Accounting 9706/21 May/June 2026: question paper and mark scheme

Mark scheme

1(a) Prepare the statement of profit or loss for the year ended 31 December 2025. 14 H plc Statement of profit or loss for the year ended 31 December 2025 $ Revenue W1 523 260 (2) Cost of sales W2 (232 030) (1) Gross profit 291 230 Distribution costs W3 (75 128) (4) OF Administrative expenses W4 (126 782) (5) OF Profit from operations 89 320 Finance costs W5 (13 040) (1) Profit before tax 76 280 Tax (15 700) Profit for the year 60 580 (1) OF Ignore aliens W1 Revenue: $535 630 – goods on sale or return 9 600 (1) – sales returns $2 770 = $523 260 (1) W2 Cost of sales *$236 830 – goods on sale or return at cost $4800 = $232 030 (1) W3 Distribution costs $ As per trial balance 20 890 Advertising (1/2 × 24 500) or (24500 – 12 250 (1) 12250) Motor vehicle expenses (9528 – 4800) 4 728 (1) Depreciation of motor vehicles and 37 260 (1) equipment* 75 128 (1) OF Depreciation $41 988 = (2) *Depreciation: ($406 000 + $8000) × 15% gives total $62 100 60% = $37 260 Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 1(a) W4 Administrative expenses $ As per trial balance 34 090 Directors’ remuneration 64 500 (1) Motor vehicle expenses (6352 – 3200) 3 152 (1) Depreciation of non-current assets 24 840 (1) Increase in allowance for irrecoverable 200 (1) debts* 126 782 (1) OF *New allowance for irrecoverable debts: 5% × trade receivables ($44 800 – $9 600 goods on sale or return, i.e. $35 200) = $1 760 Increase in allowance: $1 760 – $1 560 = $200 W5 Finance costs $ Bank loan interest 12 240 Debenture interest (8% × 40 000 × 1/4) 800 13 040 (1) Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 1(b) Prepare an extract from the statement of financial position at 31 December 2025 9 to show the equity and liabilities sections only. H plc Statement of financial position at 31 December 2025 $ EQUITY AND LIABILITIES EQUITY (Ordinary) share capital 840 000 (1) Revaluation reserve 150 000 (1) Retained earnings W1 37 500 (3) OF Total equity 1 027 500 NON-CURRENT LIABILITIES (8%) Debentures (2033) 40 000 (1) CURRENT LIABILITIES Trade and other payables W2 22 090 (1) Tax/taxation liabilities/payable 15 700 (1) 37 790 Total liabilities 77 790 Total equity and liabilities 1 105 290 (1) OF W1 Retained earnings: $156 920 + profit for the year $60 580 from 1(a) – dividends $30 000 (1) – $150 000 bonus OR (240 000 – 90 000) (1) = $37 500 (1) OF W2 Trade and other payables $21 290 + debenture interest due $800 = $22 090 (1) Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 1(c) Advise the directors which option they should choose. Justify your choice by 7 discussing the advantages and disadvantages of each option. Option A: (Max 3) For: May increase sales to existing customers (1) May attract new customers/wider audience (1) Spread risk due to wider range of goods (1) Against: Possible increase in storage costs/ less storage available (1) May have to advertise wider range which will increase expenses (1) Possible reduction in availability of existing range of goods, risking loss of sales (1) Option B (Max 3) For: If demand is maintained profits/revenue will increase (1) Perception that an increase in prices is evidence of higher quality (1) Increase in profit margin (1) Against: May reduce competitiveness leading to loss of sales (1) May lead to a loss of existing customers (1) 4% increase may not improve profitability significantly (1) Accept other valid responses Decision supported with a comment (1)

Mark scheme

2(a) Prepare an updated cash book at 30 November 2025. 5 Cash book (bank columns) Date Details $ Date Details $ Nov Balance b/d 372 Nov Bank 102 (1) 30 30 charges Suspense/error/ 140 (1) J Limited 182 (1) understated Balance c/d 291 J Limited 182 Rent 337 (1) 803 803 Dec Balance b/d 291 (1) OF 1 Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 2(b) Prepare a bank reconciliation statement at 30 November 2025. 4 Bank reconciliation statement $ $ Balance shown on bank statement (overdrawn) (1 463) Less: unpresented cheques K Baker 460 L Hardy 587 (1 047) (1) Add: error (insurance) OR direct debit 249 (1) Add: outstanding/uncredited banking OR cash 1 970 (1) sales Balance as per/on cash book (overdrawn) (291) (1) OF 2(c) Identify two features of a standing order payment. 2 A standing order is paid automatically by the bank on the instructions of the customer (1) The payment is made at regular or fixed intervals/every month/recurring (1) A standing order is for an agreed fixed sum (1) Max 2 Accept other valid responses. Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 2(d)) Explain two reasons why it is important for a business to be able to prepare 4 complete and accurate financial statements. Accounting records will be used as the basis for decision making/future planning about the business (1). Unless they are error free, decisions are likely to lack validity/ensures reliability (1). Accounting records will be used by a range of stakeholders (1), who could be misled by any inaccurate information (1). Inaccurate accounting records could mean that a business fails to meet legal requirements/tax authority requirements (1), leading to possible penalties (1). To assess the performance of the business/enable to make comparisons (1) and can then identify which parts to improve (1). To gain bank loans/investors (1) need to see existing liabilities/profit to make decisions (1). Max 2 reasons × 2 marks (1 mark for identification of reason and 1 mark for development) Accept other valid responses. Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/

Mark scheme

3(a) Prepare journal entries to correct the errors. Narratives are not required. 7 General journal details debit credit $ $ Purchases returns 609 (1) Suspense 609 H Limited 180 (1) Purchases 180 Suspense 314 (1) C Limited 314 (1) Drawings 900 (1) Sales 450 (1) Purchases 450 (1) 3(b) Calculate the balance that remains on the suspense account after the correction 3 of the errors 1 to 4, clearly stating whether it is a debit balance or a credit balance. $ Original difference in trial balance totals (debit) 2 349 Purchase returns error (609) (1) C Limited error 314 (1) (Updated suspense account balance) debit 2 054 (1) Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 3(c) Calculate the revised profit or loss for the year ended 31 December 2025 after 5 errors 1 to 4 had been corrected. $ Draft profit for the year 11 480 Purchase returns (609) (1) Overstated purchases 180 (1) Sales error 450 (1) Purchases error 450 (1) Revised profit for the year 11 951 (1)

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4(a)(i) Calculate each of the following: 3 break-even point in units Selling price $158 – variable cost $101 = contribution $57 (1) Fixed costs 12 000 × 33 = $396 000 (1) 396 000 Break-even point: = 6948 units (1) 57 4(a)(ii) monthly profit. 2 Monthly profit: (12 000 × $57, i.e. $684 000) (1) – fixed costs $396 000 = $288 000 (1) Or Monthly profit (12 000 – 6948) units i.e. 5 052 (1) × $57 = $287 964 (1) Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 4(b) State three limitations of break-even analysis. 3 • fixed costs are assumed to be fixed (1) • assumes all output made is sold (1) • ignores economies of scale such as trade discounts for bulk purchases/assumes variable costs are constant at all levels OR per unit (1) • selling price is assumed to be constant (1) • semi-variable costs are not considered/costs are not easily classified as fixed or variable (1) • there are no changes in the levels of inventory (1) • cannot normally be used if there is a product mix /assumes only one type of product is sold (1) Max 3 Accept other valid responses. 4(c) Calculate the change in the break-even point in units per month, if the plans are 4 adopted. Contribution: $57 – increase in materials per unit $2 = $55(1)OF Fixed costs: $396 000 + additional depreciation $30 000 = $426 000 (1) New break-even point: $426 000/55 = 7 746 units (1) Break-even change: 7 746 – 6948 = 798 units increase (1) OF Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 4(d) Calculate the budgeted profit or loss for September 2026, if option A is adopted. 8 Exe Wye Zed $ $ $ Contribution 7 5 8 Contribution per kg of direct materials 4 2.5 3.56 Priority order 1st 3rd 2nd (1) (1) (1) Materials available (kg): (300 × 1.75, i.e. 525) +(600 × 2, i.e. 1200) (700 × 2.25, i.e. 1575) = 3300 kg × 70% = 2310 kg Budgeted profit Productio Contribution Contribution Materials Materials n per unit $ used remaining Product 300 7 2100 (1) 525 1785 Exe Product 700 8 5600 (1) 1575 210 Zed Product 210/2 = 5 525 (1) Wye 105 Total contribution 8225 Less fixed costs 6200 (1) Budgeted profit 2025 (1)OF 4(e) Calculate the budgeted profit or loss for September 2026, if option B is adopted. 3 New contribution per unit product Wye: $5 – $3 = $2 $ Profit from Proposal A from 4(d) 2025 Product Wye: 495 × $2 990 (1) Additional fixed costs (800) (1) Profit 2215 (1)OF Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/ 4(f) Advise the directors which option they should choose. Justify your answer by 7 considering the advantages and disadvantages of each option. Option A (max 3) Advantages Quality of goods produced is unchanged (1) Will not need to deal with new suppliers (1) Labour might be reduced due to less production (1) Disadvantages May result in loss of customers (for Product Wye) who may cancel their entire orders (1) Produces slightly lower profit (1)OF Option B (max 3) Advantages Demand can be met for all 3 products (1) Ensures full production and so no risk of losing direct labour (1) More frequent deliveries may reduce storage costs/reduce wastage (1) Makes a slightly higher profit than Option A (1)OF Disadvantages Quality of materials may not be maintained (1) Reliability of new supplier (1) Delivery charges might increase (1) Accept other valid responses Decision with justification (1) (Max 7) Trace ID: PC-FE43B336D8 Re-uploading, mirroring or re-hosting this file on any other website or domain is unauthorised and traceable. Licensed for hosting on papacambridge.com only. PapaCambridge Downloaded from PapaCambridge - https://papacambridge.com/