Accounting 9706/23 May/June 2023: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, May/June 2023. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Hamza owns a retail business with a financial year end of 31 December.
On 31 December 2022 inventory was valued at $15 330. However, this figure included 30 damaged items which had a cost price of $32 each. Of the damaged items, 23 will be scrapped with no value. The remaining 7 items will require repairs costing a total of $126 before being sold at the normal price of $48 each.
REQUIRED
(a) Explain, with reference to an accounting concept, how damaged inventory should be valued.
…… [2]
(b) Calculate the corrected valuation of inventory at 31 December 2022.
…… [4]
Additional information
The following information has been extracted from the books of account at 31 December 2022.
Dr Cr
$ $
Administrative expenses 14 380
Carriage inwards 1 720
Carriage outwards 3 860
Discounts 840 620
Furniture and equipment
Cost 36 000
Provision for depreciation 11 800
Inventory at 1 January 2022 16 780
Insurance 4 320
Purchases 182 770
Rent payable 17 000
Returns 5 460 4 810
Revenue 299 490
Trade receivables 18 460
Wages 37 330
At 31 December 2022:
1 No record had been made of goods taken by the owner for his own use, cost $550.
2 The balance of $760 on a credit customer’s account is to be written off as irrecoverable.
3 An allowance for irrecoverable debts of 5% is to be created based on the amount outstanding from credit customers.
4 Rent of $5100 is paid at the end of every three months. Rent for the three months ending
31 January 2023 is accrued.
5 The policy is to depreciate furniture and equipment by 20% per annum using the straight‑line method on a month‑by‑month basis. However, the furniture and equipment account includes equipment purchased during the year that cost $6500 and on which depreciation of $650 has not yet been charged.
REQUIRED
(c) Prepare the statement of profit or loss for the year ended 31 December 2022. Use the space provided on page 5 for your workings.
Hamza
Statement of profit or loss for the year ended 31 December 2022
$ $
Workings:
[15]
(d) State the double entry required to record goods withdrawn by an owner for personal use.
Debit: ……
Credit: ……
[2]
Additional information
Hamza is concerned that the performance of the business has declined in recent months. He is considering two options to increase the gross profit of the business.
Option A: Purchase goods from a different supplier who is prepared to offer a large trade discount.
Hamza would need to order in bulk, but less frequently than now.
Option B: Increase selling prices and increase monthly expenditure on advertising.
REQUIRED
(e) Advise Hamza which option he should choose. Justify your answer by considering both financial and non‑financial factors.
…… [7]
[Total: 30]
Mark scheme
1(a) Explain, with reference to an accounting concept, how damaged 2
inventory should be valued.
Inventory should be valued at the lower of cost or net realisable value (1) in
accordance with the prudence concept (1)
1(b) Calculate the corrected valuation of inventory at 31 December 2022. 4
$
Original value 15 330
Damage (960) (1)
Sales 336 (1)
Repairs (126) (1) 210
14 580 (1) OF
1(c) Prepare the statement of profit or loss for the year ended 31 December 15
2022.
Hamza
Statement of profit or loss for the year ended 31 December 2022
$ $
Revenue 299 490
Less sales returns (5 460)
294 030 (1)
Less cost of sales
Opening inventory 16 780
Purchases 182 770
Less goods own use (550) (1)
Less purchases returns (4 810) (1)
Add carriage inwards 1 720 (1)
195 910
Less closing inventory (14 580) (1) OF
181 330
Gross profit 112 700 (1) OF
Add discounts received 620 (1)
113 320
Less discounts allowed 840 (1)
Administrative expenses 14 380
Insurance 4 320 (1)
Wages 37 330
Carriage outwards 3 860
Rent payable W1 20 400 (1)
Irrecoverable debt written off 760 (1)
Allowance for irrecoverable 885 (1)
debts W2
Depreciation of furniture and 6 550 (2)
equipment W3
(89 325)
Profit for the year 23 995 (1) OF
W1 Rent: $17 000 + (2/3 × $5100) = $20 400 (1)
W2 Allowance for irrecoverable debts: 5% × ($18 460 – $760) = $885 (1)
W3 Depreciation: Addition $650 + Original ($20% × $29 500) $5900 (1) =
$6550 (1)
1(d) State the double entry required to record goods withdrawn by an 2
owner for personal use.
Debit: drawings (1)
Credit: purchases (1)
1(e) Advise Hamza which option he should choose. Justify your answer by 7
considering both financial and non-financial factors.
Max 3 marks for Option A
Max 3 marks for Option B
Decision supported by a comment (1)
Option A (max 3)
Cost of sales will be reduced leading to improved gross profit (1)
But:
Can larger orders be stored? / cost of storing large orders (1)
Will goods deteriorate while stored? (1)
Will new supplier’s goods be of the same quality? (1)
Will supplier be reliable? (1)
Option B (max 3)
Will increase gross profit only if demand is maintained (1)
But:
Advertising costs will reduce net profit (1)
Will advertising be effective? (1)
Increase in selling price may reduce demand (1)
Accept other valid responses.
Veda owns a retail business. Her accountant advised her to prepare a trial balance.
REQUIRED
(a) State two benefits of preparing a trial balance.
1 ……
2 ……
[2]
Additional information
On 31 March 2023 Veda prepared a trial balance but the totals did not agree. The debit column totalled $84 050 and the credit column totalled $83 350. The difference was posted to a suspense account.
The following errors were identified and corrected after which the trial balance totals agreed.
1 A payment of $740 to Opal Stores was recorded in the account of Opal Wholesale.
2 Sales returns of $340 from Kali had been correctly recorded in the sales returns journal, but
$430 had been posted to the debit side of Kali’s account.
3 The discount columns in the cash book had not been posted to the general ledger. Discounts allowed totalled $530 and discounts received totalled $370.
4 A cheque for $560 received from W Limited had been dishonoured. The dishonoured cheque was entered correctly in the cash book but had been posted as $650 to the customer’s account.
REQUIRED
(b) Prepare journal entries to correct each of the errors. Dates and narratives are not required.
Journal
Dr Cr
Account
$ $
[7]
(c) Prepare the suspense account at 31 March 2023. Dates are not required.
Suspense account
$ $
[4]
(d) Define the term ‘error of principle’.
…… [2]
[Total: 15]
Mark scheme
2(a) State two benefits of preparing trial balances. 2
Provides a check on arithmetical accuracy of double-entry (1)
Provides a source of information for preparing financial statements (1)
Provides quick access to information about account balances (1)
Max 2
Accept other valid responses.
2(b) 7
Prepare journal entries to correct each of the errors.
Journal
Account Dr Cr
$ $
Opal Stores 740
(1)
Opal Wholesale 740
Suspense 770 (1)
Kali /Sales ledger control 770 (1)
account
Discounts allowed 530
(1)
Discounts received 370
Suspense 160 (1)
Suspense 90 (1)
W Limited 90 (1)
2(c) Prepare the suspense account at 31 March 2023. 4
Suspense account
$ $
Kali/ Sales Difference on 700 (1)
ledger control 770 (1) trial balance
account
Discount 530 (1) line
Discount 370 allowed
received
W Limited 90 (1)
1 230 1 230
2(d) Define the term ‘error of principle’. 2
Where the correct amount is entered on the correct side (1) but in the wrong
class of account (1).
Accept other valid responses.
On 1 January 2022 the directors of J Limited made a bonus issue of two ordinary shares for every three ordinary shares held. The following is an extract from the company’s statement of financial position immediately after the bonus issue.
Equity $
Ordinary shares of $0.50 each 1 000 000
Retained earnings 120 000
Total equity 1 120 000
The directors financed the issue 60% from the share premium account and the remainder from retained earnings.
REQUIRED
(a) Prepare an extract from the statement of financial position immediately before the bonus issue, showing the equity section.
Equity $
Ordinary shares of $0.50 each
Share premium
Retained earnings
Total equity
Workings:
[5]
Additional information
J Limited’s financial year ends on 31 March. On 31 March 2021 the directors paid an annual ordinary share dividend of 20%. However, on 31 March 2022 the directors decided that the annual ordinary share dividend would amount to $0.05 per share.
Hassan is a shareholder in the company. He owned 7200 shares before the bonus issue on
1 January 2022.
REQUIRED
(b) Calculate the change in the amount of dividend received by Hassan, comparing the dividend at 31 March 2022 with the dividend at 31 March 2021.
…… [5]
(c) State two differences between capital reserves and revenue reserves.
1 ……
2 ……
[2]
(d) State three reasons why the directors of a company might reduce the total dividends payable.
1 ……
2 ……
3 ……
[3]
[Total: 15]
Mark scheme
3(a) Prepare an extract from the statement of financial position immediately 5
before the bonus issue showing the equity section.
Equity $
Ordinary shares of $0.50 each W1 600 000 (2) OF
Share premium W2 240 000 (1) OF
Retained earnings W3 280 000 (1) OF
Total equity 1 120 000 (1)
W1 Bonus issue was 2/5 × $1 000 000 = $400 000 (1)
original capital was $600 000 (1) OF
W2 Share premium: 60% × $400 000 = $240 000 (1) OF
W3 Retained earnings: (40% × $400 000) + $120 000 = $280 000 (1) OF
3(b) Calculate the change in the amount of dividend received by Hassan 5
comparing the dividend at 31 March 2022 with the dividend at 31 March
2021.
2021 Dividend: 20% × $3600 (1) = $720 (1)
2022 Dividend: 12 000 shares (1) × $0.05 = $600 (1)
Decrease of $120 (1) OF
3(c) State two differences between capital reserves and revenue reserves. 2
Capital reserves arise from non-trading activities; revenue reserves arise
from trading activities (1)
Capital reserves cannot be used to finance cash dividends; revenue
reserves can be used to finance cash dividends (1)
Max 2
Accept other valid responses.
3(d) State three reasons why the directors of a company might reduce the 3
total dividends payable.
Fall in profits (1)
Lack of liquid funds to pay dividends (1)
Liquid funds required for other commitments (1)
Max 3
Accept other valid responses.
V Limited is a manufacturing company which uses marginal costing.
REQUIRED
(a) Define:
marginal cost
contribution
break‑even point.
[3]
Additional information
The following information is available for a single type of product made at one of the company’s factories.
Per unit $
Selling price 52
Direct materials 16
Direct labour 18
Fixed costs per month are $36 900. Maximum output per month is 2500 units. The factory operates at full capacity.
REQUIRED
(b) Calculate the break‑even point:
(i) in units
…… [2]
(ii) in sales value.
…… [1]
Additional information
The directors plan to increase factory capacity to meet increased demand. The following details are available.
1 Factory capacity will be increased by 15%.
2 Additional machinery will be required at a cost of $72 000.
3 Machinery is depreciated at 20% per annum on cost.
4 The directors will apply for a bank loan of $60 000 at 8% per annum interest to finance the cost of the additional machinery.
5 Direct materials will cost less per unit as a result of buying in greater bulk. Suppliers currently give a 20% trade discount but will give a 25% trade discount in future.
6 Direct labour costs and selling price will remain unchanged.
REQUIRED
(c) Calculate the increase in the monthly margin of safety in units, assuming all production is sold.
…… [7]
Additional information
V Limited produces a different single type of product at another factory.
The following details are available:
Selling price per unit $26
Contribution per unit $8
Fixed costs per month $52 000
Factory capacity per month 18 000 units
Currently the factory is operating at 85% capacity. All products are sold to regular customers.
The directors are considering accepting an order from a new customer. The following details are available:
1 The order is for 4200 units per month.
2 The customer is considering making a regular order for this quantity.
3 The customer wishes the product to be packaged differently. This will add $0.50 per unit to variable costs and will require investment in new machinery, adding $1000 per month to fixed costs.
4 The customer has offered to pay $24 per unit.
The directors are considering two options.
Option A: Reject the order from the new customer.
Option B: Accept the order from the new customer, operate the factory at full capacity and reduce the number of units supplied to regular customers.
REQUIRED
(d) Calculate the profit per month to be made under each option.
(i) Option A
…… [1]
(ii) Option B
…… [5]
(e) Advise the directors which option they should choose. Justify your answer by considering both financial and non‑financial factors.
…… [7]
(f) Explain two advantages to a business of using absorption costing.
1 ……
2 ……
[4]
[Total: 30]
Mark scheme
4(a) Define: 3
marginal cost
contribution
break-even point
marginal cost: the costs incurred when producing one additional unit (1)
contribution: difference between selling price and variable costs which helps
cover fixed costs (1)
break-even point: the level of output at which neither a profit nor loss is
made (1)
Accept other valid responses.
4(b)(i) Calculate the break-even point: 2
in units
Break-even point = $36 900/18 (1) = 2050 units (1)
4(b)(ii) Calculate the break-even point: 1
in sales value.
Break-even point = 2050 × $52 = $106 600 (1) OF
4(c) Calculate the increase in the monthly margin of safety in units 7
assuming all production is sold.
Current margin of safety is: 2500 – 2050 units = 450 units (1)
New factory capacity: 2500 × 115% = 2875 units (1)
New contribution = $18 + $1 = $19 (1)
New fixed costs per month = $36 900 + $1200 + $400 = $38 500 (1)
New break-even point = $38 500/19 = 2027 units (1) OF
New margin of safety = 2875 – 2027 units = 848 units (1) OF
Margin of safety increases by 398 units (1) OF
4(d)(i) Calculate the profit per month to be made under each option. 1
Option A
Production is 85% × 18 000 = 15 300 units
Total contribution is 15 300 × 8 = $122 400
Profit is $122 400 less FC $52 000 = $70 400 (1)
4(d)(ii) Calculate the profit per month to be made under each option. 5
Option B
$
Contribution
Existing contribution: 13 800 × $8 110 400 (1)
New customer contribution: 4200 × $5.50 (1) 23 100 (1) OF
133 500
Less fixed costs 53 000 (1)
Profit 80 500 (1) OF
4(e) Advise the directors which option they should choose. Justify your 7
answer by considering both financial and non-financial factors.
Max 3 marks for Option A
Max 4 marks for Option B
Overall max 6 marks in total for comments
Decision supported by a comment (1)
Option A (max 3)
For: regular customers receive their usual order (1)
no change in fixed costs (1)
Against: less profit ($10 100) (1) OF
Option B (max 4)
For: may be long-term increase in profits if new customer makes regular
order (1)
operates at full capacity (1)
Against: regular customers may switch to alternative supplier (1)
regular customers may expect to pay the same price as new
customer (1)
fixed costs are increased in the long-term even if new customer
only makes one order (1)
Accept other valid responses.
4(f) Explain two advantages to a business of using absorption costing. 4
Absorption costing is useful for setting selling prices (1) as the cost of a unit
includes an element of fixed costs (1).
Inventories are valued on total costs (1) so the data is acceptable for
preparing financial statements (1).
Absorption costing conforms to the matching concept (1) because it enables
costs to be compared with revenues for a financial period (1)
Absorption costing avoids the separation of fixed costs and variables costs
(1) which can lead to incorrect data when using marginal costing (1)
Max 2 advantages (each advantage 1 mark for identifying and 1 mark
for development)
Accept other valid responses.
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 9706/23 May/June 2023 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/23, May/June 2023 (9706_s23_ms_23), and the question paper (9706_s23_qp_23), to read or download, with each question's marking points written out underneath.
How many marks is 9706/23 out of?+
Accounting 9706/23 for May/June 2023 is out of 90 marks, with 1 hour 45 minutes to answer it, across 4 questions.
Can I get my 9706/23 answers marked?+
Yes. Upload your answers to 9706/23/M/J/23 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.