Accounting 9706/32 February/March 2019: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 3 A Level Structured Questions, February/March 2019. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Read Source A1 in the Insert.
(a) Prepare the income and expenditure account for the year ended 30 June 2018.
[7]
(b) State two differences between an income and expenditure account and a receipts and payments account.
1
2
[2]
(c) Prepare the statement of financial position at 30 June 2018.
[7]
Additional information
At 1 July 2017 the following balances for the restaurant were available.
$
Inventory 15 700
Trade payables 13 900
(d) Calculate the restaurant cash surplus or deficit for the year ended 30 June 2018.
[4]
Additional information
The club plans to improve the clubhouse next year at a cost of $50 000. The chairman is considering financing the improvement by either members’ loans or taking a bank loan.
(e) Evaluate whether the club should finance the improvement by members’ loans or take a bank loan. Justify your answer.
[5]
[Total: 25]
Mark scheme
1(a) Income and expenditure account for year ended 30 June 2018 7
$ $
Subscription fee
($544 000 + ($3400 + $8200) (1) – ($7000 + $2400) (1)) 546 200
Restaurant profit ($12 600 – $3300) 9 300 (1)
555 500
Depreciation clubhouse $300 000 × 4% 12 000 (1)
Depreciation equipment ($140 000 – $64 000) × 15% 11 400 (1)
Club operating expenses 192 000
Club staff salaries 326 000
6
Loan interest $10 000 × 10% ×
12 500 (1)
541 900
Surplus of income over expenditure 13 600 (1) OF
1(b) Responses could include: 2
receipts and payments account is a summary of cash book while income and expenditure account is of same nature as an
income statement; (1)
receipts and payments account applies cash basis accounting while income and expenditure account applies accrual
accounting; (1)
receipts and payments account records only cash transactions while income and expenditure also records non-cash
transactions such as depreciation; (1)
receipts and payments account looks for the increase / decrease in cash during the year while income and expenditure
account looks for the surplus / deficit; (1)
the opening balance of receipts and payments account represents cash balance at bank and in hand while there is no
opening balance for income and expenditure account. (1)
Accept other valid points.
(1 mark) × 2 differences
1(c) Statement of financial position at 30 June 2018 7
$ $ $
Accumulated
Cost depreciation NBV
Non-current assets
Clubhouse 300 000 168 000 132 000 (1) OF
Equipment 140 000 75 400 64 600 (1) OF
440 000 243 400 196 600
Current assets
Inventory 23 400
Subscriptions in arrears 8 200
Cash and cash equivalents 7 700
39 300 (1)
Total assets 235 900
Accumulated fund at 1 July 2017 194 000
Surplus for the year 13 600 (1) OF
Non-current liability
Loan from member 10 000 (1)
Current liabilities
Trade payables 12 100
Subscriptions in advance 2 400 (1)
Accrued wages 3 300 }
Accrued interest 500 } (1) OF
18 300
Total accumulated fund and
liabilities 235 900
1(d) $ 4
Restaurant profit 9 300
Increase in inventory (23 400 – 15 700) (7 700) (1)
Decrease in trade payables (12 100 – 13 900) (1 800) (1)
Increase in accrued wages 3 300 (1)
Net cash surplus from restaurant 3 100 (1) OF
1(e) Responses could include: 5
less paper work and procedures (than bank loan)
quicker to obtain loan (than bank loan)
may not require collateral (vs. bank loan)
however:
still may have to pay interest
still may have to repay the loan
already has a loan from a member $10 000; members may refuse to lend more
Accept other valid points.
(2 marks) for explaining one reason for obtaining members’ loan and (2 marks) for explaining one reason against members’
loan. (1 mark) for decision.
Read Source A2 in the Insert.
(a) Calculate the working capital cycle in days.
[5]
Additional information
The company allows its customers 60 days credit.
The company is allowed 30 days credit by its suppliers.
The inventory turnover ratio for the previous year was 104 days.
The net working assets to revenue ratio has risen from 27.85% to 32.74%.
Trade payables had fallen and trade receivables had risen since 31 March 2017.
(b) Analyse the liquidity of F Limited.
[5]
(c) Analyse the change in the net working assets to revenue ratio of F Limited.
[6]
Additional information
Blair, an investor, wishes to invest in either F Limited or a competitor, C Limited. The market value of one ordinary share in both companies is $1.50.
Blair’s main requirement is a regular income from the investment.
Relevant information for the two companies is as follows:
F Limited C Limited
Gearing 20% 25%
Earnings per share $0.18 $0.21
Dividend cover 3 times 4 times
Dividend per share $0.09 $0.12
(d) Advise Blair in which company he should invest. Justify your answer.
[9]
[Total: 25]
Mark scheme
2(a) 137 500 5
Trade receivables turnover = × 365 = 51 days (1)
994 000
220 000
Inventory turnover ratio = × 365 = 126 days (1) OF
640 000 (1)
52 100
Trade payables turnover = × 365 = 28 days (1)
680 000
Working capital cycle = 51 + 126 – 28 = 149 days (1) OF
2(b) The company is receiving payments and making payments within the agreed period. (1) 5
Payments are being made before receipt (1) so there will be an adverse effect on cash flow. (1)
Inventory turnover ratio has worsened from the previous year. (1) OF
Liquidity could be improved by reducing receivable days and inventory turnover ratio whilst increasing payables days. (1)
Accept other valid points.
2(c) The ratio has worsened from the previous year (1) because a greater proportion of the revenue is being used to fund the 6
working capital cycle. (1)
The increase in the closing inventory has contributed to this (1) and indicates greater inefficiency. (1)
The fall in trade payables (1) and rise in trade receivables (1) have also had the same effect.
Accept other valid points.
2(d) The gearing of F Limited is lower which indicates less risk (1) although both are low geared companies. (1) 9
Earnings per share of C Limited is higher which is better (1) indicating greater profits for each share held. (1)
Dividend cover of C Limited is higher which is better (1) indicating that there is a greater proportion of profits available for the
payment of dividends. (1)
Dividend per share of C Limited is higher which is better (1) showing that a higher dividend is paid for each share owned. (1)
From the limited information available, I would advise Blair to invest in C Limited. (1)
Accept other valid points.
Award 1 mark for decision and max 2 marks for each ratio.
Read Source A3 in the Insert.
(a) Calculate the value of the closing inventory.
[4]
(b) Prepare the following accounts in the books of account of SH Limited.
(i) Consignment account
[7]
(ii) Maureen account
[5]
(c) Calculate the profit per container.
[2]
(d) Explain what the closing balance on Maureen account represents.
[3]
(e) Explain two differences between a consignment and a joint venture.
1
2
[4]
[Total: 25]
Mark scheme
3(a) The closing inventory is valued at: 4
$
unsold containers 6 × 7 200 43 200 (1)
1
shipping expenses × 11 600 2 320 (1)
5
1
customs charges × 7 800 1 560 (1)
5
closing inventory valuation. 47 080 (1) OF
3(b)(i) Consignment account 7
$ $
Goods on consignment 216 000 (1) Sales 244 800 (1)
Shipping expenses 11 600 (1)
Commission 12 240 (1)
Customs charges 7 800 (1)
Income statement 44 240 (1) OF Balance c/d 47 080
291 880 291 880
Balance b/d 47 080 (1) OF
3(b)(ii) Maureen account 5
$ $
Consignment a/c -sales 244 800 (1)
Consignment a/c-commission 12 240 (1) OF
Bank 220 320 (1)
Consignment a/c- customs 7 800 (1)
Balance c/d 4 440
244 800 244 800
Balance b/d 4 440 (1) OF
3(c) 44 240 / 24 (1) = $1843.33 (1) OF 2
3(d) The debit balance (1) on Maureen’s account shows the amount payable by Maureen (trade receivable – the consignee) (1) to 3
SH Limited (the consignor). (1)
3(e) 4
Consignment Joint venture
Long-term trading relation (1) Short-term, specific purpose (1)
Profit usually commission (1) Joint venture total profit shared (1)
Involves consigner and consignee (1) Involves co-venturers (1)
Control exercised by consignor (1) Both parties have control over decisions (1)
Accept other valid points.
Max 4
Read Source A4 in the Insert.
(a) (i) State why a bonus issue of shares would not be recorded in a statement of cash flows.
[1]
(ii) Name one financial item, other than a bonus issue of shares and a transfer to general reserve, which would not be recorded in a statement of cash flows.
[1]
(b) Prepare the non-current assets schedule for the year ended 31 December 2018 for inclusion in the notes to the financial statements of the company. A total column is required.
[9]
(c) Prepare the statement of changes in equity for the year ended 31 December 2018. A total column is required.
[9]
Additional information
The directors are considering publishing a cash budget instead of preparing a statement of cash flows in the future.
(d) Advise the directors whether or not to proceed with this change. Justify your answer.
[5]
[Total: 25]
Section B: Cost and Management Accounting
Answer all questions
Mark scheme
4(a)(i) No movement of funds is involved. (1) 1
4(a)(ii) Revaluation of non-current asset. (1) 1
Accept other valid points.
4(b) T plc Schedule of non-current assets 9
Land and Machinery Fixtures Total
buildings and
fittings
$000 $000 $000 $000
Cost at 1 January 2018 400 214 82 696 (1) for row
Purchases 262 10 272 (1) for row
Disposals (100) (100) (1) for row
Cost at 31 December 2018 400 376 92 868
Accumulated depreciation at 1
January 2018 12 112 17 141 (1) for row
Charge for the year 4 84 9 97 (1) for row
Eliminated on disposals (70) (70) (2) for row*
Accumulated depreciation at
31 December 2018 16 126 26 168
NBV at 31 December 2018 384 250 66 700 (1) OF for row
NBV at 1 January 2018 388 102 65 555 (1) for row
* depreciation eliminated = 100 + 12 – 42 = 70 (2) for correct answer in correct column
(1) for other answer based on 100 in correct column
4(c) T plc Statement of Changes in Equity for the year ended 31 December 2018 9
Share Share Retained General Total
capital premium earnings reserve
$000 $000 $000 $000 $000
Balance at 1
January 2018 500 105 40 645 (1) for row
Share issue 400 (1) 80 (1) 480
Profit for the 167 (3)*W1 167
year
Dividend paid (80) (1) (80)
Transfer (10) 10 0 (1) for row
(1) OF for
Balance at 31 900 80 182 50 1212 row
December 2018 _________ ________ ________ _______ _______
W1 profit for the year = 288 – 21 (1) interest – 100 (1) tax = 167 (1) OF
4(d) The directors should continue with the statement of cash flows. (1) 5
A statement of cash flows is a requirement of IAS 1. (1)
It shows how cash has been acquired and applied. (1)
It is a link between two statements of financial position. (1)
A cash budget is a management tool. (1)
It deals with the future, not historical data. (1)
Accept other valid points.
(1) for decision + (Max 2) for comments on statement of cash flows at (1) mark each and (Max 2) for comments on cash
budgets.
Read Source B1 in the Insert.
(a) Calculate the cost per unit for each product using absorption costing.
[3]
Additional information
A newly recruited management accountant suggests that B Limited should adopt activity based costing (ABC). He has provided an analysis of fixed overheads as follows:
Cost Cost driver Annual quantity
$
Materials requisition 90 000 Number of material requisitions 75
Machine set up 240 000 Number of setups 60
Inspection 150 000 Number of inspection hours 5000
480 000
Budgeted use of cost driver for each product for June 2019 is as follows:
Premier Standard
Number of material requisitions 2 6
Number of setups 2 3
Number of inspection hours 120 320
(b) Explain the meaning of the term ‘cost driver’.
[2]
(c) State two advantages and three disadvantages of ABC.
Advantage 1
Advantage 2
Disadvantage 1
Disadvantage 2
Disadvantage 3
[5]
(d) Calculate the cost per unit for each product if ABC is adopted.
Workings:
[8]
Additional information
The selling price of each product is cost plus 40%.
(e) (i) Calculate the selling price of each product using absorption costing.
[2]
(ii) Calculate the selling price of each product using ABC.
[2]
(iii) Explain, using suitable calculations, why your answers in (i) and (ii) are different.
[3]
[Total: 25]
Mark scheme
5(a) Premier Standard 3
$ $
Direct materials 80 50 }
Direct labour 90 50 }(1) for all
Fixed overheads 36 24 (1) for both
Cost per unit 206 124 (1) OF for both
$480 000
Fixed overhead per unit = $12
40 000
5(b) Cost driver is the factor that causes the change (1) in the cost of an activity. (1) 2
5(c) Advantages 5
ABC provides more reliable information for product costing, i.e. it is based on activity cost driver. (1)
ABC facilitates pricing decision. (1)
Disadvantages
It is time consuming to implement ABC. (1)
Determining the cost driver may be difficult. (1)
Measuring the quantity of each cost driver consumed may be difficult. (1)
It is costly because it may be necessary to employ a specialist to implement the ABC system. (1)
Accept other valid points.
Max 2 for advantages, Max 3 for disadvantages
5(d) Premier Standard 8
$ $
Direct materials 80 50 }
Direct labour 90 50 } (1) OF for all
Fixed overheads 28 36
Cost per unit 198 (1) OF 136 (1) OF
Premier Standard
$ $
Materials requisition
2 × $1200* 2 400 )
6 × $1200 7 200 )(1)
Machine setup
2 × $4000* 8 000 )
3 × $4000 12 000 )(1)
Inspection
120 × $30* 3 600 )
320 × $30 9 600 )(1)
Total for June 2019 14 000 28 800
Units produced ÷ 500 ÷ 800
Per unit $28 (1) OF $36 (1) OF
$90000
* = $1200 per requisition
75
$240 000
* = $4000 per setup
60
150 000
* = $30 per inspection hour
5000
5(e)(i) Premier Standard 4
$ $
Absorption costing method
Cost per unit 206.00 124.00
Cost plus 40% 82.40 49.60
Unit selling price 288.40 (1) OF 173.60 (1) OF
5(e)(ii) Premier Standard
$ $
ABC costing method
Cost per unit 198.00 136.00
Cost plus 40% 79.20 54.40
Unit selling price 277.20 (1) OF 190.40 (1) OF
5(e)(iii) Difference in price of Premier ($288.40 − $277.20) = $11.20 3
Difference in price of Standard ($173.60 − $190.40) = $16.80
The difference in selling price is caused by the fixed overhead charged to each product (1)
For Premier ($36 − $28) × 140% = $11.20 (1) OF
For Standard ($36 − $24) × 140% = $16.80 (1) OF
Read Source B2 in the Insert.
(a) Calculate the following variances for the month of September.
(i) Material price
[2]
(ii) Material usage
[2]
(iii) Labour rate
[2]
(iv) Labour efficiency
[2]
(b) Suggest one possible cause for each of the variances calculated in (a).
Material price variance
Material usage variance
Labour rate variance
Labour efficiency variance
[4]
(c) Calculate the following variances for the month of September.
(i) Fixed overhead expenditure
[2]
(ii) Fixed overhead volume
[2]
Additional information
For the month of October, Jack has calculated an adverse fixed overhead volume variance.
(d) Explain how October’s fixed overhead volume variance can be further analysed to provide
Jack with more information about the performance of the business.
[5]
(e) State two advantages and two disadvantages to Jack of using standard costing system.
Advantage 1
Advantage 2
Disadvantage 1
Disadvantage 2
[4]
[Total: 25]
Mark scheme
6(a)(i) Material price 2
$
standard 2800 kilos × $6 16 800
actual 17 350
$550 (1) A (1)
6(a)(ii) Material usage 2
standard 5900 units × 0.5 kilos 2 950
actual 2 800
150 kilos
× $6
$900 (1) F (1)
6(a)(iii) Labour rate 2
$
standard 9500 hours × $4.50 42 750
actual 42 275
$475 (1) F (1)
6(a)(iv) Labour efficiency 2
standard 5900 units × 1.5 hours 8 850
actual 9 500
650 hours
× $4.50
$2 925 (1) A (1)
1 mark for calculation plus 1 mark for direction
6(b) Material price variance – adverse 4
Unexpected price increase.
Loss of previous discount from supplier.
Better quality materials purchased.
(1 mark) × any 1 reason OF
Material usage variance – favourable
Less wastage due to better quality material.
Less wastage due to better skilled/experienced workforce.
(1 mark) × any 1 reason OF
Labour rate – favourable
A planned pay increase was not given.
Use of lower skilled labour.
Greater supply of labour.
(1 mark) × any 1 reason OF
6(b) Labour efficiency - adverse
Use of lower quality material.
Use of lower skilled labour.
More idle time than budgeted.
Poor supervision
(1 mark) × any 1 reason OF
Accept other valid points.
6(c)(i) Fixed overhead expenditure 2
$
standard 6500 units × 1.5 hours × $5 48 750
actual 52 100
$3 350 (1) A (1)
6(c)(ii) Fixed overhead volume 2
standard units 6 500
actual units 5 900
600 units
Standard OAR 1.5 hours × $5 × $7.50
$4 500 (1) A (1)
6(d) The fixed overhead volume variance is the difference between the actual and budgeted production and can be broken down 5
further (to show what caused this difference) into the fixed overhead efficiency (1) and fixed overhead capacity. (1)
If Jack calculated the fixed overhead efficiency he would know how much of the volume variance was due to the efficiency of
his workforce. (1) As the volume variance was adverse for Jack this could mean the workforce worked more slowly than
expected (1) due to lack of skills, poor material quality. (1)
If Jack calculated the fixed overhead capacity he would know how much of the volume variance was due to number of hours
worked. (1) As the volume variance was adverse for Jack this could mean the workforce worked fewer hours than expected (1)
due to strikes, machine breakdown or shortage of labour. (1)
Accept other valid points.
Max 5
6(e) Advantages 4
Acting as a control device in variance analysis (1)
Assisting in budget setting (1)
Evaluating managers performance (1)
Predicting future costs to aid decision making (1)
Providing targets to motivate staff (1)
Suggesting ways to improve efficiency (1)
Enabling more accurate inventory valuation (1)
Disadvantages
Time consuming to collect data (1)
Standards based on estimates (1)
Unrealistic standards can demotivate staff (1)
Factors causing variances are outside his control (1)
Max 2 marks for advantages and Max 2 marks for disadvantages
Accept other valid points.
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