Accounting 9706/32 February/March 2022: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 3 A Level Structured Questions, February/March 2022. 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) Explain the term ‘indirect manufacturing costs’.
…… [2]
(b) Prepare the manufacturing account for the year ended 31 December 2021.
…… [7]
(c) Prepare the revised income statement for the year ended 31 December 2021. Use space on the next page to show your workings.
Your statement should show separately the gross profit for each of standard furniture and luxury furniture.
It should also show expenses split into ‘total administrative expenses’ and ‘total selling and distribution costs’.
Workings:
[11]
(d) Assess the impact on the profitability of T Limited for the year ended 31 December 2021 of manufacturing luxury furniture. Support your answer with appropriate calculations.
…… [5]
[Total: 25]
Mark scheme
1(a) Indirect manufacturing costs are costs incurred during the course of production / in the factory (1) but they cannot be 2
directly traced to the items being manufactured (1)
Accept other valid answers.
1(b) $ 7
Purchases of direct materials 76 500
Closing inventory 14 200
Cost of direct materials consumed 62 300 (1)
Direct wages 119 000
Prime cost 181 300 (1)
Factory manager salaries 36 000 }
Factory rent 32 000 }(1)
Indirect manufacturing costs W1 22 000 (1)
Factory machines depreciation W2 7 200 (1)
278 500
Closing work in progress 12 500
Cost of goods manufactured 266 000
20% factory profit 53 200 (1)OF
Transfer value 319 200 (1)OF
W1 ($188 000 – $32 000 – $46 000) × 20% = $22 000
W2 $9000 ÷ 25% × 20% = $7200
1(c) $ $ 11
Standard furniture
Revenue 510 000
Opening inventory 71 000
Purchases 292 000
Closing inventory 66 500
Cost of sales 296 500 (1)
Gross profit 213 500 (1)
Luxury furniture
Revenue 484 000
Value transferred from factory 319 200 (1)OF
Closing inventory $35 000 × 120% 42 000 (1)
Cost of sales 277 200
Gross profit 206 800 (1)OF
Total gross profit 420 300
Factory profit 53 200 (1)OF
Less :unrealised profit $35 000 × 20% 7 000 (1)
46 200
466 500
Administrative expenses W1 309 600 (2)
Selling and distribution costs W2 73 000 (1)
382 600
Profit for the year 83 900 (1)OF
W1
Administrative expenses
$
Salaries for office staff 167 000
Depreciation of office equipment 8 600
Office rent 46 000
Other expenses 88 000 (1)
309 600 (1)
1(c) W2
Selling and distribution costs
$
Salaries for salespeople 44 000
Depreciation of motor vehicles 10 500
Carriage outwards 18 500
73 000 (1)
1(d) Gross margin of standard furniture for 2021 is 41.86% (1)OF ($213 500 / $510 000) 5
Effective gross margin (including factory profit) of luxury furniture for 2021 is 52.27% ($206 800 + $46 200) / $484 000
(1)OF
Luxury has a higher gross margin than standard (1)
The inclusion of luxury furniture which has a high gross margin can improve the profit margin (1)
Inclusion of luxury can increase the customer base which has positive effect on profitability (1)
Synergy may occur, i.e. by streamlining some operations to reduce cost thus improving profitability (1)
1 mark for each of the two calculations plus 1 mark for each other valid point up to a max of three.
Accept other valid answers.
Read Source A2 in the insert.
(a) Explain why a business may need to impair its non-current assets.
…… [3]
(b) Explain to what extent the value of the diesel lorry is to be impaired. Support your answer with calculations.
…… [6]
(c) Prepare the non-current assets schedule in a format suitable for inclusion in the notes to the financial statements for the year ended 31 December 2021. A total column is not required.
Workings:
[11]
Additional information
The repair and maintenance cost of $30 000 for the 5-year contract for the new machine was paid on 1 March 2021.
(d) Advise the directors whether or not X Limited should have entered into the contract. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
2(a) Prudence concept / So that the value of the assets were not overstated (1) 3
To ensure that the carrying amount of assets does not exceed their recoverable amount (1)
So that the financial statements show a true and fair view (1)
IAS 36 Impairment of assets (1)
Max 3
Accept other valid answers.
2(b) Carrying amount at 31 December 2021 $24 000 ($36 000 – $12 000) (1) 6
Fair value less cost to sell $21 000 – $4000 = $17 000 (1)
Value in use $18 500
Recoverable amount is the higher of fair value ($17 000) and value in use ($18 500)(1), therefore recoverable amount is
$18 500 (1).
Since the carrying amount ($24 000) exceeds the recoverable amount ($18 500) (1), the impairment loss is $5500 (1)
($24 000 – $18 500)
2(c) Plant and Motor 11
Building Machinery Vehicle
$ $ $
Cost/valuation
1 January 2021 600 000 400 000 60 000
Addition 224 000 (1) W1
Revaluation 150 000 (1) W2
Impairment (41 500) (1)OF W3
31 December 2021 750 000 624 000 18 500
Accumulated depreciation
1 January 2021 150 000 160 000 24 000
Revaluation (150 000) (1)
Impairment (36 000) (1)
Charge for the year 50 000 (2) W4 116 000 (1)OF W5 12 000 (1) W6
31 December 2021 50 000 276 000 -
Carrying amount at 31 December 2021 700 000 348 000 18 500 (1)OF row
Carrying amount at 31 December 2020 450 000 240 000 36 000 (1) row
W1 $200 000 + ($54 000 – $30 000) = $224 000 (1)
W2 $750 000 – $600 000 = $150 000 (1)
W3 ($60 000 – $18 500) = $41 500 (1)OF
W4 $750 000/15 (1) = $50 000 (1)OF
W5 ($624 000 – $160 000) × 25% = $116 000 (1)OF
W6 $60 000 / 5 = $12 000 (1)
2(d) Advantages (Max 2) 5
Repair and maintenance cost for the coming 5 years is fixed regardless of increase in future cost
The service of same company for the coming 5 years is guaranteed
Accept other valid advantages
Disadvantages (Max 2)
A one-off payment may adversely affect the cash flow
Not flexible, may have another company providing better and/or cheaper service
Accept other valid disadvantages
1 mark for decision.
Read Source A3 in the insert.
(a) Explain what is meant by the term ‘cash equivalents’.
…… [2]
(b) Prepare the statement of cash flows for the year ended 31 December 2021 in accordance with IAS 7.
Workings:
[14]
(c) Explain two reasons why a business prepares a statement of cash flows in addition to an income statement and a statement of financial position.
1 ……
2 ……
[4]
Additional information
During a directors’ meeting, the finance director had been asked why he had raised a bank overdraft to finance the acquisition of non-current assets.
(d) Advise the directors whether or not the finance director was correct in raising a bank overdraft to finance the acquisition of non-current assets. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
3(a) Cash equivalents are short-term (1) / highly liquid investments (1) that are readily convertible to known amounts of cash (1) 2
and which are subject to an insignificant risk of changes in value (1)
Max 2
Accept other valid answers.
3(b) Statement of cash flows for the year ended 31 December 2021 14
$'000 $'000
Operating activities
Profit from operations W1 211 (3)
Adjustments for:
Depreciation – buildings W2 41 (1)
Depreciation – plant and equipment W3 63 (1)
Profit on disposal of plant and equipment (2) (1)
Increase in inventory (28) }
Increase in trade receivables (32) }
Decrease in trade payables (34) }(1)
8
Cash generated from operations 219
Interest paid (44) (1)
Net cash from operating activities 175
Cash flows from investing activities
Purchase of buildings W4 (420) (1)
Purchase of plant and equipment W5 (97) }
Sale of plant and equipment 3 }(1)
Net cash used in investing activities (514)
Cash flows from financing activities
Proceeds from issue of shares W6 250 (1)
Repayment of debenture (50) (1)
Dividend paid W7 (140) (1)
Net cash from financing activities 60
Net decrease in cash and cash equivalents (279) (1)
Cash and cash equivalents at beginning of the period 37
Cash and cash equivalents at end of the period (242)
3(b) W1 ($136 000 – $109 000)(1) + ($80 000 + $60 000) (1) + $44 000 (1) = $211 000
W2 $201 000 – $160 000 = $41 000 (1)
W3 $326 000 – ($274 000 – $11 000) = $63 000 (1)
W4 ($1150 000 – $80 000) – $650 000 = $420 000 (1)
W5 $539 000 – ($454 000 – $12 000) = $97 000 (1)
W6 ($600 000 + $120 000) – ($400 000+$70 000) (1)
W7 $80 000(400 000 × $0.2) + $60 000(600 000 × $0.1) = $140 000 (1)
3(c) Provides additional information (1) how the business generates and uses cash (1) 4
Produced on a cash basis (1) whereas income statement and statement of financial position are prepared on accrual basis
(1)
Max 2 points x 2 marks (1 mark for a basic point and 1 mark for development)
Accept other valid answers.
3(d) For ( Max 2) 5
Maybe the finance by overdraft is only for short-term, i.e. very strong cash from operations in the coming one or two years.
The time to obtain overdraft is shorter than other means (debenture or issue of shares)
No or minimal costs to obtain overdraft
Have no impact on gearing ratio
Against (Max 2)
Long-term assets should be financed by long-term financing
Interest rate of overdraft may be higher than debenture/bank loan, let alone no interest for issue of shares
Overdraft is repayable on demand / short notice.
1 mark for decision.
Accept other valid answers.
Read Source A4 in the insert.
(a) Explain two reasons why Javeed should ask for commission based on gross sales.
1 ……
2 ……
[4]
Additional information
1 Both parties later agreed that the commission of Javeed should be based on gross sales.
2 After incurring repair costs of $5 for each defective unit, all the returned goods can be sold for
$160 each.
(b) Calculate the value of inventory held by Javeed at 31 December 2021.
…… [6]
(c) Prepare the consignment account in the books of G Limited for the year ended
31 December 2021.
…… [7]
(d) Complete the table to show the effect of the consignment to Javeed on each item in
G Limited’s financial statements and state the reason.
Item Effect (Increase / Decrease) in $ Reason
Other receivables
Cash at bank
Purchases
Profit for the year
[8]
[Total: 25]
PLEASE TURN OVER
Section B: Cost and Management Accounting
Answer all questions.
Mark scheme
4(a) Javeed can receive more commission (1) as he should not be responsible for the faulty goods (1) 4
Javeed has given effort in selling goods (1) which are later returned; he spent further effort in dealing with the returned
goods (1)
Max 2 points × 2 marks (1 mark for a basic point and 1 mark for development)
Accept other valid answers.
4(b) Number of goods unsold 300 – (254-18) = 64, of which 18 units have defects subject to repair. 6
$
Cost 34 500 }
Freight 7 200 }
Import duties 2 100 }
Transportation to warehouse 3 600 }
Total for 300 units 47 400 (1)
Cost per unit 158 (1)OF
Net realisable value of returned goods ($160 – $5) = $155 each (1)
18 × $155 (1)OF + (64 – 18) × $158 (1)OF = $10 058 (1)OF
4(c) Consignment account 7
$ $
Goods sent on consignment 34 500 (1) Javeed – net sales 59 000 (1)
Bank – freight 7 200 (1) Inventories c/d 10 058 (1)OF
Javeed – Import duties 2 100 }
Assistant’s salary 4 500 }
Transportation to warehouse 3 600 }
Transportation to customers 6 000 }
Advertising 4 800 }(1)
Commission 5 080 (1)
Income statement – profit on consignment 1 278 (1)OF
69 058 69 058
4(d) 8
Item Effect (Increase/Decrease) in $ Reason
Other receivables Increased by $32 920 W1(1) Amount due from Javeed (1)
Cash at bank Reduced by $7200 (1) Freight charges paid by G Limited (1)
Purchases Decreased by $34 500 (1) Cost of goods sent to Javeed (1)
Profit for the year Increased by $1278 (1)OF Profit on consignment (1)
W1 $59 000 – $2100 – $4500 – $3600 – $6000 – $4800 – $5080 = $32 920 (1)
Read Source B1 in the insert.
(a) Prepare the flexed budget to show the budgeted profit for the month of July.
…… [5]
Additional information
The actual result for the month of July is also available.
$
Sales 277 760
Direct material ($11.80 per kilo) (72 688)
Direct labour ($25.50 per labour hour) (128 520)
Fixed overhead (25 600)
Actual profit 50 952
The cost accountant is going to conduct a variance analysis for the July performance.
(b) State what is meant by the term ‘variance analysis’.
…… [2]
(c) Calculate the following:
(i) sales price variance
…… [1]
(ii) sales volume variance
…… [1]
(iii) direct material total variance
…… [1]
(iv) direct labour total variance
…… [1]
(v) fixed overhead total variance.
…… [1]
Additional information
The directors are interested in further analysis of the variances in direct materials.
(d) (i) Calculate the two variances which combine to give the direct material total variance.
…… [4]
(ii) Explain the likely causes of the variances calculated in (d)(i).
…… [4]
Additional information
In July, Y Limited had adopted a new strategy to increase sales by reducing the selling price.
(e) Advise the directors of Y Limited whether or not the company should continue the strategy in the long run. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
5(a) $ 5
Sales 1120 × $250 280 000 (1)
Direct materials 1120 × $60 (67 200) (1)
Direct labour 1120 × $100 (112 000) (1)
Fixed overhead 1120 × $24 W1 (26 880) (1)
Budgeted profit 73 920 (1)OF
W1 $24 000/($100 000 ÷ $25) = $6 per labour hour; $6 × 4=$24
or $24 000/1000 = $24
5(b) Variance is the difference between budgeted amount (cost or revenue) and actual amount. (1) Variance analysis is the way 2
to identify and explain the difference. (1)
Accept other valid answers.
5(c)(i) Selling price variance 1
($250 – $248*) × 1120 $2240 A (1)
*$277 760//1120=$248
5(c)(ii) Sales volume variance 1
(1120 – 1000) × $250 $30 000 F (1)
5(c)(iii) Direct materials total variance 1
$72 688 – $67 200 $5 488 A (1)
5(c)(iv) Direct labour total variance 1
$128 520 – $$112 000 $16 520 A (1)
5(c)(v) Fixed overhead total variance 1
$26 880 – $25 600 $1 280 F (1)
5(d)(i) Standard usage per unit $60 000 ÷ 1000 ÷ $12=5 kilos 4
Actual usage $72 688 ÷ $11.8=6160kilos
Direct material price variance
($12 – $11.8) × 6160 = $1232 (1) (F) (1)
Direct material usage variance
[6160 – (1120 × 5)] × $12 = $6720 (1) (A) (1)
5(d)(ii) Direct material price variance – Price per kilo reduces (1) due to a decrease in market price/trade discount for larger 4
order/shift to a cheaper supplier (1)
Direct material usage variance – More direct materials are used (1) due to materials of lower quality/inefficient use by
labours (1)
5(e) For (Max 2) 5
reducing price can increase sales as evidenced in July with a reduction of $2, 120 more units were sold
customer base can be increased provided that the quality maintained
Against (Max 2)
there is no financial gain due to a higher proportionate increase in direct materials, direct labour and fixed overhead
the company may not have enough capacity to cope with the increased production
the quality of products may be compromised.
1 mark for decision
Accept other valid answers.
Read Source B2 in the insert.
(a) Explain what is meant by the term ‘cost of capital’.
…… [2]
(b) Calculate for the proposed investment:
(i) payback period (in years and months)
…… [2]
(ii) accounting rate of return (to two decimal places)
…… [3]
(iii) net present value (NPV)
…… [3]
(iv) internal rate of return (IRR) (to two decimal places).
…… [4]
(c) Advise the directors whether or not the company should purchase the machine. Justify your answer.
…… [3]
Additional information
The directors decide to use the NPV method for investment appraisal. Due to recent adverse economic conditions, the directors think that they should use a cost of capital of 16%.
(d) Explain the impact on the directors’ decision to purchase the machine if the cost of capital is
16%.
…… [2]
Additional information
In view of the increase in the cost of capital to 16%, the directors consider that net cash inflows for each year need to be improved.
(e) Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero.
…… [6]
[Total: 25]
Mark scheme
6(a) It is the cost of financing an investment through debt and/or equity. (1) It is also the minimum required rate of return for an 2
investment. (1)
Accept other valid answers.
6(b)(i) 2 years (1) + [($550 000 – $400 000)/180 000] × 12 = 2 years and 10 months (1) 2
6(b)(ii) Average profit ($200000 × 2 + $180 000 + $162 000 – $550 000)/4 = $48 000 (1) 3
$48 000/($550 000/2) (1) = 17.45% (1)OF
6(b)(iii) NPV 3
$ 10% $
Year 0 (550 000) 1 (550 000) (1)
Year 1 200 000 0.909 181 800 }
Year 2 200 000 0.826 165 200 }
Year 3 180 000 0.751 135 180 }
Year 4 162 000 0.683 110 646 }(1)
192 000 42 826 (1)OF
6(b)(iv) $ 16% $ 4
Year 0 (550 000) 1 (550 000)
Year 1 200 000 0.862 172 400
Year 2 200 000 0.743 148 600
Year 3 180 000 0.641 115 380
Year 4 162 000 0.552 89 424
192 000 (24 196) (1)
10% (1) + [6% × ($42 826/($42 826 + $24 196)] (1)OF = 13.83% (1)OF
6(c) The payback period is within the life of the machine (1) 3
There is a positive NPV (1)
The IRR is higher than the cost of capital (1)
The directors should purchase the machine (1)
Max 2
1 mark for decision.
Accept OF comments
6(d) The NPV is negative (1) therefore the machine should not be purchased (1) 2
Accept OF comments
6(e) 16% 6
0.862 ×1 0.862
0.743 ×1 0.743
0.641 ×0.9 0.5769
0.552 ×0.9×0.9 0.44 712
2.62 902 (1)
$550 000(1) ÷ 2.62 902 = $209 203
$
Year 1 209 203 (1)
Year 2 209 203 (1)
Year 3 $209203x0.9 188 283 (1)
Year 4 $188283x0.9 169 455 (1)
776 145
Proof:
$ 16% $
Year 0 (550 000) 1 (550 000)
Year 1 209 203.4 0.862 180 333
Year 2 209 203.4 0.743 155 438
Year 3 188 283.1 0.641 120 690
Year 4 169 454.8 0.552 93 539
0
Alternative methods of calculation are possible, e.g. to increase each year’s discounted cash flow by 4.6% to eliminate the
deficit of $24 196 and then to gross up each year’s increased amount by the discount rate. This gives slightly different
figures due to rounding but is a correct answer.
Checked your answers against these? Let AI mark the whole paper, on your own working.
Examiners follow the generic marking principles at the front of the scheme, then each question's points: method (M), accuracy (A) and independent (B) marks, error carried forward where the scheme allows it, and positive marking, so you're credited for what you got right.
Check your answers against it
Done this paper? Upload your script and CIE Buddy's AI marker marks it question by question against this exact scheme, puts the ticks on your own working and says what each lost mark needed.
Where can I find the 9706/32 February/March 2022 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/32, February/March 2022 (9706_m22_ms_32), and the question paper (9706_m22_qp_32), to read or download, with each question's marking points written out underneath.
How many marks is 9706/32 out of?+
Accounting 9706/32 for February/March 2022 is out of 150 marks, with 3 hours to answer it, across 6 questions.
Can I get my 9706/32 answers marked?+
Yes. Upload your answers to 9706/32/F/M/22 as a PDF or photos, and CIE Buddy marks every question against this paper's official mark scheme, using Cambridge's marking rules. You get your score, each lost mark explained on your own script, and the topics to revise. It's a guide, not an official Cambridge grade.