Key Concepts
When a trading business purchases inventory from suppliers, it must consider both accounting and non-accounting information before making a decision.
| Type of information | Examples |
|---|---|
| Accounting |
|
| Accounting (G3 only) |
|
| Non-accounting |
|
Accounting information can be expressed as a money amount and comes from the business's records (e.g. cost). Non-accounting information is not a money amount (e.g. product features, customer preferences). You first met this distinction between accounting and non-accounting information in Chapter 1.
G3 The three G3 items, gross profit margin, rate of inventory turnover, and days sales in inventory, are ratios you will learn to calculate in the financial statements analysis chapter. For now, just know they measure how much profit the business makes on its goods and how quickly it sells its inventory.
Answering a "which inventory to buy" question — this is a scenario-based question (SBQ). Follow this two-step structure every time:
Step 1 — State your decision clearly.
Begin with a direct statement of which supplier or inventory you recommend.
"[Business] should buy from [Supplier X]."
Note: There is no single "right" or "wrong" decision in an SBQ. Marks are earned in Step 2 — as long as the decision is supported with evidence and financial impact, either option can score full marks.
Step 2 — Support your decision with evidence from the question.
For each supporting point, give E + E:
- Evidence — the specific figure or fact that matters — in your own words, not copied wholesale.
- Effect — explain why that evidence supports your decision in terms of financial impact (effect on revenue, costs, or profit).
Number of supporting points required:
- G2: 2 pieces of evidence, each with explanation.
- G3: 3 pieces of evidence, each with explanation.
How marks are awarded: the decision statement earns 1 mark, and each supporting point is worth 2 marks — 1 mark for the evidence (the figure or fact) and 1 mark for the financial impact (its effect on revenue, costs, or profit). So evidence given on its own still earns 1 mark — but the second mark is lost without the financial impact.
Note: This SBQ format also appears in later chapters (e.g. Trade receivables, Non-current assets, Trade payables) with different subject matter — the same two-step structure and point requirements apply.
Step 1: State your decision. Name the supplier/inventory you recommend.
Step 2: Support with evidence — pick out the relevant data, then explain the financial impact (effect on revenue, costs, or profit).
G2 = 2 points. G3 = 3 points. Decision = 1 mark; each point = 1 mark evidence + 1 mark impact. Evidence without financial impact still earns the evidence mark, but loses the impact mark.
| Lucky Star Supplies | Spice Route Trading | |
|---|---|---|
| Cost per dumpling | $2.50 | $2.20 |
| Product features | • Traditional nonya pork dumplings • Popular and highly rated • Factory-made • Packed in a box of 5 • Preservatives used • Expire after 10 days | • Traditional nonya pork as well as chicken, beef, and specialty fillings • Able to cater to custom orders • Home-made • No preservatives • Expire after 7 days • Requires refrigeration |
| Business history | In operation since the 1960s | In operation since the year 2000 |
| Credit term | 1 week | Cash only |
| Delivery fee | Free | $30 per trip |
Acceptable Answer 1 — recommending Lucky Star Supplies:
Decision: Amy should buy from Lucky Star Supplies.
Lucky Star Supplies has been in business since the 1960s — about 65 years compared to Spice Route Trading's 26 years. This longer track record suggests reliability and consistent product quality, which is likely to attract loyal customers and maintain steady sales revenue for Kaya & Whisk Bakery.
The one-week credit term allows Amy to delay payment, freeing cash for other urgent expenses and improving the business's short-term cash position.
The free delivery from Lucky Star Supplies also reduces Amy's expenses compared to Spice Route Trading's $30-per-trip delivery fee, increasing profit for the bakery. (G3: include this third point.)
Acceptable Answer 2 — recommending Spice Route Trading:
Decision: Amy should buy from Spice Route Trading.
At $2.20 per dumpling, Spice Route Trading is cheaper than Lucky Star Supplies ($2.50). This lower cost of inventory reduces cost of sales and increases gross profit, improving overall profitability for Kaya & Whisk Bakery.
The wider range of fillings — including chicken, beef, and specialty options — allows Amy to cater to a broader range of customers, potentially increasing sales revenue. The ability to cater to custom orders may also provide a competitive edge.
Spice Route Trading's dumplings contain no preservatives, which may appeal to health-conscious customers. This could increase demand and sales revenue for the bakery. (G3: include this third point.)
Giving evidence without linking it to financial impact. Evidence must be specific and tied to an effect. "Spice Route Trading is cheaper" fails on both — it doesn't say cheaper by how much or than whom, nor what it does to the business. Be specific, then explain the effect: "Spice Route Trading is $0.30 cheaper per dumpling than Lucky Star ($2.20 vs $2.50), reducing cost of sales and increasing gross profit."
Forgetting to state the decision first. Always open with a clear choice before presenting evidence. Do not begin with evidence and leave the decision implied.
Giving fewer points than required. G2: 2 points. G3: 3 points. Each point must be a separate piece of evidence, not a restatement of the same idea.