Accounting 9706/21 October/November 2021: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Structured Questions, October/November 2021. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Eleni owns a business selling computers. She does not maintain full accounting records.
The following information is available.
At 30 June At 1 July
2021 2020
$ $
Equipment at valuation 3250 3460
Inventory 1940 2210
Trade receivables 5650 7200
Provision for doubtful debts ? 360
Other receivables: rent prepaid 1080 500
Trade payables 2120 1440
Other payables: wages 110 190
Bank 1420 Credit 860 Credit
Cash in hand – 150
Bank loan – 1350
A summary of receipts and payments made through the bank for the year ended 30 June 2021 was as follows:
Receipts $
Receipts from credit customers 58 960
Cash sales banked 3 980
Sale of equipment 180
Payments $
Payments to credit suppliers 39 750
Purchase of equipment 610
General expenses 940
Rent 6 860
Bank loan repayments 1 390
Bank charges 50
Cash withdrawn 14 080
All cash sales are banked.
REQUIRED
(a) Calculate total revenue for the year ended 30 June 2021.
…… [2]
Additional information
Of the cash withdrawn from the bank, Eleni took $450 each month for drawings and paid total wages of $7620 for the year. The remaining cash from the cash till was used to pay for general expenses.
REQUIRED
(b) Prepare the cash account to calculate the amount paid in cash for general expenses.
Cash account
$ $
[3]
Additional information
The following information is also available.
1 Eleni wishes to write off an irrecoverable debt of $50 at 30 June 2021. She wishes to maintain the provision for doubtful debts at the same percentage as the previous year.
2 Equipment sold during the year had a valuation of $140.
REQUIRED
(c) Prepare the income statement for the year ended 30 June 2021.
Eleni
Income statement for the year ended 30 June 2021
Workings:
[12]
(d) Prepare an extract from the statement of financial position at 30 June 2021 to show the capital and liabilities section only.
Eleni
Statement of financial position at 30 June 2021
Capital and liabilities
…… [5]
Additional information
Eleni is concerned that she is not earning enough profit. She is considering increasing her prices by 5%.
REQUIRED
(e) Advise Eleni whether or not she should increase her prices by 5%. Justify your answer.
…… [5]
(f) State three factors that a business should consider when making a provision for doubtful debts.
1 ……
2 ……
3 ……
[3]
[Total: 30]
PLEASE TURN OVER
Mark scheme
1(a) 2
$ $
Receipts from credit customers 58 960
Trade receivables c/f 5 650
Trade receivables b/f (7 200) 57 410 (1)
Cash sales 3 980 3 980 (1)
Total revenue 61 390
1(b) Cash account 3
$ $
Balance b/d 150 Wages 7 620 (1)
Bank 14 080 Drawings 5 400 (1)
General expenses 1 210 (1) OF
14 230 14 230
1(c) Eleni 12
Income statement for the year ended 30 June 2021
$ $
Revenue 61 390 (1) OF
Opening inventory 2 210
Purchases 40 430 (1)
Closing inventory (1 940) 40 700
Gross profit 20 690 (1) OF
Profit on disposal 40 (1)
Decrease in provision for doubtful debts 80 (1)
20 810
General expenses 2 150 (1) OF
Rent 6 280 (1)
Bank interest and charges 90 (1)
Wages 7 540 (1)
Irrecoverable debt 50 (1)
Depreciation 680 (1) 16 790
Profit for the year 4 020 (1) OF
1(d) Eleni 5
Statement of financial position at 30 June 2021
Capital and liabilities $
Capital
Balance brought forward 9 320 (1)
Profit for the year 4 020
13 340
Drawings (5 400) (1)
7 940
Liabilities
Trade payables 2 120
Other payables 110 (1)
Bank overdraft 1 420 (1)
3 650
Total capital and liabilities 11 590 (1) OF
1(e) For (Max 2) 5
Will increase profits if demand is maintained (1)
May give a perception of better quality (1)
Increased profit would cover drawings (1)
Against (Max 2)
May result in a loss of customers resulting in decrease in profits (1)
Need to consider competitor prices/reaction (1)
If goods not sold would increase inventory (1)
Decision (1)
Accept other valid responses
1(f) • Past experience (1) 3
• Specific knowledge (1)
• Amount of trade receivables (1)
• State of the economy (1)
• How long debt outstanding (1)
Max 3
Accept other valid responses
The following balances have been extracted from the books of account of G Limited at
1 October 2020.
Account $
6% debentures (2022–23) 50 000
Retained earnings 34 500
Revaluation reserve 28 000
During the year ended 30 September 2021 the following took place.
Date Transaction
1 November 2020 Made a rights issue of one ordinary share of $1 each for every ten shares held at a premium of 20%. The issue was fully subscribed.
1 March 2021 Paid a dividend of $0.05 per share on all shares in issue at that date.
1 May 2021 Made a bonus issue of one ordinary share of $1 each for every four shares held. The directors decided to leave the reserves in the most flexible form.
30 September 2021 Revalued property downwards by $35 000.
The profit for the year ended 30 September 2021 was $96 000.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 30 September 2021.
G Limited
Statement of changes in equity for the year ended 30 September 2021
Share Share Revaluation Retained capital premium reserve earnings Total
$ $ $ $ $
At 1 October 2020 28 000 34 500
At 30 September 2021 440 000 4 600
Workings:
[8]
Additional information
The directors of G Limited wish to raise $500 000 additional capital for expansion. They have identified two options to raise the full amount.
Option 1: Issue ordinary shares of $1 each.
Option 2: Issue 8% preference shares.
REQUIRED
(b) Advise the directors which option they should choose. Justify your answer.
…… [5]
Additional information
The finance director has suggested that the company could issue further debentures.
REQUIRED
(c) State two characteristics of a debenture.
1 ……
2 ……
[2]
[Total: 15]
PLEASE TURN OVER
Mark scheme
2(a) G Limited 8
Statement of changes in equity for the year ended 30 September 2021
Share Share Revaluation Retained
capital premium reserve earnings Total
$ $ $ $ $
At 1 October 2020 320 000 86 200 28 000 34 500 468 700
(1) (1)
Rights issue 32 000 6 400 38 400
(1 for both)
Dividend paid (17 600) (17 600)
(1) OF
Bonus issue 88 000 (88 000) –
(1 for both)
Revaluation (28 000) (7 000) (35 000)
(1 for both)
Profit for the year 96 000 96 000
(1)
At 30 September 2021 440 000 4 600 - 105 900 550 500
(1 OF for
row)
Accept alternative approach to adjusting revaluation reserve (against profit for the year).
2(b) Option 1 (max 2 marks) 5
The new share issue would dilute current shareholders’ investment (1)
The shares would have voting rights which may leave the current owners vulnerable to loss of control (1)
But dividend payments would be discretionary (1)
Option 2 (max 2 marks)
8% dividend rate is more expensive than current borrowings (1)
The shares do not have voting rights so no likelihood of loss of control (1)
Dividends have to be paid whether the company makes a profit or loss (1)
Accept other valid responses
Decision (1)
2(c) Fixed interest rate (1) 2
Repayable on a specific future date (1)
Secured against assets (1)
Long term (1)
Accept other valid responses
Max 2 marks
Martina has prepared the following sales ledger control account for the month of August 2021. All sales are on credit.
Sales ledger control account for the month of August 2021
$ $
Balance b/d 14 280 Sales returns journal 210
Sales journal 9 540 Bank 11 860
Discounts received 280
Balance c/d 11 470
23 820 23 820
Balance b/d 11 470
Martina produced a list of all customer account balances at 31 August 2021 totalling $10 020.
She discovered that the following errors had been made in the records.
1 Discounts allowed of $1190 had been entered in customers’ accounts but had not been entered in the control account.
2 A credit transfer from a customer of $420 had been correctly entered in the cash book but had been credited to the customer’s account as $240.
3 A credit balance of $60 on a customer’s account had been recorded on the list of balances as a debit balance.
4 A contra to the purchases ledger of $860 had been entered in the customer’s sales ledger account but had not been entered in the control account.
5 A cheque received from a customer of $380 had been returned unpaid by the bank. No entries had been made in Martina’s books of account in respect of the unpaid cheque.
6 Martina had sent a cheque for $20 to a customer who had overpaid his account. The payment had been correctly processed in both the cash book and the customer’s account but had been posted to the purchases ledger control account in error.
REQUIRED
(a) Prepare an adjusted sales ledger control account.
Sales ledger control account
$ $
Balance b/d 11 470
[6]
(b) Prepare an adjusted list of sales ledger balances to agree with the adjusted sales ledger control account balance in part (a).
$
Original total of sales ledger balances 10 020
Adjusted total of sales ledger balances
[4]
(c) Explain how the preparation of a sales ledger control account assists in the prevention of fraud.
…… [2]
(d) State three types of error that will not be identified by preparing a sales ledger control account.
1 ……
2 ……
3 ……
[3]
[Total: 15]
Mark scheme
3(a) Sales ledger control account 6
$ $
Balance b/d 11 470 Discount allowed 1 190 (1)
Bank 380 (1) Purchase ledger control account 860 (1)
Purchases ledger control account 20 (1) Balance c/d 10 100
Discount received 280 (1)
12 150 12 150
Balance b/d 10 100 (1) OF
3(b) $ 4
Original sales ledger balances extracted 10 020
Bank (180) (1)
Credit balance correction (120) (1)
Unpaid cheque 380 (1)
Amended sales ledger balances 10 100 (1) OF
3(c) The sales ledger control account should be maintained by a supervisor or member of staff who is not responsible for that 2
particular ledger (1). This segregation of duties will both act as a deterrent to fraud and also make the discovery of fraud
much easier (1).
3(d) Error of omission (1) 3
Compensating error (1)
Error of commission (1)
Error of original entry (1)
Max 3 marks
B Limited is a manufacturing business. The business uses marginal costing techniques and manufactures three products, Ess, Tee and Ewe.
The following budgeted monthly information is available.
Per unit Ess Tee Ewe
$ $ $
Selling price 30 43 69
Direct material 18 22 36
Direct labour at $8 per hour 4 6 14
Variable overhead 2 3 5
Maximum monthly demand 300 units 400 units 360 units
Fixed overheads are budgeted to be $96 000 per annum.
REQUIRED
(a) Calculate the contribution per unit for each product.
…… [3]
(b) Prepare a statement to show the maximum monthly contribution and maximum monthly profit that B Limited can earn.
…… [3]
(c) Calculate the monthly direct labour hours that B Limited requires to meet the budgeted maximum monthly demand.
…… [1]
Additional information
Due to a shortage of skilled labour, the directors are aware that only 900 direct labour hours per month will be available from 1 December 2021.
REQUIRED
(d) Calculate the maximum contribution and maximum profit for December 2021, taking into account the limited direct labour hours available.
…… [11]
Additional information
In order to overcome the shortage of skilled labour and also be able to meet maximum demand, the directors are considering paying an overtime premium of 25% and paying a total monthly bonus of $200 to be shared between all workers.
REQUIRED
(e) Calculate the total contribution and total profit for the month of December 2021 if the directors decide to carry out this proposal.
…… [4]
(f) Explain two disadvantages to a business of offering a bonus payment to its employees.
1 ……
2 ……
[4]
(g) Explain two disadvantages to a business of operating a system of budgetary control.
1 ……
2 ……
[4]
[Total: 30]
Mark scheme
4(a) Ess Tee Ewe 3
$ $ $
Selling price 30 43 69
Direct material 18 22 36
Direct labour 4 6 14
Variable overhead 2 3 5
Contribution 6 12 14
(1) (1) (1)
4(b) $ 3
Ess 1 800
Tee 4 800
Ewe 5 040
Contribution 11 640 (1) OF
Fixed overheads 8 000 (1)
Profit 3 640 (1) OF
4(c) Hours 1
Ess (300 × 0.5) 150
Tee (400 × 0.75) 300
Ewe (360 × 1.75) 630
1 080 (1)
4(d) Ess Tee Ewe 11
Contribution per unit ($) $6 $12 $14
Direct labour hours 0.5 0.75 1.75
Contribution per direct labour hour ($) $12 (1) $16 (1) $8 (1)
Ranking 2 1 3 (1)
Production plan
$
Tee 400 × 12 4 800 (1)
Ess 300 × 6 1 800 (1)
Ewe 257 (1) × 14 3 598 (1) OF
Maximum contribution 10 198 (1) OF
Fixed overheads (8 000) (1)
Maximum profit 2 198 (1) OF
4(e) $ 4
Original maximum contribution 11 640
Less: overtime premium (360) (1)
Contribution 11 280 (1) OF
Fixed overheads (8 200) (1)
Profit 3 080 (1) OF
4(f) • May cause workers to rush (1) which may affect the quality of the product (1) 4
• Will incur additional expenses (1) which may not be able to be passed on to the customer/may reduce profit (1)
Accept other valid responses
Max 2 Marks x 2 points ( 1 mark for identifying the disadvantage and 1 mark for its development)
4(g) • Based on estimates which may be inaccurate (1) leading to bad decision-making (1) 4
• Budgets may be set too high (1) which may demotivate employees (1)
Accept other valid responses
Max 2 Marks x 2 points ( 1 mark for identifying the disadvantage and 1 mark for its development)
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 9706/21 October/November 2021 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/21, October/November 2021 (9706_w21_ms_21), and the question paper (9706_w21_qp_21), to read or download, with each question's marking points written out underneath.
How many marks is 9706/21 out of?+
Accounting 9706/21 for October/November 2021 is out of 90 marks, with 1 hour 30 minutes to answer it, across 4 questions.
Can I get my 9706/21 answers marked?+
Yes. Upload your answers to 9706/21/O/N/21 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.