Accounting 9706/21 May/June 2024: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, May/June 2024. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Haroon and Rakesh are in partnership. They provide cleaning services for local businesses. They started their business on 1 January 2023 when the partners introduced the following assets.
Haroon Rakesh
$ $
Cash at bank 4 000 2 000
Furniture and equipment 14 000
Motor vehicle 16 000
The partners have not maintained full accounting records. However, they provided the following information for the year ended 31 December 2023.
1 Bank statements included the following receipts.
$
Cash takings 9 410
Receipts from credit customers 60 230
2 Amounts received from credit customers were after deducting cash discounts of 5%.
3 At 31 December 2023, credit customers owed $5580.
4 Before banking cash takings, the partners withdrew the following amounts each month for personal use.
$
Haroon 1200
Rakesh 750
5 The business does not keep any cash in hand.
(a) Calculate the total revenue for the year ended 31 December 2023.
…… [3]
Additional information
1 Bank statements recorded the following payments for the year ended 31 December 2023.
$
Cleaning materials 11 420
Rent of premises 8 960
Electricity charges 3 450
Accountant’s fees 3 800
Staff wages 29 870
Vehicle running costs 1 480
2 On 1 July 2023, the partners disposed of their motor vehicle for cash, $11 700, which was banked immediately. On this date Rakesh transferred his privately owned motor vehicle, valued at $15 000, into the partnership.
3 Non-current assets are to be depreciated by 20% per annum using the straight-line method.
Depreciation is provided on a month-by-month basis and is applied in the year of acquisition and the year of disposal.
4 Rent of premises included a payment of $2460 for the three months ended 29 February 2024.
5 At 31 December 2023, there was an unpresented cheque for $430 for electricity charges.
6 At 31 December 2023, there was an inventory of unused cleaning materials valued at $290.
(b) Prepare the statement of profit or loss for the year ended 31 December 2023.
Haroon and Rakesh
Statement of profit or loss for the year ended 31 December 2023
Workings:
[10]
(c) Prepare an extract from the statement of financial position at 31 December 2023 to show the current assets section only.
$
Current assets
Workings:
[4]
Additional information
Partnership current accounts are not maintained.
Interest on capital has been agreed at:
$
Haroon 2000
Rakesh 2350
Haroon is entitled to an annual salary of $5000.
Profits and losses are to be shared in the ratio Haroon three-fifths : Rakesh two-fifths.
(d) Calculate the balance on Rakesh’s capital account at 31 December 2023.
…… [6]
Additional information
The partners have considered maintaining a full accounting system using an accounting software package.
(e) Advise the partners whether or not they should maintain a full accounting system using an accounting software package. Justify your answer.
…… [7]
[Total: 30]
Mark scheme
1(a) Calculate the total revenue for the year ended 31 December 2023. 3
$101 790 (3) W1
W1
$
Cash takings 9 410
Add drawings 23 400
32 810 (1)
Credit sales ($60 230 × 100/95) 63 400 (1)
Credit customers at year-end 5 580
101 790 (1)
1(b) Prepare the statement of profit or loss for the year ended 31 December 2023. 10
Haroon and Rakesh
Statement of profit or loss for the year ended 31 December 2023
$ $
Revenue 101 790 (1)OF
Less expenses
Discounts allowed 3 170 (1)
Cleaning materials ($11 420 – $290) 11 130 (1)
Rent of premises [$8960 – (2/3 × $2460)] 7 320 (1)
Electricity charges ($3450 + $430) 3 880 (1)
Loss on vehicle disposal W1 2 700 (1)
Depreciation
Furniture and equipment W2 2 800 (1)
Motor vehicles W3 3 100 (1)
Accountant’s fees 3 800} (1)
Staff wages 29 870}
Vehicle running costs 1 480}
(69 250)
Profit for the year 32 540 (1)OF
1(b) W1: Loss on disposal: carrying value at time of disposal $14 400 less proceeds $11 700 = $2700 (1)
W2: Depreciation of furniture and equipment 20% × $14 000 = $2800 (1)
W3: Depreciation of motor vehicles: vehicle 1 $1600 + vehicle 2 $1500 = $3100 (1)
1(c) Prepare an extract from the statement of financial position at 31 December 2023 to show the current assets section 4
only.
Current assets $
Inventory (cleaning materials) 290 (1)
Trade receivables 5 580 }(1)
Other receivables 1 640
Cash at bank 27 930 (1)
35 440 (1)OF
1(d) Calculate the balance on Rakesh’s capital account at 31 December 2023. 6
$33 626 (6) W1
W1
$
Opening capital 16 000 (1)
Less drawings (9 000) (1)
Motor vehicle 15 000 (1)
Interest on capital 2 350 (1)
Share of profits 9 276 (1)
Closing capital 33 626 (1)OF
1(e) Advise the partners whether or not they should maintain a full accounting system using an accounting software 7
package. Justify your answer.
Advantages (Max 3)
Will provide detailed information to support management of business (1)
Facilitates production of documents (invoices, statements etc) (1)
Will provide information required to support bank loan / tax assessment (1)
Will save accountant’s fees (1)
Speed of processing data (1)
Improved accuracy (1)
Disadvantages (Max 3)
Internal / external threats (hacking etc) (1)
Cost of computer equipment and software (1)
Possible training costs (1)
Inconvenience of changing systems (1)
Staff resistance (1)
Advice supported by a comment (1)
Accept other valid responses.
Sana maintains full accounting records. She has prepared a trial balance, but the totals do not agree.
(a) State two benefits of preparing a trial balance.
1 ……
2 ……
[2]
Additional information
Sana discovered some errors which did not affect the agreement of the trial balance totals.
Type of error Error
Omission A dishonoured cheque for $80 received from Aryan Stores.
Commission An entry was made in the account of K Limited for goods returned to JK Limited, $110.
Complete reversal Goods taken for own use, cost $260.
Compensating The total of the discounts allowed column in the cash book,
$320, was not posted to the general ledger.
The total of one of the returns journals was also not posted to the general ledger.
(b) Prepare journal entries to correct the errors. Narratives are not required.
Journal
Debit Credit
$ $
[8]
(c) State what is meant by an error of principle. Support your answer with one example.
…… [2]
(d) Explain, with reference to an accounting concept, why Sana needs to make an entry for goods taken for own use.
Accounting concept ……
Explanation ……
[3]
[Total: 15]
Mark scheme
2(a) State two benefits of preparing a trial balance. 2
Provides a check on the arithmetical accuracy of the double-entry records (1)
Provides details to be used in the preparation of financial statements (1)
Accept other valid responses.
2(b) Prepare journal entries to correct the errors. Narratives are not required. 8
Journal
Debit Credit
$ $
Aryan Stores 80 (1)
Bank 80 (1)
JK Limited 110 (1)
K Limited 110 (1)
Drawings 520 (1)
Purchases 520 (1)
Discounts allowed 320 (1)
Purchases returns 320 (1)
*Each mark is for the correct label and amount.
2(c) State what is meant by an error of principle. Support your answer with one example. 2
Where a transaction is posted with the correct amount and to the correct side of an account but in the wrong class of
account (1)
Example (1)
2(d) Explain, with reference to an accounting concept, why Sana needs to make an adjustment for goods taken for own 3
use.
Business entity (1)
The business and the owner are separate entities (1) Information can only be entered into the accounts if it has a direct
impact on the business (1)
J Limited’s financial year ended on 31 March 2024.
The following information is available.
1
$
At 1 April 2023
Retained earnings 98 000
At 31 March 2024
Issued share capital: ordinary shares of $0.25 each 1 000 000
Share premium 360 000
2 On 1 August 2023 the directors made a rights issue of two ordinary shares for every three ordinary shares held at that date. The shares were issued at a premium of $0.10 per share.
The rights issue was fully subscribed.
3 On 1 October 2023 the directors paid an interim dividend of $0.02 per share on all shares in issue at that date.
4 On 31 March 2024 the directors revalued property at $390 000. Property had previously been revalued at $450 000 in 2020.
5 The profit for the year ended 31 March 2024 was $37 000.
(a) Complete, on page 11, the statement of changes in equity for the year ended 31 March 2024.
J Limited
Statement of changes in equity for the year ended 31 March 2024
Share Share Revaluation Retained Total capital premium reserve earnings
$ $ $ $ $
Balances, 1 April 2023 45 000 98 000
Balances, 31 March 2024 1 000 000 360 000
11
Workings:
[8]
Additional information
The directors are considering raising additional finance. They believe investors will prefer to invest in debentures rather than in ordinary shares.
(b) Explain two reasons why investors may prefer to invest in debentures rather than in ordinary shares.
1 ……
2 ……
[4]
(c) State three uses of a share premium account.
1 ……
2 ……
3 ……
[3]
[Total: 15]
Mark scheme
3(a) Complete the statement of changes in equity for the year ended 31 March 2024 8
J Limited
Statement of changes in equity for the year ended 31 March 2024
Share Share Revaluation Retained Total
capital premium reserve earnings
$ $ $ $ $
Balances, 600 000 200 000 45 000 98 000 943 000 (1*)OF
1 April 2023 row
Rights issue 400 000 160 000 560 000
(1)OF (1)OF
Dividend (80 000) (80 000) (1)OF
Revaluation (45 000) (1) (15 000) (1) (60 000)
Profit for year 37 000 37 000 (1)
Balances 1 000 000 360 000 40 000 1 400 000 (1*)OF
31 March 2024 row
Marking guidance: Accept answer where profit for the year has been adjusted for the revaluation reserve deficit
rather than the retained earnings.
3(b) Explain two reasons why investors may prefer to invest in debentures rather than in ordinary shares. 4
Debentures receive a fixed rate of interest each year (1) whether or not profits are made by the company / dividend
payments are discretionary (1).
Debentures are a less risky form of investment (1) as they are usually secured against specific assets (1)
Accept other valid responses.
3(c) State three uses of a share premium account. 3
Issue bonus shares to shareholders (1)
Write off company formation expenses (1)
Write off expenses of share issues (1)
To pay the premium on the redemption of debentures. (1)
Max 3
K Limited is a manufacturing company which has recently changed from using absorption costing to using marginal costing.
(a) Explain two reasons why a manufacturing company might change from using absorption costing to using marginal costing.
1 ……
2 ……
[4]
Additional information
At one of K Limited’s factories a single type of product is manufactured. This month’s marginal cost statement is as follows:
Marginal cost statement
$
Sales revenue 660 000
Variable costs (462 000)
Contribution 198 000
Fixed costs (95 000)
Profit 103 000
(b) Calculate the contribution to sales ratio.
…… [1]
(c) Calculate the break-even point in sales revenue.
…… [2]
Additional information
The directors require a target profit of $140 000 to be made next month.
(d) Calculate the sales revenue required to achieve the target profit.
…… [2]
Additional information
The directors are prepared to accept a special order with a negative contribution.
(e) State three reasons why a special order with a negative contribution might be accepted.
1 ……
2 ……
3 ……
[3]
Additional information
At another factory of K Limited three different types of product are made. The following details are available.
Aye Bee Cee
Selling price per unit $35 $43 $28
Maximum monthly demand per product 2400 units 3200 units 1800 units
Materials used per unit 6 kg 8 kg 4 kg
Labour cost per unit $12 $14 $10
Materials cost $1.50 per kg.
Only 35 000 kg of material are forecast to be available in January 2025.
Forecast fixed costs are $63 000 per month.
(f) Calculate the optimum profit to be made in January 2025.
…… [8]
Additional information
A director has found an overseas supplier of materials who is prepared to make up the shortfall in materials. The supplier will charge $2.60 per kg and there will be a delivery charge of $8000.
(g) Calculate the additional profit to be made if the shortfall in materials is made up by the overseas supplier.
…… [3]
(h) Advise the directors whether or not they should purchase the shortfall in materials from the overseas supplier. Justify your answer, considering both advantages and disadvantages.
…… [7]
[Total: 30]
Mark scheme
4(a) Explain two reasons why a manufacturing company might change from using absorption costing to using 4
marginal costing.
Easier to use (1) as no apportionment of fixed costs is required (1)
Avoids problems of over absorption or under absorption of overheads (1) as overhead absorption rates are not used (1)
Marginal costing is useful for short-term decision making (1) based on contribution (1)
Accept other valid responses.
4(b) Calculate the contribution to sales ratio. 1
Contribution $198 000
= = 30% (1)
Revenue $660 000
4(c) Calculate the break-even point in sales revenue. 2
$316 667 (2) W1
W1
Fixed costs + Profit $95 000
= = $316 667 (1) OF
Contribution to sales ratio 0.3 (1)OF
4(d) Calculate the sales revenue required to achieve the target profit. 2
$783 334 (2) W1
W1
Fixed costs + Profit $235 000 (1)
= (1) = $783 334 (1) OF
Contribution to sales ratio 0.3
4(e) State three reasons why a special order might be accepted with a negative contribution. 3
To avoid redundancies (1)
To stimulate future orders at usual price (1)
To raise brand awareness (1)
To break into new market / to promote a new product (1)
To dispose of discontinued inventory (1)
Max 3
Accept other valid responses
4(f) Calculate the optimum profit to be made in January 2025. 8
$20 675 (8) W1
W1
Aye Bee Cee
$ $ $
Contribution per unit 14 17 12
Contribution per kg 2.33 2.13 3
(1) (1) (1)
Production plan
$ Materials
used kg
1st Cee 1800 units × $12 21 600 (1)OF 7 200
2nd Aye 2400 units × $14 33 600 (1)OF 14 400
3rd Bee 13 400/8 = 1675 units (1) × $17 28 475 (1)OF 13 400
Total contribution 83 675
Less fixed costs 63 000
Optimum profit 20 675 (1)OF
4(g) Calculate the additional profit to be made if the shortfall in materials is made up by the overseas supplier. 3
$4 505 (3) W1
W1
Additional output of Bee = 1525 units (1) OF
New contribution per unit = $17 – (1.10 × 8) = $8.20 (1)
Additional profit = 1525 × $8.20 less fixed costs ($8000) = $4505 (1) OF
4(h) Advise the directors whether or not they should purchase the shortfall in materials from the overseas supplier. 7
Justify your answer considering both advantages and disadvantages.
Advantages (Max 3)
More profit (1)
No loss of regular customers (1)
Retains workforce (1)
Disadvantages (Max 3)
Is supplier reliable? (1)
Will quality of materials be maintained? (1)
Risk of delay in delivery (1)
Currency fluctuations could increase prices (1)
Advice supported by a comment (1)
Accept other valid responses.
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Accounting 9706/21 for May/June 2024 is out of 90 marks, with 1 hour 45 minutes to answer it, across 4 questions.
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