Accounting 9706/22 May/June 2025: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, May/June 2025. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
H Limited’s financial year ended on 31 December 2024. On that date, the following information was available.
Non-current assets included the following:
Cost at Provision for Depreciation Allocation
1 January depreciation at policy
2024 1 January 2024
Motor vehicles $80 000 $28 400 20% per annum 75% Distribution using the reducing costs
balance method 25% Administrative expenses
Furniture and $45 000 $16 200 15% per annum 100% Administrative equipment using the expenses straight-line method
On 1 July 2024, equipment, which cost $8000 when purchased on 1 January 2022, was sold for
$3900. Depreciation is provided on furniture and equipment on a month-by-month basis in the year of disposal.
(a) Calculate the depreciation charge for 2024 on the following non-current assets.
(i) Motor vehicles
…… [1]
(ii) Furniture and equipment
…… [2]
(b) Calculate the profit or loss on the disposal of equipment.
…… [2]
Additional information
The books of account also included the following balances on 31 December 2024.
$
10% Debenture (2026) 80 000
Administrative expenses 11 560
Carriage outwards 2 700
Cost of sales 288 400
Debenture interest 4 000
Directors’ remuneration 56 000
Distribution costs 9 800
Dividends paid 22 500
Office wages 37 150
Marketing expenses 24 240
Property at valuation at 1 January 2024 970 000
Rental income 7 200
Revenue 570 000
Sales staff wages and salaries 62 300
Additional information at 31 December 2024
1 Part of the premises has been rented out since 1 May 2024. The rental income is $2400 for every three months payable in advance.
2 Directors’ remuneration is an administrative expense.
3 Marketing expenses include the cost of an advertising campaign, $8800, which runs from
1 September 2024 to 30 April 2026.
4 Office wages owing were $1250.
5 Sales staff are yet to be paid an annual bonus of 2% of all sales above $450 000.
6 The debenture was issued on 1 April 2024.
7 Taxation for the year is estimated to be $4200.
(c) Prepare the statement of profit or loss for the year ended 31 December 2024.
H Limited
Statement of profit or loss for the year ended 31 December 2024.
Workings:
Distribution costs
Administrative expenses
Rental income
[12]
Additional information
1 During the year ended 31 December 2024, an issue of 400 000 ordinary shares of $0.50 each was made at a premium of $0.20 per share. The issue was fully subscribed.
2 At 31 December 2024, the directors decided to revalue property at $820 000.
(d) Prepare the statement of changes in equity for the year ended 31 December 2024.
H Limited
Statement of changes in equity
for the year ended 31 December 2024
Share Share Revaluation Retained Total capital premium reserve earnings
$ $ $ $ $
Balances at 95 000 112 700
1 January 2024
Share issue
Dividends paid
Revaluation of property
Profit for the year
Balances at 725 000 120 000
31 December 2024
[6]
Additional information
There are plans to expand the business which will require additional finance. The directors are considering two options.
Option A: Make a rights issue of 150 000 ordinary shares of $0.50 each at a premium of $0.20 per share.
Option B: Issue an 8% debenture (2027) for $105 000.
(e) Advise the directors which option they should choose. Justify your answer by discussing both the advantages and disadvantages of each option.
…… [7]
[Total: 30]
Mark scheme
1(a)(i) Calculate the depreciation charge for 2024 on the following non-current 1
assets.
Motor vehicles
20% × ($80 000 – $28 400) = $10 320 (1)
1(a)(ii) Calculate the depreciation charge for 2024 on the following non-current 2
assets.
Furniture and equipment
(15% × $37 000 = $5 550) (1) + (15% × ½ × $8 000 = $600) = $6 150 (1)
1(b) Calculate the profit or loss on the disposal of the equipment. 2
Carrying amount at time of disposal: $8 000 – $3 000 = $5 000 (1)
Loss on disposal: $5 000 – $3 900 = $1 100 loss (1) OF
1(c) Prepare the statement of profit or loss for the year ended 31 December 2024. 12
H Limited
Statement of profit or loss for the year ended 31 December 2024
$
Revenue 570 000
Cost of sales (288 400)
Gross profit 281 600
Distribution costs W1 (102 140) (4) OF
Administrative expenses W2 (115 790) (5) OF
Profit from operations 63 670
Income / rent received / rent income W3 6 400 (1)
Finance costs (6 000) (1)
Profit before taxation 64 070
Taxation (4 200)
Profit for the year 59 870 (1) OF
W1 Distribution costs:
$
As given 9 800
Carriage outwards 2 700
Marketing costs ($24 240 – (4/5 × $8800))_ 17 200 (1)
Sales staff wages and salaries ($62 300 + bonus $2400) 64 700 (1)
Depreciation motor vehicles (75% × $10 320) 7 740 (1)
102 140 (1) OF
1(c) W2 Administrative expenses:
$
As given 11 560
Directors’ remuneration 56 000
Office wages $37 150 + $1 250 38 400 (1)
Depreciation motor vehicles (25% × $10 320) 2 580 (1)
Depreciation furniture and equipment – see 1(a)(ii) 6 150 (1) OF
Loss on disposal of furniture and equipment – see 1(b) 1 100 (1) OF
115 790 (1) OF
W3 Rental income:
$800 per month × 8 months = $6 400 (1)
1(d) Prepare the statement of changes in equity for the year ended 31 December 6
2024.
H Limited
Statement of changes in equity for the year ended 31 December 2024
Share Share Revaluation Retained Total
Capital Premium Reserve Earnings
$ $ $ $ $
Balances at 525 000 40 000 95 000 112 700 772 700
1 January (1)fb
2024
Share 200 000 80 000 280 000
issue W1 (1)fb
Dividends (22 500) (22 500)
paid (1)
Revaluatio (95 000) (55 000) (150 000)
n of (1)fb
property
Profit for 59 870 59 870
the year (1)OF
Balances at 725 000 120 000 – 95 070 940 070 (1) OF
31 column
December
2024
W1 Share capital: 400 000 × $0.50 = $200 000; Share premium 400 000 × $0.20 =
$80 000
1(e) Advise the directors which option they should choose. Justify your answer by 7
discussing both the advantages and disadvantages of each option.
Option A = rights issue = max 4
For
Will be a permanent source of finance (1)
Will not affect profits (1)
Dividend payments are discretionary (1)
Against
Will the rights issue be successful because they had recently made a share issue?
(1)
Could affect control of the company (1)
Expensive to organise (1)
Option B = debentures = max 4
For
No impact on control of company as no voting rights (1)
No impact on profit distribution as no change in control (1)
Temporary source of finance / repayable / liability (1)
Against
They have to finance the redemption of the existing debenture (1)
Debenture interest will reduce profits (1)
Debenture interest will have to be paid each year (1)
(Max 6)
Accept other valid responses
Decision supported by a comment (1)
Virat prepared the trial balance at 28 February 2025, the end of his financial year. However, the totals did not agree.
Control accounts are not maintained by the business.
A check of the entries in the books of account revealed the following errors.
1 A sales invoice, $80, had been debited to the account of Rafiq instead of Raif.
2 A credit note, $170, received from P Limited had been correctly recorded in the book of prime entry but had not been posted to the personal account.
3 No record has been made of goods taken by Virat for personal use, valued at cost, $330.
4 The total of the discount received column in the cash book, $97, had been debited to the discounts allowed account as $79.
5 No entries had been made to record the receipt of $370 from Abdul, a credit customer.
The balance of his account had been written off in 2024.
(a) Prepare journal entries to correct the errors. Narratives are not required.
Journal
Error Dr Cr
$ $
1
2
3
4
5
[8]
Additional information
Before the errors were corrected, a draft statement of profit or loss for the year ended
28 February 2025 had been prepared, showing a draft profit for the year of $37 320.
(b) Calculate a revised figure for profit for the year ended 28 February 2025.
$
Draft profit for the year 37 320
[5]
(c) Explain why an error of principle would have no effect on the agreement of trial balance totals.
…… [2]
[Total: 15]
Mark scheme
2(a) Prepare journal entries to correct the errors. Narratives are not required. 8
Journal
Error Dr Cr
$ $
1 Raif 80 (1) For
both
Rafiq 80
2 P Limited 170 (1) For
both
Suspense 170
3 Drawings 330 (1) For
both
Purchases 330
4 Suspense 176 (1)
Discounts allowed 79 (1)
Discounts received 97 (1)
5 Bank 370 (1)
(1)
Irrecoverable debts recovered 370
2(b) Calculate a revised figure for profit for the year ended 28 February 2025. 5
$
Draft profit for the year 37 320
Add: goods own use 330 (1)
Add discounts allowed 79 (1)
Add discounts received 97 (1)
Add irrecoverable debts recovered 370 (1)
Revised profit for the year 38 196 (1)
2(c) Explain why an error of principle would have no effect on the agreement of 2
trial balance totals.
An error of principle results in matching (1) debit and credit entries (1) so agreement
of the trial balance totals is not affected.
Zak has not maintained full accounting records for his retail business.
He has provided the following details for the year ended 31 December 2024.
$
Purchases 82 980
Returns outwards 1 050
Inventory levels increased by $2730 during the year ended 31 December 2024.
Zak’s policy is to sell all goods to achieve a gross profit margin of 40%.
(a) Calculate the revenue for the year ended 31 December 2024.
…… [4]
Additional information
Zak is not certain how much the business is owed by its credit customers at 31 December 2024.
The following information is available.
1 At 1 January 2024, credit customers owed $11 880.
2 Credit sales are 75% of total sales.
3 Bank statements show that $96 900 was received from credit customers during the year ended 31 December 2024.
4 Some credit customers were given a 5% cash discount for prompt payment. Zak estimates that 20% of all receipts from credit customers were made after deducting the cash discount.
(b) Calculate the amount owed by credit customers at 31 December 2024.
…… [4]
Additional information
Zak would like to improve the credit control of his business.
(c) Identify two ways, other than allowing a cash discount, in which credit control can be improved.
1 ……
2 ……
[2]
(d) State two benefits of improving credit control.
1 ……
2 ……
[2]
Additional information
Zak has decided to prepare full accounting records in future, using a computerised accounting system. However, he is concerned about the security of data.
(e) State three ways in which the security of data can be ensured within a computerised accounting system.
1 ……
2 ……
3 ……
[3]
[Total: 15]
Mark scheme
3(a) Calculate the revenue for the year ended 31 December 2024. 4
$
Purchases 82 980
Returns outwards (1 050) (1)
Increase in inventory (2 730) (1)
Cost of sales 79 200 (1)
Revenue: Cost of sales $79 200 OF × 1⅔ = 132 000 (1) OF
or ($79 200 OF/ 60) × 100 = 132 000 (1) OF
3(b) Calculate the amount owed by credit customers at 31 December 2024. 4
$
Opening balance of trade receivables 11 880
Credit sales (75% × $132 000) – see 3(a) 99 000 (1) OF
110 880
Receipts (96 900) (1)
Discounts allowed (1/19 × $96 900 × 20%) (1 020) (1)
Closing balance of trade receivables 12 960 (1) OF
3(c) Identify two ways, other than allowing a cash discount, in which credit control 2
can be improved.
Charge interest on overdue accounts (1)
Set credit limits in individual cases (1)
Send statements/reminders (1)
Stopping supplies until overdue amounts have been paid (1)
Ask for a deposit/payment up front (1)
Accept other valid responses
Max 2
3(d) State two benefits of improving credit control. 2
May improve liquidity (1)
Reduced risk of irrecoverable debts (1)
Accept other valid responses
3(e) State three ways in which the security of data can be ensured within a 3
computerised accounting system.
Install anti-virus packages (1)
Use ‘strong’ passwords (1)
Restricted access to data (1)
Use encrypted USB drives (1)
Introduce policy restricting employee’s access to other websites (1)
Train staff how to notice suspicious activity (1)
Automatic lockdown or logging out (1)
Saving/backing up of work (1)
Accept other valid responses
Max 3
M Limited manufactures a single product at one of its factories. The company uses marginal costing.
(a) Define the following terms:
(i) contribution
…… [1]
(ii) fixed costs
…… [1]
(iii) margin of safety.
…… [1]
Additional information
Currently, the factory is operating at full capacity of 8300 units per month. All production is sold.
The following details are available about the single product.
Per unit $
Selling price 36
Direct labour 17
Direct materials 8
Fixed costs 6
The directors have a target profit of $35 000 per month.
(b) Calculate the following in units:
(i) break-even point
…… [3]
(ii) margin of safety.
…… [1]
(c) Calculate the amount by which the monthly target profit is exceeded.
…… [2]
Additional information
At a second factory, two products are currently being made, Product Exe and Product Wye.
The following budgeted information is available.
Product Exe Product Wye
Selling price per unit $40 $38
Direct materials per unit $14 $15
1.5 hours at $8 per 1.25 hours at $8 per
Direct labour per unit labour hour labour hour
Monthly capacity 14 000 units 4000 units
Monthly output and sales 85% of capacity 100% of capacity
The factory’s fixed costs per month are $126 000.
The directors are aware that an overseas supplier could provide Product Wye resulting in a contribution to M Limited of $17 per unit. The overseas supplier can supply 3000 units per month.
The directors are considering two options.
Option A
Continue with the production and sales of both Products Exe and Wye as now.
Option B
1 Stop production of Product Wye, and buy in 3000 units from the overseas supplier.
2 Most direct labour currently making Product Wye would be used to make additional units of
Product Exe so that output reaches full capacity.
3 To sell all output of Product Exe, the selling price of all units of Product Exe would be reduced
by 2.5%.
4 The directors will negotiate an increase in trade discount from 20% to 25% on all purchases of direct materials for Product Exe.
5 Direct labour currently producing Product Wye would require retraining at a cost of $5000 to be written off at the start of the first month of operation.
6 The machinery currently used for production of Product Wye has a carrying value of $23 000 and would be written off at the start of the first month of operation.
(d) Prepare a marginal costing statement for Option A to show the total monthly profit being made.
…… [6]
(e) Calculate the total profit to be made in the first month of operation if Option B is adopted.
…… [8]
(f) Advise the directors which option they should choose. Justify your choice by discussing both financial and non-financial factors for each option.
…… [7]
[Total: 30]
Mark scheme
4(a)(i) Define the following terms: 1
contribution
Contribution is the difference between selling price and variable costs (1)
4(a)(ii) Define the following terms: 1
fixed costs
Fixed costs are costs which do not change with levels of business activity (1)
4(a)(iii) Define the following terms: 1
margin of safety
Margin of safety is the difference between sales and break-even level of sales (1)
4(b)(i) Calculate the following in units: 3
break-even point
Contribution $11 (1); Fixed costs 6 × 8 300 = $49 800 (1)
Break-even point 4 528 units (1)
4(b)(ii) Calculate the following in units: 1
margin of safety
8 300 – 4 528 = 3 772 units (1) OF
4(c) Calculate the amount by which the monthly target profit is exceeded. 2
Monthly profit: (8 300 × $11) – $49 800 = $41 500 (1)
Excess of profit: $41 500 – $35 000 = $6 500 (1)OF
4(d) Prepare a marginal costing statement for Option A to show the total monthly 6
profit being made.
Marginal costing statement for one month for Option A
Exe Wye
$ $
Revenue 476 000 (1) Revenue 152 000
11 900 × $40 4 000 × $38
Direct materials (166 600) (1) Direct materials (60 000)
11 900 × $14 4 000 × $15
Direct labour (142 800) Direct labour (40 000) (1)
11 900 × $12 4 000 × $10
Contribution 166 600 (1)OF Contribution 52 000 (1)OF
Total contributions 218 600
Less fixed costs 126 000
Profit per month 92 600 (1) OF
4(e) Calculate the total profit to be made in the first month of operation if Option B 8
is adopted.
Option B
Exe $
14 000 × $39 546 000 (1)
Direct materials 14 000 × $13.125 W1 (183 750) (1)
Direct labour 14 000 × $12 (168 000) (1)
Contribution 194 250 (1)
Wye
Contribution: 3 000 × $17 51 000 (1)
Total contribution 245 250
Less fixed costs
($126 000 + $5 000 + $23 000 (1) 154 000 (1)
Profit for first month 91 250 (1) OF
W1 Direct materials: price was $14 per unit with 20% discount; so price pre-discount
was $17.50; and new price after 25% discount is $13.13
4(f) Advise the directors which option they should choose. Justify your choice by 7
discussing both financial and non-financial factors for both options.
Financial (max 4)
Option A = continue with production of both
• Produces greater profit in first month of operation by very small amount $1350
(1)
• Can meet all existing customer’s requirements for product Wye (4000 units) (1)
• Business is still not operating at full capacity (1)
Option B = use overseas supplier for Wye
• Produces significantly greater profit in subsequent months (no training costs; no
loss on disposal) (1)
• Risk of losing some customers for product Exe who make joint purchases of
Wye and Exe (and whose order for Wye cannot be satisfied) reducing revenue
and profits (1)
• Some possible redundancy costs for direct labour currently producing product
Exe (1)
• Will reduction in price for product Exe be effective? (1)
Non-financial (max 4)
• Will overseas supplier prove reliable/deliveries on time? (1)
• Are future supplies guaranteed? (1)
• How will direct labour react to any redundancies/requirement to retrain? (1)
• Will retraining be effective? (1)
• Foreign exchange rates (1)
(Overall max 6)
Decision supported with a comment (1)
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 9706/22 May/June 2025 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/22, May/June 2025 (9706_s25_ms_22), and the question paper (9706_s25_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 2025 is out of 90 marks, with 1 hour 45 minutes to answer it, across 4 questions.
Can I get my 9706/22 answers marked?+
Yes. Upload your answers to 9706/22/M/J/25 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.