Accounting 9706/33 May/June 2024: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 3 Financial Accounting, May/June 2024. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Read Source A in the insert.
(a) Identify the costs that may be included in the inventory cost of work in progress.
…… [4]
(b) Prepare the manufacturing account for the year ended 31 December 2023.
…… [8]
(c) Prepare the statement of profit or loss for the year ended 31 December 2023.
…… [8]
Additional information
The product of B Limited is well received by the market. The directors plan to incur $100 000 expenditure on researching a new material that will extend the life of the product.
(d) Advise the directors whether or not they should incur expenditure on researching a new material. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
1(a) Identify the costs that may be included in the inventory cost of work in progress. 4
Costs of the purchases of direct materials (1)
Delivery cost (1)
Direct labour costs (1)
Variable production overheads (1)
Fixed production overheads (1)
Max 4
Accept other valid responses.
1(b) Prepare the manufacturing account for the year ended 31 December 2023. 8
Manufacturing account for the year ended 31 December 2023
$ $
Direct materials opening inventory 16 000
Purchases 174 300
Direct materials closing inventory (21 400)
Cost of direct materials consumed 168 900 (1)
Direct labour 158 000
Prime cost 326 900 (1)OF
Rent and rates ($105 000+$15 000) × 70% 84 000 (1)
Depreciation of machinery 51 600 (1)
Other indirect production overheads 77 500
540 000
Work in progress opening inventory 47 000 }
Work in progress closing inventory (52 000) }(1)
Cost of goods manufactured 535 000
Factory profit W1 214 000 (2)OF
Transfer price 749 000 (1)OF
W1
$25 600/($89 600 – $25 600)=40% (1)
40% × $535 000 = $214 000 (1)OF
1(c) Prepare the statement of profit or loss for the year ended 31 December 2023. 8
Statement of profit or loss for the year ended 31 December 2023
$
Sales 933 000
Finished goods opening inventory 89 600
Transfer price 749 000 (1)OF
Finished goods closing inventory (77 000)
Cost of sales 761 600 (1)OF
Gross profit 171 400 (1)OF
Factory profit 214 000 (1)OF
Decrease in unrealised profit W1 3 600 (1) 217 600
389 000
Rent and rates 36 000 (1)
Depreciation - office equipment 14 700 (1)
Other administrative costs 205 000
255 700
Profit for the year 133 300 (1)OF
W1
$25 600 – ($77 000 × 40/140) = $3 600 (1)
1(d) Advise the directors whether or not they should incur expenditure on researching a new material. Justify your 5
answer.
For. Max (2)
New material may be of better quality (1).
This will reduce cost of wastage (1).
Can charge premium price for improved quality so that sales / revenue / profit can increase (1)
Ensures profitability is sustained in the long run / remains competitive (1)
Against. Max (2)
The research may fail (1)
Expenditure on research is written off in the year it is incurred (1) and this will greatly reduce the profit of that year (1)
Increased expenditure may increase prices causing loss of customers (1)
May need to be financed by loan and the loan interest will reduce profit (1)
Decision supported with a comment (1)
Accept other valid responses.
Read Source B in the insert.
(a) Explain the stewardship role of the directors in a public limited company.
…… [4]
(b) Calculate the working capital cycle (in days). Round up the components to the nearest day.
…… [8]
(c) Calculate, to two decimal places, the following ratios:
(i) price/earnings
…… [2]
(ii) dividend yield
…… [3]
(iii) interest cover.
…… [3]
Additional information
X plc, a competitor, has a working capital cycle which is shorter than that of M plc.
(d) Explain why X plc has performed better than M plc in managing the working capital cycle.
…… [5]
[Total: 25]
Mark scheme
2(a) Explain the stewardship role of the directors in a public limited company. 4
In a public limited company, the ownership and control are separated (1) so the directors are accountable/responsible to
the shareholders (1).
Directors are entrusted by the shareholders (1) to manage the assets / resources / the daily operations of the company (1).
The directors should act / decide in the best interests of the shareholders (1) so they must exercise their professionalism
and integrity and avoid conflict of interest (1).
Max 4 (2 marks for basic points + 2 marks for development)
Accept other valid responses.
2(b) Calculate the working capital cycle (in days). Round up the components to the nearest day. 8
Sales revenue $696 000 × 1.25 = $870 000 (1)
Cost of sales $870 000 × (100/145) = $600 000 (1)OF
Purchases $600 000 + $88 000 – $79 000 = $609 000 (1)OF
Trade receivables turnover: ($142 000/$870 000) × 365 = 60 days (1)OF
Inventory turnover: average turnover ($88 000 + $79 000)/2=$83 500 (1) ($83 500/$600 000) × 365 = 51 days (1)OF
Trade payables turnover ($125 000/$609 000) × 365 = 75 days (1)OF
Working capital cycle 60 days + 51 days – 75 days = 36 days (1)OF
2(c)(i) Calculate, to two decimal places, the following ratios: 2
(i) price/earnings
Earnings per share $140 000/500 000 = $0.28 (1)
Price earnings ratio $2.56/$0.28 = 9.14 (1)OF
2(c)(ii) (ii) dividend yield 3
Annual ordinary dividend per share ($40 000/500 000)(1) + $0.14 (1) = $0.22
Dividend yield $0.22/$2.56 × 100% = 8.59% (1)OF
2(c)(iii) (iii) interest cover 3
Debentures interest $180 000 × 6% = $10 800 (1)
Profit from operations $140 000 + $10 800 = $150 800 (1)
Interest cover $150 800/10 800=13.96 times (1)OF
2(d) Explain why X plc has performed better than M plc in managing the working capital cycle. 5
X plc is more efficient than M plc in converting net working capital (current assets minus current liabilities) into cash (1).
X plc’s credit customers may take a shorter time to settle their trade debts (1).
X plc may take a shorter time to sell its goods (1).
X plc may take a longer time to pay its credit suppliers (1).
They may be in different industries (1)
Accept other valid responses.
Read Source C in the insert.
(a) Prepare the cost section and the accumulated depreciation section of G plc’s schedule of non-current assets at 31 December 2023. The total column is not required.
Workings:
[20]
Additional information
The directors have two options to acquire another machine in the coming year.
Option 1: buy a new machine
Option 2: buy two used machines
The cost of option 1 is $17 000 higher than the cost of option 2. In the first year of use, the maximum capacity of each option is the same. The directors wish to select the option which will maximise profit.
(b) Advise the directors which option they should choose. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
3(a) W3
$24 000 – $9800 = $14 200 (1)
W4
($360 000 – $144 000) (1) / 20 years (1) = $10 800 (1)OF
W5
($280 000 + $35 000 – $132 100) (1) × 15%=$27 435 (1)OF
W6
Cost of vehicle A $135 000 × 125/225 = $75 000
($75 000 + $46 000) (1) × 20%=$24 200 (1)OF
W7
$60 000 × 60%=$36 000 (1)
W8
Carrying value at 31 December 2023
$
Cost in 2021 24 000
Depreciation 2021 3 600 (1)
20 400
Depreciation 2022 3 060 (1)
17 340
Depreciation 2023 2 601 (1)
Carrying value 14 739
Accumulated depreciation at 31 December 2023 ($3600 + $3060 + $2601) = $9261 (1)OF
3(b) Advise the directors which option they should choose. Justify your answer. 5
Option 1 Max 2
Depreciation expense is higher. (1)
May have a longer useful life. (1)
Maintenance cost may be lower. (1)
New machine is more efficient. (1)
Less chance of breaking down and losing sales. (1)
Maximum capacity may be sustained for more years. (1)
Option 2 Max 2
Depreciation expense is lower. (1)
May have a shorter useful life. (1)
Maintenance cost may be higher. (1)
Used machines are less efficient. (1)
More chance of breaking down and losing sales. (1)
Maximum capacity may not be sustained. (1)
Decision supported with a comment (1)
Accept other valid responses.
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Accounting 9706/33 for May/June 2024 is out of 75 marks, with 1 hour 30 minutes to answer it, across 3 questions.
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