Business Studies Q2c – Monitoring and controlling finance | HSC HSC Practice – StudyPulse
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Business Studies HSC HSC Practice Question 2c – Monitoring and controlling finance

Q2c Business Studies Monitoring and controlling finance Module 3 - Outcome 3

KiteRail Ltd is a fast-growing business that installs smart access gates at commuter rail stations. The business sells to government transport agencies on 60-day credit terms. In May 2026, KiteRail began a new contract that increased reported sales, but the finance manager is concerned about liquidity and the risk of breaching a bank covenant.

Income statement (accrual basis) — year ended 30 June 2026

Item Amount
Sales revenue \$3,600,000
Cost of sales \$2,160,000
Gross profit \$1,440,000
Operating expenses (includes depreciation of \$180,000) \$930,000
Interest expense \$90,000
Profit before tax \$420,000
Income tax expense \$126,000
Net profit after tax \$294,000

Selected balance sheet items

Item 30 Jun 2025 30 Jun 2026
Cash at bank \$220,000 \$110,000
Accounts receivable \$420,000 \$780,000
Inventory \$300,000 \$520,000
Prepaid expenses \$40,000 \$25,000
Accounts payable \$380,000 \$610,000
Wages payable \$70,000 \$55,000
Income tax payable \$25,000 \$40,000
Bank loan (non-current) \$900,000 \$900,000

Additional information (cash-related)

  • During the year, KiteRail purchased new installation vehicles for \$360,000 cash.
  • No assets were sold during the year.
  • Dividends of \$120,000 were paid in cash.
  • Income tax paid in cash during the year was \$111,000.
  • The bank covenant is: Current ratio must be at least 1.30:1 at 30 June 2026.
  • The finance manager is considering two alternative actions to improve end-of-year liquidity (assume either action occurs on 30 June 2026 and affects only the balance sheet at that date):
  • Option A (factoring): Sell \$200,000 of accounts receivable to a factor for immediate cash of \$190,000 (the \$10,000 difference is a fee). The receivables sold are removed from the balance sheet.
  • Option B (stretching payables): Negotiate with suppliers so that \$120,000 of accounts payable is reclassified as a non-current liability (payable in 18 months) with no immediate cash impact.

All figures are in Australian dollars (AUD).

Question 2c

7 marks

Calculate the current ratio at 30 June 2026 and determine whether KiteRail Ltd meets the covenant. Then, for Option A and Option B (separately), recalculate the current ratio and recommend which option is more effective for meeting the covenant. Justify using the financial statements and your ratios.

Your Answer

0 words

About This Business Studies Question

This is a free HSC HSC Business Studies practice question worth 7 marks, testing your understanding of Monitoring and controlling finance. It falls under processes of financial management in Module 3: Finance. Submit your answer above to receive instant AI-powered marking and personalised feedback.

Subject
Business Studies – Higher School Certificate (NSW) HSC
Module 3
Finance
Outcome 3
processes of financial management
Content Point
Monitoring and controlling finance

Content Point Detail

monitoring and controlling – cash flow statement, income statement, balance sheet

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