Accounting 9706/22 February/March 2025: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, February/March 2025. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Sara and Viraj are in partnership and own a wholesale business.
At 1 January 2024, the partners had the following balances.
Sara Viraj
$ $
Capital 80 000 112 000
Current account 1 840 debit 2 730 credit
During the year ended 31 December 2024, the following drawings had been recorded.
$
Sara 22 960
Viraj 18 930
The following balances were also available at 31 December 2024.
$
Bank overdraft 4 970
Non‑current assets at carrying amount 150 700
Inventory 18 400
Other payables 410
Other receivables 300
Trade payables 16 300
Trade receivables 19 980
The draft profit for the year ended 31 December 2024 was $9400 before accounting for the following:
1 Wages, $850, were owing.
2 A credit customer, owing $1200, had gone out of business. The partners believe that 20% of the amount outstanding will be recovered, and the remaining 80% is to be written off.
3 The partners have decided to create an allowance for irrecoverable debts of 5% of trade receivables.
4 Viraj had taken goods for own use valued at cost, $550.
5 Viraj had provided a loan to the partnership on 1 May 2024 of $7200 at 8% interest per annum. The loan is repayable in full at the end of five years. Interest on the loan had not been accounted for.
6 Closing inventory had been understated by $3000.
7 Sara had introduced into the business a motor vehicle, valued at $20 400, on 1 September
2024.
Motor vehicles are depreciated by 20% per annum using the straight‑line method on a month‑by‑month basis.
(a) Calculate the revised profit for the year ended 31 December 2024.
…… [8]
Additional information
The partners share profits and losses in the ratio Sara : Viraj, 2 : 1, after providing for the following:
1 Interest is charged on each partner’s drawings at 5% on the total of drawings for the year in excess of $10 000.
2 Sara is entitled to a salary of $12 000 per annum.
(b) Prepare the appropriation account for the year ended 31 December 2024.
Appropriation account for the year ended 31 December 2024
…… [3]
(c) Prepare the current account of Viraj for the year ended 31 December 2024.
Dates are not required.
Viraj Current account
$ $
[4]
Additional information
On 31 December 2024, the balance of Sara’s current account was $15 070 debit.
(d) Prepare an extract from the statement of financial position at 31 December 2024 showing the capital and liabilities section only.
Statement of financial position at 31 December 2024
Capital and liabilities
…… [4]
(e) Explain, with reference to an accounting concept, the correct treatment of:
(i) goods taken for own use by the owner of a business
Concept: ……
Explanation: ……
[2]
(ii) irrecoverable debts.
Concept: ……
Explanation: ……
[2]
Additional information
The partners are concerned about the liquidity of the business. The current credit terms are
30 days for both credit suppliers and credit customers.
They have noticed that some credit customers are delaying the settlement of their invoices, whilst credit suppliers are always paid within 30 days. They are considering two options:
Option A: introducing a 5% cash discount for all credit customers’ invoices settled within 25 days.
Option B: paying credit suppliers within 35 days.
(f) Advise the partners which option they should choose. Justify your answer by discussing both options.
…… [7]
[Total: 30]
Mark scheme
1(a) Calculate the revised profit for the year ended 31 December 2024. 8
$
Draft profit 9 400
Less wages owing (850) (1)
Less irrecoverable debt (80% × $1 200) (960) (1)
Less allowance for irrecoverable debts (5% × ($19 980 – (951) (1)
$960)
Add goods taken for own use 550 (1)
Less interest on loan (8% × 2/3 × $7 200) (384) (1)
Add inventory 3 000 (1)
Less depreciation of motor vehicle (1/3 × 20% × $20 400) (1 360) (1)
Revised profit for the year 8 445 (1) OF
1(b) Prepare the appropriation account for the year ended 31 December 2024. 3
Sara and Viraj
Appropriation account for the year ended 31 December 2024
$ $
Profit for the year 8 445
Add interest on drawings
Sara (5% × $12 960) 648 (1)
Viraj (5% × $8 930 + 550) 474
1 122
9 567
Less salary Sara (12 000) (1)
Residual loss (2 433)
Shares of residual loss
Sara (1 622) (1) OF
Viraj (811)
(2 433)
1(c) Prepare the current account of Viraj for the year ended 31 December 2024. Dates 4
are not required.
Viraj Current account
$ $
Drawings 19 480 (1) Balance b/d 2 730
Interest on 474 Loan interest 384 (1)OF
drawings (1)OF
Residual loss 811 Balance c/d 17 651
20 765 20 765
Balance b/d 17 651 (1)OF
1(d) Prepare an extract from the statement of financial position at 31 December 2024 4
showing the capital and liabilities section only.
Statement of financial position at 31 December 2024
$ $ $
Capital and liabilities
Sara Viraj
Capital accounts 100 400 112 000 212 400 (1)
Current accounts (15 070) (17 651) (32 721)
Total 179 679
Non-current liabilities
Loan (Viraj) 7 200 (1)
Current liabilities
Trade payables 16 300 (1)
Other payables 1 260
($410 + 850)
Bank overdraft 4 970
22 530
Total capital and liabilities 209 409 (1)OF
1(e)(i) Explain, with reference to an accounting concept, the correct treatment of: 2
(i) goods taken for own use by the owner of a business
Concept: business entity concept (1)
Explanation: only transactions affecting the business are recorded in the business’s
books of account (1).
The business and owner are two separate (legal) entities (1)
Max 1 mark for explanation
Accept other valid responses.
1(e)(ii) Explain, with reference to an accounting concept, the correct treatment of: 2
(ii) irrecoverable debts
Concept: prudence concept (1)
Explanation: profits and assets OR trade receivables should not be overstated (1)
losses should be accounted for as soon as they are recognised (1)
Max 1 mark for explanation
Accept other valid responses.
1(f) Advise the partners which option they should choose. Justify your answer by 7
discussing both options.
Option A (max 3)
For
The early settlement will improve the cash flow position/liquidity (1)
May reduce possibility of irrecoverable debts (1)
Might attract new customers so increasing revenue/sales (1)
Trade receivables turnover will improve (1)
Against
Will reduce the amount of cash received (1)
Expenses will increase due to higher discount allowed (1)
Will reduce the amount of profit (1)
Customers may not be encouraged to pay within 25 days (1)
Customers may switch to other suppliers offering better terms so reduces revenue (1)
Option B (max 3)
For
Improve the cash flow position/liquidity (1)
Against
It may damage the reputation of the business (1)
It may result in the loss of cash discounts (1)
It may cause a loss of suppliers/refuse credit terms (due to the extended settlement
terms) (1)
Suppliers may charge interest on late payment (1)
Decision supported with a comment (1)
Accept other valid responses
Moe runs a trading business and maintains control accounts as a part of the double entry.
The following information is available for the month of November 2024.
$
Balance of sales ledger control account at 1 November 2024 18 320
Contra entry with purchases ledger control account 139
Credit sales 41 735
Discounts allowed 3 071
Interest charged on overdue accounts 84
Irrecoverable debt written off 478
Receipts from credit customers 39 202
Sales returns 883
(a) Prepare the sales ledger control account for November 2024. Dates are not required.
Sales ledger control account
$ $
[5]
Additional information
On 31 December 2024, the following information was available.
$
Total of balances in the sales ledger 22 350
Sales ledger control account balance 23 964
The following errors were discovered, which accounted for the difference.
1 The balance of a credit customer’s ledger account had been overstated by $189.
2 The total of the sales returns journal, $210, had been posted to the debit side of the control account as $120.
Mark scheme
2(a) Prepare the sales ledger control account for November 2024. Dates are not 5
required.
Sales ledger control account
$ $
Balance b/d 18 320 Purchases ledger 139 (1) all
control/Contra
Sales 41 735 (1) Sales returns 883
Interest 84 (1) Irrecoverable 478
(received) debts
Bank 39 202 (1) both
Discounts allowed 3 071
Balance c/d 16 366
60 139 60 139
Balance b/d 16 366 (1) OF
2(b)(i) Calculate the corrected figure for: 3
the total of balances in the sales ledger
Corrected total of balances in sales ledger
$
Original total 22 350
Less overstated balance (189) (1)
Add dishonoured cheque 640 (1)
Corrected total 22 801 (1)OF
2(b)(ii) Calculate the corrected figure for: 5
The sales ledger control account balance
$
original sales ledger control 23 964
account balance
Less sales returns (330) (1)
Less discounts allowed (283) (1)
Add dishonoured cheque 640 (1)
Less irrecoverable debt (1 190) (1)
Corrected balance 22 801 (1)
2(c) State two benefits of preparing control accounts. 2
Check the arithmetical accuracy of the double entry OR ledger accounts (1)
Helps to locate errors or indicates errors (1)
Helps to prevent/reduce fraud (1)
Provides easily accessible information for management (1)
Provides information for entry in financial statements OR finds totals for trade receivables
OR finds totals for trade payables (1)
Improves internal control (1)
Max 2
Accept other valid responses
The discount column totals in the cash book had not been posted: column on debit side total $283 column on credit side total $319.
Mark scheme
3(a) Prepare the following ledger accounts for the year ended 31 December 2024. 9
Ordinary share capital account
2024 $ 2024 $
Dec Balance 1 250 000 Jan 1 Balance 750 000
31 c/d b/d
Oct 1 Bank W1 500 000 (1)
1 250 000 1 250 000
2025
Jan 1 Balance 1 250 000 (1)OF
b/d
Share premium account
2024 $ 2024 $
Dec Balance 345 000 Jan 1 Balance 145 000
31 c/d b/d
Oct 1 Bank W1 200 000 (1)
345 000 345 000
2025
Jan 1 Balance 345 000 (1) OF
b/d
3(a) Retained earnings account
2024 $ $
April 1 Property 20 000 (1) Jan 1 Balance 154 000
b/d
June Bank 75 000 (1) Dec Statement 148 000 (1)
30 W2 31 of profit or
loss
Dec Balance 207 000
31 c/d
302 000 302 000
2025
Jan 1 Bal b/d 207 000 (1) OF
Revaluation reserve account
2024 $ 2024 $
April 1 Property 90 000 (1) Jan 1 Balance b/d 90 000
W1 Rights issue
Share capital: 1 500 000 × 2/3 × $0.50 = $500 000 (1)
Share premium: 1 500 000 × 2/3 × $0.20 = $200 000 (1)
W2 Interim dividend = $75 000
Interim dividend: 750 000 × 2 shares × $0.05 = $75 000 (1)
3(b) State two features of capital reserves. 2
Cannot be used to finance dividend payments (1)
Arise from non-trading activities of a company (1)
Can be used for bonus issue of shares (1)
Max 2
Accept other valid responses
3(c) State two differences between a rights issue of shares and an issue of debentures. 4
Debenture interest will have to be paid annually affecting/reducing cashflows and profits
(1) whereas dividends on shares are discretionary (1).
Rights issue of shares is a permanent source of finance (1) whereas debentures have to
be repaid at a future date OR long term loan (1).
Shareholders have voting rights (1) debenture holders do not have voting rights (1).
Debentures may require collateral (1) no collateral needed for rights issue (1).
Max 4
Accept other valid responses
No entries had been made in the books of account to record a dishonoured cheque for $640.
5 An irrecoverable debt of $892 had been recorded correctly in the customer’s ledger account
but had been debited to the sales ledger control account as $298.
(b) Calculate the corrected figure for:
(i) the total of balances in the sales ledger
$
Original total of balances in the sales ledger 22 350
Corrected total of balances in the sales ledger
[3]
(ii) the sales ledger control account balance
$
Original sales ledger control account balance 23 964
Corrected sales ledger control account balance
[5]
(c) State two benefits of preparing control accounts.
1 ……
2 ……
[2]
[Total: 15]
3 The following balances had been extracted from the books of W Limited on 1 January 2024.
$
Share capital (ordinary shares of $0.50 each) 750 000
Share premium 145 000
Retained earnings 154 000
Revaluation reserve 90 000
During the year ended 31 December 2024, the following occurred:
Property was revalued at $690 000. Before this date, property was
1 April valued at $800 000.
30 June An interim dividend of $0.05 per share was paid.
A rights issue of two ordinary shares for every three ordinary shares
1 October held at this date was made. The shares were issued at a premium of
$0.20 per share. The rights issue was fully subscribed.
The profit for the year ended 31 December 2024 was $148 000.
(a) Prepare the following ledger accounts for the year ended 31 December 2024.
Ordinary share capital account
$ $
Share premium account
$ $
Retained earnings account
$ $
Revaluation reserve account
$ $
Workings:
[9]
(b) State two features of capital reserves.
1 ……
2 ……
[2]
(c) State two differences between a rights issue of shares and an issue of debentures.
1 ……
2 ……
[4]
[Total: 15]
4 D Limited is a manufacturing company which uses absorption costing.
The factory has two production departments, Cutting and Finishing. It also has two service departments, Stores and Canteen.
Some budgeted overheads have been allocated to departments as follows:
Production departments Service departments
Total Cutting Finishing Stores Canteen
$ $ $ $ $
Overheads
424 560 183 270 145 990 45 380 49 920 allocated
The following budgeted overheads have yet to be allocated or apportioned.
$
Supervisor’s salary: Cutting department 28 200
Supervisor’s salary: Finishing department 26 300
Depreciation of machinery 87 000
Rent 48 000
Apportionment is based on the following information.
Cutting Finishing Stores Canteen
Cost of machinery ($) 220 000 152 000 37 000 26 000
Floor area (m2) 1500 890 280 330
Issues from stores 84 43 ‑ ‑
Number of employees 45 31 6 ‑
(a) Complete the following table to show the apportionment of overheads and the reapportionment of service department overheads.
Production departments Service departments
Total Cutting Finishing Stores Canteen
$ $ $ $ $
Overheads
424 560 183 270 145 990 45 380 49 920 allocated
Subtotal
Reapportionment
Canteen department
Subtotal
Reapportionment
Stores department
Total overheads
[5]
Additional information
Budgeted hours for each production department were as follows:
Cutting Finishing
Labour hours 6350 7144
Machine hours 8220 5172
(b) Calculate, to two decimal places, an overhead absorption rate for each production
department, using a suitable basis.
Cutting department
Finishing department
[4]
Additional information
The Stores department issues component X to the Finishing department. The weighted average cost (AVCO) method of inventory control is used by the Stores department.
The following details about this component are available for January 2025.
On 1 January 2025, the Stores department held six component X in inventory which had cost
$8 each.
Receipts of X Issues of X
6 Jan 12 at $8 each
9 Jan 7
16 Jan 8 at $9 each
21 Jan 13
27 Jan 10 at $10 each
(c) Complete the following table to show the value of the closing inventory of component X, using
AVCO.
Inventory valuation
$
1 Jan 48
6 Jan
9 Jan
16 Jan
21 Jan
27 Jan
Workings:
[5]
Additional information
D Limited uses marginal costing at another factory where two products, Bee and Cee, are made.
The following forecast information is available for August 2025.
Bee Cee
Selling price per unit $173 $156
Direct materials (at $4 per kg) 7 kg 9 kg
Direct labour hours (at $9 per hour) 14 hours 11 hours
Contribution per unit $19 $21
Production and sales (units) 60 50
Fixed costs are $1100 per month.
The supplier of direct materials has notified the directors that delivery problems will mean that in
August 2025 only 70% of the forecast requirement for direct materials will be available.
The directors are considering two options for August 2025.
Option A: Organise production in order to produce the maximum profit with the available materials.
Option B: Purchase additional materials from a new overseas supplier to make up the shortfall.
The supplier charges $5 per kg.
(d) Calculate the profit to be made in August 2025 for each option.
(i) Option A
…… [6]
(ii) Option B
…… [3]
(e) Advise the directors which option they should choose. Justify your answer.
…… [7]
[Total: 30]
Mark scheme
4(a) Complete the following table to show the apportionment of overheads and the 5
reapportionment of service department overheads.
Production Service departments
departments
Total Cutting Finishing Stores Canteen
$ $ $ $ $
Overheads 424 560 183 270 145 990 45 380 49 920
allocated
Supervisors’ 54 500 28 200 26 300 – –
salaries
Depreciation of 87 000 44 000 30 400 7 400 5 200 (1)
machinery
Rent 48 000 24 000 14 240 4 480 5 280 (1)
Subtotal 614 060 279 470 216 930 57 260 60 400
Reapportionment – 33 146 22 834 4 420 (60 400) (1)
Canteen
department
Subtotal – 312 616 239 764 61 680 –
Reapportionment – 40 796 20 884 (61 680) – (1) OF
Stores
department
353 412 260 648 – – (1) OF
4(b) Calculate, to two decimal places, an overhead absorption rate for each production 4
department using a suitable basis.
Cutting department = 353 412/8 220 = $42.99 (1) OF per machine hour (1)
Finishing department = 260 648/7 144 = $36.48 (1) OF per labour hour (1)
4(c) Complete the following table to show the value of closing inventory of component 5
× using AVCO.
Inventory valuation
$
1 Jan 48
6 Jan 144 (1)
9 Jan 88 (1)
16 Jan 160 (1)
21 Jan 50.52 (1)
27 Jan 150.52 (1)
4(d)(i) Calculate the profit to be made in August 2025 for each option. 6
Option A
Units × Contribution Materials Materials
contribution $ used available
Product Bee 60 × $19 1 140 (1) 420 189
Product Cee 21 × $21 441 (1) 189 –
Total 1 581
contribution
Less fixed 1 100
costs
Profit for month 481 (1) OF
Workings
Bee Cee
$ $
Contribution per unit 19 21
Kg required per unit 7 9
Contribution per kg materials 2.71 2.33 (1)
Forecast materials for August: Bee (60 × 7 = 420) + Cee (50 × 9 = 450) = 870 (1)
Materials available: 870 × 70% = 609 (1)
4(d)(ii) Calculate the profit to be made in August 2025 for each option. 3
Option B
Remaining units of Cee (50-21) = 29 units (1)
New contribution Cee: $21 – $9 = $12 (1)
Profit: as for option A $481 + (29 × $12) = $829 (1)
4(e) Advise the directors which option they should choose. Justify your answer. 7
Option A Advantages Disadvantages
• Option A produces higher profit (1) • May lose consumers to competitors
OF (1) leading to less sales or revenue
• No concerns over reliability/meeting (1)
deadlines (1) • Impact on workforce of reduced
• Same quality of products (1) production (1)
• No need to purchase from overseas • Reduced production means less
(1)
sales/profit (1)
• Material price doesn’t increase (1)
Option B Advantages Disadvantages
• Option B produces higher profit (1) • Will exchange rates affect price for
• No loss of sales/meet demand (1) Option B?(1)
• Run at maximum capacity or • Will new supplier prove to be
maintains production (1) reliable/trustworthy/meet delivery
times? (1)
• Will new supplier provide materials
of usual quality/risk of damage
during shipping (1)
• Higher delivery costs (1)
• Higher cost of materials/more
expensive (1)
• Possible import taxes (1)
Comments Max 6
Decision supported by a comment (1)
Accept other valid responses
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