An income statement is
A a statement that shows financial position
B a classification of receipts and payments to calculate profits or losses
C a list of ledger accounts and their respective balances
D a statement of liabilities at a given date
Answer ________
3. Which of the following occurs when gross profit falls less than total expenses?
A loss for the year
B profit for the year
C gross loss
D income statement balances
Answer ________
Question 2
(a) Gross profit is the difference between _________________________ and cost of sales.
(b) Expenses are deducted from _________________________ to obtain profit/loss for the year.
(c) Rent, salaries and insurance are _________________________ to the business.
(d) The _________________________ is prepared to calculate the profit or loss for the year.
166
Income Statement
Question 3
Mary Jane is an entrepreneur. She buys and sells compost and other organic gardening
materials. She provided the following information for the year ended 31 August 20X9:
Mary Jane
Trial Balance as at 31 August 20X9
Debit Credit
Rs Rs
Capital 100 000
Motor vehicles 35 000
Trade receivables 24 600
Trade payables 3 100
Cash in hand 11 500
Inventory at 01 July 20X8 15 400
Revenue 119 000
Purchases 89 200
Commission received 2 800
Rent & insurance 4 300
Note: Mary Jane’s
Salaries & wages 26 600
inventory at 31 August
Motor expenses 2 300 20X9 was valued at
Drawings 16 000 Rs 11 300.
224 900 224 900
Prepare the income statement of Mary Jane for the year ended 31 August 20X9.
Mary Jane
Income Statement for the year ending 31 August 20X9
Rs Rs
Revenue
Less Cost of sales
Gross Profit
Add Other income
Comission received
Less Expenses
167
Unit 13
Question4
Ashok holds a canteen in a secondary school. His trial balance as at 30 June 20X8 is provided as follows.
Ashok
Trial Balance as at 30 June 20X8
Debit Credit
Rs Rs
Capital 10 000
Furniture and fittings 11 000
Trade receivables 3200
Trade payables 1 900
Inventory at 01 July 20X7 1 900
Revenue 63 800
Purchases 42 000
Interest received 100
Electricity and water 2 600
Rent 7 000
Note: Inventory at 30
Advertising 5 000
June 20X8 was valued
Drawings 2 300 at Rs 1 300.
75 800 75 800
Prepare the income statement of Ashok for the year ended 30 June 20X8.
Ashok
Income Statement for the year ending 30 June 20X8
Rs Rs
Revenue
Less Cost of sales KEY TERMS
Income statement is a
classification of income and
expenses from which profits
or losses are calculated at
the end of the accounting
Gross Profit
year.
Add Other income
Interest received Trading account records
items which deal with the
trading activities of an
Less Expenses enterprise.
168
Statement of Financial Position
Unit 14
Statement
of Financial
Position
Learning Objectives:
On completing this unit, you will be able to:
In this unit, you will discover the statement of financial position in which
enterprises record their assets, liabilities and capital. Then, you will use a
list of assets and liabilities to prepare the statement of financial position.
169
Unit 14
The Statement of financial position presents all the assets, The statement of financial position
liabilities and owner’s capital in an enterprise at a particular presents all the assets, liabilities and
date. owner’s capital in an enterprise at a
particular date.
Anil enterprise
Statement of Financial Position as at 31 December 20X0
Rs Rs
1 Assets 200 000
200 000
2 Capital 120 000
3 Liabilities 80 000
200 000
I Assets
Assets are items owned by an enterprise. These items are important Assets are items owned
because they allow enterprises to carry out their activities effectively. by an enterprise.
An asset always has a debit balance.
Assets
Figure 1: Assets
170
Statement of Financial Position
Activity 1
For each of the following item, tick ( ) to indicate which of the following is a non-
current or current asset for a school canteen.
a Delivery van √
b Furniture
c Inventory
e Cash at Bank
f Trade receivables
g Premises
171
Unit 14
Rs Non-Current Assets Rs Rs
Activity 2
Sophie, an entrepreneur, deals in hydroponic vegetables. Present her assets in the statement
of financial position as at 31 December 20X0.
Sophie enterprise (Extract)
Statement of Financial Position as at 31 December 20X0
Rs
Non-Current Assets Rs Rs
Furniture 50 000
..................................... ..............
Property 180 000 ..................................... ..............
Equipment 46 000 ..................................... ..............
172
Statement of Financial Position
II Liabilities
Liabilities are amounts owed by the enterprise to others outside A liability is an item
the business. These amounts consist of borrowings and credit that represents what the
enterprise owes to other
facilities. A liability always has a credit balance.
persons or ‘outsiders.’
Liabilities
For example, a loan from the bank. For example, trade payables.
Non-Current Liability Rs Rs
Bank loan 50 000
Current Liability
Trade payables 30 000
Hans, a carpenter, buys timber from a supplier. The supplier has a good
relationship with Hans and allows him to buy on credit. The supplier
gives, Hans, an invoice that he must pay within 45 days.
Discuss with your friend what does this transaction is represented in the
accounts of Hans.
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Unit 14
III Capital
The entrepreneur does business to earn profit which belongs to him. It, therefore,
increases his capital. On the other hand, a loss decreases capital.
When the entrepreneur takes part of his profit from the business for his personal
use, it is known as drawings and it decreases his capital.
Activity 3
174
Statement of Financial Position
Non-Current Assets Rs Rs
Furniture
Motor Vehicles
Total Non-Current Assets
Current Assets
Inventory
Assets
Trade receivables
Cash at bank
Cash in hand
Total Current Assets
Total Assets
Capital and Liabilities
Capital
Profit for the year
Less Drawings
Capital Owner’s Equity
and Non-Current Liabilities
Liabilities Bank Loan
Current Liabilities
Trade payables
Total Capital and Liabilities
+ Current Liabilities
175
Unit 14
Anil, a trader's statement of financial position for the year ended 31 December 20X0 has been
prepared from the given balances.
Rs
Trade payables 30 000 L
Furniture 35 000 A
Motor vehicles 80 000 A
Trade receivables 35 000 A
Inventory 31 December 20X0 15 000 A
Cash at bank 30 000 A
Cash in hand 5 000 A
Profit for the year 25 000 O
Drawings 15 000 O A - is recorded as an asset
Capital 110 000 O L - is recorded as a liability
Bank loan 50 000 L C - is recorded as a Owners' equity
Anil
Statement of Financial position as at 31 December 20X0
Non-Current Assets Rs Rs
Furniture 35 000
Motor Vehicles 80 000
Total Non-Current Assets 115 000
Current Assets
Assets Inventory 15 000
Trade receivables 35 000
Cash at bank 30 000
Cash in hand 5 000
Total Current Assets 85 000
Total Assets 200 000
Capital and Liabilities
Capital 110 000
Profit for the year 25 000
Capital Less Drawings (15 000)
and Owner’s Equity 120 000
Liabilities Non-Current Liabilities
Bank Loan 50 000
Current Liabilities
Trade payables 30 000
Total Capital and Liabilities 200 000
176
Statement of Financial Position
Activity 4
Rs
Karim, is an entrepreneur selling
Equipment 50 000
‘Briyani’. Prepare the statement
Premises 250 000
of financial position for the year
Inventory as at 31 Dec 20X0 58 000
ended 31 December 20X0.
Trade receivable 22 200
Cash at bank 19 000
Cash in hand 800
Capital 300 000
Drawings 95 000
Profit for the year 115 000
Bank loan 30 000
Trade payables 50 000
Karim enterprise
Statement of Financial Position for the year ended 31 December 20X0
Non-Current Assets Rs Rs
..................................... .....................................
..................................... .....................................
..................................... .....................................
Total Non-Current Assets .....................................
Current Assets
…………………….. .....................................
……………………. .....................................
…………………….. .....................................
Total Current Assets .....................................
Total Assets .....................................
Capital and Liabilities
…………………….. .....................................
…………………….. .....................................
Less ………………….. (.....................................)
…………………….. .....................................
Non-Current Liabilities
……………………. .....................................
Current Liabilities
…………………… .....................................
…………………… .....................................
Total Liabilities .....................................
177
Unit 14
Activity 5
Sandra, an entrepreneur, Rs
prepares and sells pickles. Profit for the year 38 000
Prepare her statement of
Trade receivables 47 500
financial position from the
given balances for the year Trade payables 60 500
ended 31 December 20X0. Equipment 180 000
Land and buildings 230 000
Inventory 31 December 20X0 38 000
Cash in hand 4 500
Drawings 18 500
Capital 360 000
Bank loan 60 000
Sandra Pickles
Statement of Financial Position as at 31 December 20X0
Non-Current Assets Rs Rs
..................................... .....................................
..................................... .....................................
..................................... .....................................
Total Non-Current Assets .....................................
Current Assets
…………………….. .....................................
……………………. .....................................
…………………….. .....................................
Total Current Assets .....................................
Total Assets .....................................
Capital and Liabilities
…………………….. .....................................
…………………….. .....................................
Less ………………….. (.....................................)
…………………….. .....................................
Non-Current Liabilities
……………………. .....................................
Current Liabilities
…………………… .....................................
…………………… .....................................
Total Liabilities .....................................
178
Statement of Financial Position
Activity 6
Nina is an entrepreneur, Rs
who makes bags. Prepare Machinery 350 000
her statement of financial Fixtures and fittings 200 000
position for the year ended Inventory 31 Dec 20X0 27 000
31 December 20X0.
Trade receivables 32 900
Cash at bank 13 100
Capital 400 000
Drawings 20 000
Profit for the year 123 000
Bank loan 50 000
Trade payables 70 000
Nina enterprise
Statement of Financial Position for the year ended 31 December 20X0
Non-Current Assets Rs Rs
..................................... .....................................
..................................... .....................................
..................................... .....................................
Total Non-Current Assets .....................................
Current Assets
…………………….. .....................................
……………………. .....................................
…………………….. .....................................
Total Current Assets .....................................
Total Assets .....................................
Capital and Liabilities
…………………….. .....................................
…………………….. .....................................
Less ………………….. (.....................................)
…………………….. .....................................
Non-Current Liabilities
……………………. .....................................
Current Liabilities
…………………… .....................................
…………………… .....................................
Total Liabilities .....................................
179
Unit 14
Question 1
Question 2
180
Statement of Financial Position
Question 3
(a) An asset always has a …………… balance whereas a liability always has a
……………. balance.
(b) Capital is also known as ………………………..
(c) 'Motor vehicles' is an example of ………………………while inventory is an
example of ……………….
(d) Amounts that an enterprise owes to 'outsiders' are known as ……………………….
(e) ………………… are cash or goods that the owner takes from his enterprise for
his private use.
Question 4
Simon is an entrepreneur selling a variety of seafoods. The following balances were extracted
from the books on 31 December 20X0.
Prepare Simon’s statement of financial position as at 31 December 20X0.
Rs
Property 165 000
Furniture 49 000
Drawings 8 200
Bank 25 800
181
Unit 14
Simon enterprise
Statement of Financial Position for the year ended 31 December 20X0
Non-Current Assets Rs Rs
..................................... .....................................
..................................... .....................................
…………………….. .....................................
……………………..
…………………….. .....................................
…………………….. .....................................
Non-Current Liabilities
……………………. .....................................
Current Liabilities
…………………… .....................................
182
Statement of Financial Position
KEY TERMS
Drawings are cash or goods that the owner draws from his enterprise for his private
use.
Liability is an item that represents what the enterprise owes to other persons or
‘outsiders.’
The statement of financial position presents all the assets, liabilities and owner’s
capital in an enterprise at a particular date.
The diagram below summarises the steps in the preparation of the Statement
of Financial position.
Business Balancing of
Ledger
transactions accounts
• Cash
• Debit/Credit • Balance c/d
• Bank
• Double-entry system • Balance b/d
• Credit
Statement of
Income Financial position
Statement
183
Additional Notes
184