Analysing a financial position using budget information, calculating total income and total expenditure to find a surplus or deficit, and working with profit, loss and VAT in financial contexts.

What this dot point is asking

The SQA wants you to analyse a financial position from budget information: total the income, total the expenditure, decide whether there is a surplus or a deficit and by how much, and apply profit, loss and VAT calculations to financial contexts.

Analysing a budget

A budget sets income against expenditure over a period such as a month or a year. To analyse it, total all the income, total all the expenditure, then find the difference.

When a budget shows a deficit, the question often asks what could be cut or earned to balance it, which is interpreting the figures, not just calculating them. For example, a $\pounds 80$ deficit could be removed by cutting $\pounds 80$ of spending, or by earning $\pounds 80$ more income; a good answer names a realistic change and shows it balances the budget.

Budgets are sometimes set over different periods, so the figures must be brought to the same period before comparing. A weekly food cost of $\pounds 70$ is $\pounds 70 \times 4 = \pounds 280$ over a four-week month, and an annual insurance cost of $\pounds 600$ is $\pounds 600 \div 12 = \pounds 50$ a month. Lining up the periods first is essential, or the surplus or deficit will be wrong.

Profit, loss and VAT

Profit and loss compare what something cost with what it sold for. VAT is a tax added to most goods and services.

Percentage profit and loss are always taken as a percentage of the cost price, because that is the amount that was risked. Dividing by the selling price gives a different, incorrect figure. A loss works the same way: if a cost price of $\pounds 50$ sells for $\pounds 42$, the loss is $\pounds 8$, and the percentage loss is $\dfrac{8}{50} \times 100 = 16\%$.

Examples in context

Budgeting models real decisions. A student plans whether a part-time wage covers rent and travel; a charity event organiser checks whether ticket income beats the venue and catering costs; a market trader works out the percentage profit on stock and adds VAT to a quote. Each rests on totalling income and expenditure, comparing them, and applying percentage profit, loss or VAT, the skills here.

Try this

Q1. Income is $\pounds 980$ and expenditure is $\pounds 1120$. State the surplus or deficit. [2 marks]

• Cue. $980 - 1120 = -140$, a deficit of $\pounds 140$.

Q2. A bike costs $\pounds 200$ and sells for $\pounds 170$. Find the percentage loss. [3 marks]

• Cue. Loss $\pounds 30$; $\dfrac{30}{200} \times 100 = 15\%$.

Q3. Add $20\%$ VAT to a net price of $\pounds 45$. [2 marks]

• Cue. $45 \times 1.20 = \pounds 54$.