Accounting 9706/22 May/June 2020: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Structured Questions, May/June 2020. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Tariq owns a retail business but does not maintain full accounting records. All goods are purchased on credit, but all sales are on a cash basis.
Tariq provided the following information for the year ended 30 September 2019.
$
Trade payables
1 October 2018 4 980
30 September 2019 7 220
Payments to trade payables 70 300
Discounts received 940
REQUIRED
(a) Calculate credit purchases for the year ended 30 September 2019.
…… [4]
Additional information
Assets and other liabilities
30 September 1 October
2019 2018
$ $
Furniture and equipment at valuation 28 300 26 800
Inventory 8 080 7 410
Other receivables: rent prepaid – 990
Cash at bank 1 960 3 360
Cash in hand 410 820
Bank loan 15 000 12 000
Other payables: rent accrued 1 040
Summary of information taken from bank statements
$
Receipts
Cash takings banked 112 400
Additional bank loan 3 000
Payments
Trade payables 70 300
Rent of premises 14 930
New furniture 5 200
Accountant’s fees 640
Loan interest 580
Drawings 25 150
Tariq took goods for personal use valued at cost $390 during the year.
REQUIRED
(b) Calculate the depreciation of furniture and equipment for the year ended
30 September 2019.
…… [3]
Additional information
Tariq took some cash from the cash box as drawings during the year. However, no record was made of the amounts withdrawn. The following information is also available about cash.
$
Cash sales 133 200
Wages of assistant 18 800
REQUIRED
(c) Calculate Tariq’s cash drawings for the year ended 30 September 2019.
…… [5]
(d) Prepare the income statement for the year ended 30 September 2019.
Tariq
Income statement for the year ended 30 September 2019
…… [9]
Workings:
(e) Explain the accounting concepts of:
(i) business entity
[2]
(ii) substance over form.
[2]
Additional information
Tariq has become concerned about his business’s liquidity. He is considering two options.
Option 1: reduce the inventory levels
Option 2: delay payments to suppliers
REQUIRED
(f) Advise Tariq which of these actions he should take. Justify your advice.
…… [5]
[Total: 30]
Mark scheme
(a) Credit purchases 4
Trade payables
$ $
Payments 70 300 Opening balance 4 980 (1)
{(1)
Discounts received 940 Purchases 73 480 (1)OF
Closing balance 7 220 (1) 00 000
78 460 78 460
Accept alternative presentations
1(b) Depreciation of furniture and equipment 3
$
Opening valuation 26 800
New furniture 5 200 (1)
32 000
Less closing valuation 28 300 (1)
Depreciation 3 700 (1) OF
1(c) Drawings 5
Cash account
$ $
Opening balance 820 (1)* Cash banked 112 400 (1)
Cash sales 133 200 (1) Wages of assistant 18 800 (1)
Drawings 2 410 (1)OF
000 000 Closing balance 410 *
134 020 134 020
*Both
Accept alternative presentations
PUBLISHED
Que
Ma
stio Answer
rks
n
1(d) Tariq 9
Income statement for the year ended 30 September 2019
$ $
Revenue 133 200
Less Opening inventory 7 410
Purchases [$73 480 (of) – $390 73 090
(1)]
80 500
Closing inventory 8 080
Cost of sales 72 420
Gross profit 60 780 (1)
Discounts received 940 (1)
61 720
Rent W1 16 960 (2)OF
Depreciation of furniture and equipment 3 700 (1)OF
Accountant's fees 640 (1)
Loan interest 580
Wages of assistant 18 800 (1)
40 680
Profit for year 21 040 (1)OF
W1 Rent
Payment $14 930 + $990 (1) + $1 040 (1) = 16 960
1(e) Business entity: a business has its existence separate from its owners (1) only 2
(i) transactions that affect the business should be recorded in the accounting records (1)
Max 2
1(e) Substance over form: financial statements must give a complete and accurate picture of 2
(ii) events (1) so economic impact is taken into account and legal form is disregarded (1)
Max 2
PUBLISHED
Que
Ma
stio Answer
rks
n
1(f) Advice (1) 5
Reducing inventory:
Would achieve improvement in liquidity (1)
Would reduce storage costs (1)
Would reduce chance that items become out of date and are wasted (1)
But negative impact if inventories run out and demand not met (1)
Delaying payments to suppliers:
Would achieve improvement in liquidity (1)
Might cause the loss of cash discounts/negative impact on profits (1)
But negative impact if credit terms not met leading to loss of suppliers/credit
terms/interest charges (1)
Award up to 2 marks for each course of action (overall maximum 4 marks) plus 1
mark for advice
Que
Ma
stio Answer
rks
n
Q Limited is a small wholesale business. It uses the reducing balance method of depreciation to depreciate delivery vehicles.
REQUIRED
(a) Explain one advantage and one disadvantage to a business of using the reducing balance method of depreciation.
Advantage
Disadvantage
[4]
Additional information
Delivery vehicle A was purchased on 1 January 2018 for $36 000.
Delivery vehicle B was purchased on 1 April 2018 for $40 000.
Depreciation of 20% per annum has been provided annually using the reducing balance method.
A full year’s depreciation is charged in the year of acquisition and none in the year of disposal.
The business’s financial year end is 31 December.
REQUIRED
(b) Calculate the balance of the delivery vehicles provision for depreciation account at
31 December 2019.
…… [4]
Additional information
On 1 February 2020 delivery vehicle C was purchased at a cost of $38 000. Delivery vehicle B was sold in part-exchange for delivery vehicle C. A cheque for $30 000 was paid on that date in full settlement of the amount remaining after part-exchange.
REQUIRED
(c) Prepare the delivery vehicles cost account.
Delivery vehicles cost account
$ $
[5]
Additional information
Delivery vehicles are depreciated because they are subject to wear and tear.
REQUIRED
(d) State two reasons, other than wear and tear, for depreciating non-current assets.
1 ……
2 ……
[2]
[Total: 15]
PLEASE TURN OVER
Mark scheme
(a) Advantage (Max 1 advantage) 4
Provides a more realistic charge against profits (1) as some assets lose more value in
their first years (1)/as the asset reduces in value so the depreciation charge reduces (1).
1 + 1 mark for development
Accept other valid responses.
Disadvantage ( Max 1 disadvantage)
Is more complicated to calculate (1) as the charge changes each year because it is
based on the decreasing net book value at the beginning of each year (1) rather than the
more straightforward equal charge per year when using the straight-line method (1).
1 + 1 mark for development
Accept other valid responses.
PUBLISHED
Que
Ma
stio Answer
rks
n
2(b) Balance of provision for depreciation account at 31 December 2019 4
Vehicle A Vehicle B
Depreciation charge 7 200 ($40 000 × 20%) 8 000 (1)
for 2018
($36 000 × 20%)
(1)
Depreciation charge 5 760 ($32 000 × 20%) 6 400 (1)
for 2019
($28 800 × 20%)
12 960 14 400
Balance is $27 360 (1)OF
2(c) Delivery vehicles cost account 5
$ $
2018 2020
Jan 1 Bank: delivery 36 000 * Feb 1 Disposal Delivery 40 000 (1)
vehicle A vehicle B
April 1 Bank: delivery 2020
vehicle B 40 000 *(1) Dec Balance c/d 74 000
31
2020 Bank: delivery
Feb 1 vehicle C 30 000 (1)
Disposal 8 000 (1) 000 000
114 000 114 000
2021 (1)
Jan 1 Balance b/d 74 000
*Both
2(d) Obsolescence/technological change (1) 2
Lapse of time (1)
Inadequacy (1)
Depletion (1)
Max 2
Accept other valid responses
Xu and Zoe have been in partnership for a number of years. They decided to dissolve their partnership on 1 October 2019.
REQUIRED
(a) State three reasons why a partnership might be dissolved.
1 ……
2 ……
3 ……
[3]
Additional information
The partners did not have a formal agreement on sharing of profits and losses.
At the date of the dissolution the partnership’s statement of financial position was as follows.
Statement of financial position at 1 October 2019
Assets $ $
Non-current assets at net book value
Motor vehicle 19 400
Furniture and equipment 11 900
31 300
Current assets
Inventory 7 480
Trade receivables 11 200
18 680
Total assets 49 980
Capital and liabilities
Capital accounts
Xu 18 000
Zoe 22 000
40 000
Current accounts
Xu (2 480)
Zoe 430
(2 050)
Total capital and current accounts 37 950
Loan account: Xu 4 300
Current liabilities
Trade payables 5 400
Bank overdraft 2 330
7 730
Total capital and liabilities 49 980
The following information is also available.
1 Xu took the motor vehicle at an agreed value of $15 100.
2 The account of a credit customer, $800, had to be written off as irrecoverable. The accounts of remaining trade receivables were settled in full less a 5% cash discount.
3 Other assets were sold for cash.
$
Furniture and equipment 7300
Inventory 6530
Mark scheme
(a) Reasons for dissolving a partnership 3
Business is making a loss (1)
Partners cannot agree (1)
A partner has died/retired (1)
The objectives of the partnership have been achieved (1)
Legal reasons such as insanity of partner (1)
Max 3
Accept other valid responses
PUBLISHED
Que
Ma
stio Answer
rks
n
3(b) Realisation account 7
$ $
Motor vehicles 19 400 Discount received 270 (1)
Furniture and equipment 11 900 Capital Xu, motor 15 100 (1)
vehicle
(1)
Inventory 7 480 Bank, trade receivables 9 880 (1)
(W1)
Trade receivables 11 200 Bank, furniture and 7 300
equipment
(1)
Bank, dissolution 620 (1) Bank, inventory 6 530
expenses
Realisation loss: Xu 5 760 (1)OF
00 000 Zoe 5 760
50 600 50 600
Alternative answer showing different treatment of trade payables
Realisation account
$ $
Motor vehicles 19 400
Furniture and equipment 11 900 Capital Xu, motor 15 100 (1)
vehicle
(1)
Inventory 7 480 Bank, trade receivables 9 880 (1)
(W1)
Trade receivables 11 200 Bank, furniture and 7 300
equipment
(1)
Bank, dissolution 620 (1) Bank, inventory 6 530
expenses
Bank: Trade payables 5 130 * Trade payables 5 400 *(1)
Realisation loss: Xu 5 760 (1)OF
00 000 Zoe 5 760
55 730 55 730
In the alternative version there is one mark for both entries relating to trade
payables.
W1: (11200 – 800) × 0.95
PUBLISHED
Que
Ma
stio Answer
rks
n
3(c) 5
$
Capital account balance 18 000
(1)
Current account balance (2 480)
Loan account 4 300 (1)
Motor vehicle taken over (15 100) (1)
Loss on realisation (5 760) (1)OF
Amount due from Xu (1 040) (1)OF
Que
Ma
stio Answer
rks
n
The accounts of trade payables were settled in full less a 5% cash discount.
5 The costs of dissolution, $620,were paid by cheque.
REQUIRED
(b) Prepare the realisation account.
Realisation account
$ $
[7]
(c) Calculate the amount due to, or from, Xu as a result of the dissolution.
…… [5]
[Total: 15]
PLEASE TURN OVER
4 DL Limited will soon be introducing a system of budgetary control. The directors are aware that this should provide a number of advantages. However, they are not sure how budgetary control will affect the company’s departmental managers.
REQUIRED
(a) Explain three ways in which the introduction of a system of budgetary control will affect the departmental managers of a business.
1 ……
2 ……
3 ……
[6]
Additional information
DL Limited manufactures a single product at one of its factories. The following information is available about one unit of production.
Selling price $69
Direct materials 2 kg at $3.30 per kg
Direct labour 5.2 hours at $8.30 per hour
Other variable costs $2.24
The factory’s fixed costs are $374 000 per annum.
The factory has the capacity to make 28 000 units per annum in normal working conditions.
REQUIRED
(b) Calculate the contribution per unit.
…… [3]
Additional information
The annual target profit for this factory is $50 000. During the year ended 31 December 2019
24 500 units were made and sold and the target profit was not achieved.
REQUIRED
(c) Calculate by how much the target profit was not achieved for the year ended
31 December 2019.
…… [3]
Additional information
The directors are considering two options to increase demand for the product above the current level of 24 500 units. The current factory capacity of 28 000 units could increase by a maximum of
20% by the use of overtime. Overtime will be paid at 1.25 times the basic rate.
Option A
1 Reduce the selling price of the product by $3 per unit.
2 Demand will increase by 40% on 2019 levels.
3 Suppliers of materials will provide an additional discount of 5%.
4 Fixed costs will not be affected.
Option B
1 Borrow $20 000 at an interest rate of 8% per annum to finance improvements to machinery.
2 This machinery will be depreciated at 20% per annum.
3 The cost of material will be reduced to $3 per kg.
4 An advertising campaign will be launched at a cost of $5000 per month.
5 The factory will operate at full capacity without the need for overtime working.
6 The selling price per unit will remain unchanged.
REQUIRED
(d) Calculate the annual profit if the directors choose:
(i) Option A
…… [6]
(ii) Option B
…… [5]
(e) Advise the directors which option they should choose, taking account of financial and non-financial factors. Justify your choice.
…… [7]
[Total: 30]
Mark scheme
(a) Managers could be involved in setting targets/budgets for their areas of responsibility (1) 6
resulting in possible increase in motivation (1)
If managers are not involved in setting targets/budgets motivation could be reduced (1)
especially if targets are seen to be unachievable/unrealistic (1)
Managers’ efficiency could be improved (1) as a result of having clear objectives/targets
(1)
However, budgetary control might prove to be restrictive (1) resulting in otherwise
beneficial opportunities being rejected by managers(1)
Any three points (1 + 1 for development)
Accept other valid responses.
4(b) Contribution per unit 3
$ $
Selling price 69 (1)
Less Variable costs
Direct materials 6.60
Direct labour 43.16
Other 2.24
52 (1)
Contribution 17 (1)OF
4(c) $ 3
Total contribution 24 500 × $17 416 500 (1)
Less fixed costs 374 000
Actual profit 42 500 (1)
Target profit 50 000
7 500 (1)
PUBLISHED
Que
Ma
stio Answer
rks
n
4(d) Option A profit 6
(i)
Maximum capacity using overtime is 28 000 units + 20%, i.e. 33 600 units
Demand for Option A: 24 500 units + 40%, i.e. 34 300 units
Hence 33 600 will be produced (1)
Normal contribution becomes $17 – $3 (reduction in selling price) + 0.33 (discount on
materials) = $14.33 (1)OF
1
Contribution in overtime = $14.33 − × $43.06, i.e. 10.79 = $3.54 (1)OF
4
$
Contribution from normal working 28 000 × $14.33 (of) 401 240 (1)OF
Contribution in overtime 5 600 (of) × $3.54 19 824
421 064 (1)OF
Less fixed costs 374 000
47 064 (1)OF
4(d) Option B profit 5
(ii)
Change in contribution: $17 + 0.60 (cheaper materials), i.e. $17.60 per unit
Change in fixed costs per annum:
$
Current fixed costs 374 000
Increased depreciation 4 000 (1)
Interest charges (8% × $20 000) 1 600
Advertising campaign 60 000 (1)
439 600 (1)OF
$
Contribution from normal working 28 000 × $17.60 (of) 492 800 (1)OF
Less fixed costs 439 600
53 200 (1)OF
PUBLISHED
Que
Ma
stio Answer
rks
n
4(e) Advice (1) 7
Justification
Reasons for choosing Option A:
Will increase profits by $4 564 (1of) on latest performance (1)
Will not involve any permanent change in fixed costs (1)
Not changing fixed costs will be beneficial if increased demand is not maintained (1)
Will ensure factory is working to full capacity making most efficient use of existing
resources (1)
Will avoid applying for bank loan which will increase company’s liabilities (1)
Application for bank loan for Option B may be refused (1)
Reasons for choosing Option B
Will increase profits by the larger amount $10 700 (1)OF on latest performance (1)
Will achieve target profit for factory (1) and exceed target by $3 200 (1)
Option A does not achieve target profit ((1) and misses target by $2 936 (1)
Will avoid the use of overtime working which may not suit workforce (1)
Will avoid the use of overtime working which may cause deterioration in quality of
production (1)
Will ensure factory is working to full capacity making most efficient use of existing
resources (1)
Advice (1) plus Max (6) for justification
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 9706/22 May/June 2020 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/22, May/June 2020 (9706_s20_ms_22), and the question paper (9706_s20_qp_22), to read or download, with each question's marking points written out underneath.
How many marks is 9706/22 out of?+
Accounting 9706/22 for May/June 2020 is out of 90 marks, with 1 hour 30 minutes to answer it, across 4 questions.
Can I get my 9706/22 answers marked?+
Yes. Upload your answers to 9706/22/M/J/20 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.