Accounting 9706/23 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.
The following information has been extracted from the accounting records of T Limited at
30 June 2021.
1 Inventory at 1 July 2020 was valued at $46 800.
2 Inventory at 30 June 2021 was valued at $54 200.
3 The rate of inventory turnover was 8.8 times.
4 The gross profit margin was 45%.
REQUIRED
(a) Calculate for the year ended 30 June 2021:
(i) cost of sales
…… [2]
(ii) revenue.
…… [2]
Additional information
The following balances were extracted from the books of account at 30 June 2021.
$
8% debentures (2026–2027) 96 000
Administrative expenses 55 900
Directors’ remuneration 62 400
Distribution costs 59 200
Finance costs 6 350
Wages and salaries 88 300
Trade receivables 110 360
Provision for doubtful debts at 1 July 2020 1 235
The following information is also available.
1 The 8% debentures (2026–2027) were taken out on 1 November 2020. Interest was paid every three months in arrears, starting on 1 February 2021.
Mark scheme
1(a)(i) $444 400 (2) OF 2
Workings
Average inventory = ($46 800 + $54 200) / 2 = $50 500 (1)
Cost of sales = $50 500 (OF) × 8.8 (1) = $444 400
1(a)(ii) $808 000 (2) OF 2
Workings
$444 400 (OF) × 100/55 (1) = $808 000 (1) OF
1(b) $1485 (4) OF 4
Workings
Net trade receivables $108 000 (1)
61–90 days $108 000 (OF) × 15% = $16 200 × 2.5% = $405 (1) OF
Over 90 days $108 000 (OF) × 10% = $10 800 × 10% = $1080 (1) OF
Balance $1485 (1) OF
Alternatively
(b) rate of provision = (15% × 2.5%) + (10% × 10%) = 1.375%
Provision = 1.375% × (110 360 – 2360) = $1485
1(c) T Limited 11
Income statement for the year ended 30 June 2021
$
Revenue 808 000
Cost of sales (444 400)
Gross profit 363 600 (1) OF
Administrative expenses W1 (159 340) (6) OF
Distribution costs W2 (184 070) (2) OF
Profit from operations 20 190
Finance costs (7 630) (1)
Profit for the year 12 560 (1) OF
W1 Administrative expenses W2 Distribution costs
$ $
Balance 55 900 Balance 59 200
Directors’ remuneration 46 800 (1) Directors’ remuneration 27 600 (1)
Depreciation 26 400 (1) Depreciation 32 800
Wages and salaries 27 630 (1) Wages and salaries 64 470
Irrecoverable debt 2 360 (1) 184 070 (1) OF
Increase in Prov for DD 250 (1) OF
159 340 (1) OF
1(d) T Limited 6
Statement of Changes in Equity for the year ended 30 June 2021
Share Share Revaluation Retained
capital premium reserve earnings Total
$ $ $ $ $
At 1 July 2020 440 000 – 7 500 86 320 533 820
Revaluation (7 500) (2 500) (10 000) (1) for row
Rights issue 220 000 82 500 302 500 (1) for row
Bonus issue 66 000 (66 000) – (1) for row
Final dividend (18 150) (18 150) (1) for row
Profit for the year 12 560 12 560 (1) OF for row
At 30 June 2021 726 000 16 500 - 78 230 820 730 (1) OF for row
1(e)(i) Revenue / Net book value of non-current assets (1) 1
1(e)(ii) How efficiently the business is utilising non-current assets to generate revenue (1) 1
Accept other valid responses.
1(f) Based on historic data (1) 3
Non-financial factors not included (1)
Ignores inflation (1)
Different accounting policies (1)
Different year-ends (1)
Different size of business (1)
Max 3 marks
Accept other valid responses.
Wages and salaries of $3800 were owing at 30 June 2021.
Mark scheme
2(a) To make sure the retiring partner gets a fair share of the up-to-date value of the net assets (1) 1
Accept other valid responses.
2(b) Revaluation Account 3
$ $
Motor vehicles 4 500 (1) both Property 12 000 (1)
Inventory 1 200
Capital accounts
Abbie 3 150
Ben 2 100 (1)
Cain 1 050
12 000 12 000
Alternative presentation acceptable.
2(c) Capital Accounts 6
Abbie Ben Cain Abbie Ben Cain
$ $ $ $ $ $
Motor vehicle 14 500 Balance b/d 60 000 40 000 20 000
Current account 3 250
(1) both
Loan account 37 350 Revaluation 3 150 2 100 1 050
(1) OF (1) OF
row
Goodwill ** 23 400 15 600 Goodwill ** 19 500 13 000 6 500
(1) for both
Balance c/d 59 250 39 500 Bank 27 550
(1) OF
82 650 55 100 55 100 82 650 55 100 55 100
Balance b/d (1) OF for 59 250 39 500
all
2(d) Option 1 (max 2 marks) 5
The main purpose of an overdraft is to secure temporary working capital (1)
As the settlement is a longer-term commitment, the bank may not agree to the overdraft (1)
Even with the additional capital introduced by Cain, the partnership is still short of liquid working capital (1)
Is the partnership sufficiently profitable to repay the overdraft? (1)
Option 2 (max 2 marks)
Would Ben agree to leave the full balance owing in addition to the $10 000 he has already agreed to ? (1)
The 5% interest rate is likely to be substantially less expensive than the overdraft interest rate (1)
Advice (1)
Accept other valid responses
At 30 June 2021, a bonus was due to be paid to the sales director of $12 000.
Mark scheme
3(a) Provision for Depreciation – Plant and Machinery 5
Date Details $ Date Details $
2021 Disposal 900 2020
Jan 1 (1) Aug 1 Balance b/d 12 200
July 31 Disposal 790 July 31 Income statement 3 428
(1) W1 (1)
Balance c/d 13 938
15 628 15 628
Aug 1 Balance b/d 13 938
(1) OF
W1 26 800 – 12 200 + 4 200 – 1 600 – 60 = 17 140 × 20% = $3 428 (1)
1 mark for all correct dates and labels.
3(b) Disposal Account 7
Date Details $ Date Details $
2021 Plant and Machinery – 2021 Plant and Machinery
Jan 1 Cost 2 500 Jan 1 – Provision for 900
(1) Depreciation (1) OF
July 31 Plant & Machinery – Plant and Machinery
Cost 850 – Cost 1 750
(1) (1)
July 31 Income statement 90 July 31 Plant and Machinery
(1) OF – Provision for 790
Depreciation (1) OF
3 440 3 440
1 mark for all correct dates and labels
3(c) Depreciation is charged to comply with the matching/accruals concept (1). As machinery is likely to be more productive in 3
its early years, the reducing balance method initially charges higher depreciation in those years (1). This ensures that the
value of plant and machinery is more realistic and represents a true and fair view (1)
Accept any other appropriate responses
Max 3
Expenses were to be allocated as follows:
Administrative Distribution expenses costs
Wages and salaries 30% 70%
Directors’ remuneration 75% 25%
5 Depreciation is to be charged as follows:
Motor vehicles for office staff $26 400
Delivery vehicles $32 800
6 A credit customer owing $2360 from 12 April 2021 has been declared bankrupt and the debt is to be written off to administrative expenses.
7 Aged analysis of net trade receivables at 30 June 2021:
0–60 61–90 Over 90 days days days
Percentage of total net trade receivables 75% 15% 10%
8 The directors wish to make a provision for doubtful debts as follows:
Debts 61–90 days 2.5%
Debts over 90 days 10%
The movement in the provision is to be charged to administrative expenses.
REQUIRED
(b) Calculate the balance of the provision for doubtful debts at 30 June 2021.
…… [4]
(c) Prepare the income statement for the year ended 30 June 2021. Use the space on the next page for your workings.
T Limited
Income Statement for the year ended 30 June 2021
$
Revenue
Cost of sales
Gross profit
Administrative expenses
Distribution costs
Profit from operations
Finance costs
Profit for the year
Workings
Administrative expenses
Distribution costs
Finance costs
Other workings
[11]
Additional information
The following transactions had also taken place during the year ended 30 June 2021.
Date Transaction
1 July 2020 Freehold property was revalued downwards by $10 000.
1 July 2020 Made a rights issue of one ordinary share of $2 each for every two shares held. This was offered at a premium of $0.75. The issue was fully subscribed.
1 March 2021 Made a bonus issue of one ordinary share of $2 each for every ten shares held. Reserves were left in the most flexible form.
31 March 2021 Paid a dividend of $0.05 per share on all shares in issue at that date.
REQUIRED
(d) Prepare the statement of changes in equity for the year ended 30 June 2021.
T Limited
Statement of Changes in Equity for the year ended 30 June 2021
Ordinary Share Revaluation Retained share capital premium reserve earnings Total
$ $ $ $ $
At 1 July 2020 440 000 – 7500 86 320 533 820
At 30 June 2021
[6]
Additional information
The directors make use of accounting ratios to interpret the information contained within the financial statements.
REQUIRED
(e) (i) State the formula for calculating the non-current asset turnover.
…… [1]
(ii) State what information the directors would obtain from calculating the non-current asset turnover.
…… [1]
(f) State three limitations of ratio analysis when comparing the performance of businesses in the same industry.
1 ……
2 ……
3 ……
[3]
[Total: 30]
2 Abbie, Ben and Cain have been in partnership for many years sharing profits and losses in the ratio 3 : 2 : 1.
The partnership’s draft statement of financial position at 30 June 2021 is shown below.
Abbie, Ben and Cain
Statement of financial position at 30 June 2021
$
Non-current assets
Property 65 000
Motor vehicles 52 000
117 000
Current assets
Inventory 18 200
Trade receivables 13 700
Bank 800
32 700
Total assets 149 700
Capital and liabilities
Capital accounts
Abbie 60 000
Ben 40 000
Cain 20 000
120 000
Current accounts
Abbie 18 520
Ben (3 250)
Cain 6 230
21 500
Current liabilities
Trade payables 8 200
Total capital and liabilities 149 700
Ben retired from the partnership on 30 June 2021 and the following was agreed.
1 Ben should retain one of the motor vehicles at the net book value $14 500.
2 The remaining motor vehicles should be revalued at $33 000.
3 Property should be revalued at $77 000.
4 Inventory should be revalued at $17 000.
5 The value of goodwill was $39 000 and it was not to be retained in the books of account.
Any amounts due to Ben were to be transferred to a short-term loan to be repaid from the partnership bank account within one month.
Abbie and Cain decided to continue in partnership sharing profits and losses in the ratio 3 : 2.
Cain agreed to pay sufficient funds into the partnership bank account so that the partners’ capital account balances reflected the new profit-sharing ratio.
REQUIRED
(a) State one reason why a partnership may revalue assets on the retirement of a partner.
…… [1]
(b) Prepare the revaluation account at 30 June 2021.
Revaluation Account
$ $
[3]
(c) Prepare the partners’ capital accounts at 30 June 2021 on the next page.
Capital Accounts
Abbie Ben Cain Abbie Ben Cain
$ $ $ $ $ $
10
[6]
Additional information
Ben has indicated that he may be willing to leave $10 000 as an interest-free loan, but he requires any other amount due to be paid within one month.
In order to maintain sufficient working capital, Abbie and Cain are considering two options to finance the settlement due to Ben.
Option 1: Request an overdraft facility from the bank.
Option 2: Ask Ben to consider leaving the whole amount due as a 5% loan repayable over ten years in equal annual instalments.
REQUIRED
(d) Advise Abbie and Cain which option they should choose to finance the amount due to Ben.
…… [5]
[Total: 15]
3 Petra owns a small manufacturing business. Her depreciation policy is as follows:
Non-current asset Depreciation policy
Plant and machinery 20% per annum reducing balance method
A full year’s depreciation is charged in the year of purchase but none in the year of sale.
The following information in respect of plant and machinery has been extracted from the books of account for the year ended 31 July 2021.
Date Details
1 August 2020 Cost, $26 800; Provision for Depreciation, $12 200.
1 January 2021 Purchased new machinery, cost $4200. This was settled by a cheque payment of $2450 and part exchange of machinery that had originally cost
$2500 in September 2018.
31 July 2021 Machinery with an original cost of $850 and a net book value of $60 was scrapped with no proceeds.
REQUIRED
(a) Prepare the provision for depreciation account for plant and machinery for the year ended
31 July 2021.
Provision for Depreciation – Plant and Machinery
Date Details $ Date Details $
2020
Aug 1 Balance b/d 12 200
[5]
Workings:
(b) Prepare the disposal account for the year ended 31 July 2021.
Disposal Account
Date Details $ Date Details $
[7]
(c) Discuss the reasons why a business may choose to depreciate plant and machinery using the reducing balance method.
…… [3]
[Total: 15]
4 EMM is a manufacturing business producing one product, a wooden desk.
The business is contracted to supply 220 desks each week to H Co, a large retailer, at a selling price of $44 per unit.
The costs incurred by EMM are as follows:
$
Direct material 36.00 per unit
Production labour
Salaries 410.00 per week
Bonus 0.50 per unit
Finishing labour
Salaries 180.00 per week
Bonus 0.30 per unit
Machine hire 120.00 per week
Administration costs 400.00 per week
Rent and rates 240.00 per week
REQUIRED
(a) Calculate the weekly break-even point in units.
…… [3]
(b) (i) Define the term ‘margin of safety’.
…… [1]
(ii) Explain the usefulness of the margin of safety to a business.
…… [2]
(c) Prepare a weekly profit statement using marginal cost principles.
…… [3]
Additional information
EMM is concerned about future prospects. It has spare direct labour capacity and the machinery is not being fully utilised.
EMM has been approached by K Limited, a large furniture company, requesting a quotation to supply 80 desks each week. K Limited would require a small design change to the desks, and this would add $5.40 to the direct material cost. Workers on these desks would receive an additional finishing labour bonus of $0.20 per unit.
REQUIRED
(d) Calculate the selling price per unit that EMM should quote to K Limited in order to achieve a
20% contribution to sales ratio.
…… [3]
Additional information
It has been decided to quote a price of $48 per unit to K Limited.
This work would involve employing extra finishing labour at a weekly salary of $120 and hiring an additional machine at $30 per week.
The contract with H Co to produce 220 desks each week would still be continued at a price of
$44 per unit.
EMM has decided to set an annual target profit of $17 000.
REQUIRED
(e) Prepare a profit statement for EMM to show the total weekly contribution and total weekly profit if K Limited accepts the quotation.
…… [5]
Additional information
K Limited have advised EMM that they will only proceed with the order if they are given
5% settlement discount for paying the account within seven days.
REQUIRED
(f) Calculate the total weekly profit of EMM if EMM agrees to giving the settlement discount.
…… [1]
(g) Advise EMM whether or not the terms proposed by K Limited should be accepted. Justify your answer using both financial and non-financial factors.
…… [7]
(h) State two advantages of cost–volume–profit analysis to management.
1 ……
2 ……
[2]
(i) State three limitations of cost–volume–profit analysis.
1 ……
2 ……
3 ……
[3]
[Total: 30]
Mark scheme
4(a) 188 units (3) W 3
Variable costs $0.50 + $0.30 + $36.00 = $36.80
Fixed costs $410 + $180 + $120 + $400 + $240 = $1350 (1)
Contribution $44.00 - $36.80 = $7.20 (1)
Breakeven point $1 350 (1) / $7.20 (1) = 188 units (1) OF
4(b)(i) The difference between the breakeven point and forecast sales. (1) 1
4(b)(ii) Allows a business to see how far sales could fall before making a loss. (1) 2
It is a basic measure of risk (1)
4(c) 3
$
Revenue 9 680
Cost of sales 8 096
Contribution 1 584 (1)
Fixed costs 1 350 (1) OF
Profit for the week 234 (1) OF
4(d) $53.00 (3) W 3
$
Variable costs 36.80 OF
Additional direct material 5.40
(1)
Additional finishing labour bonus 0.20
Total variable costs 42.40 (1) OF
Selling price $42.40 × 100/80 = $53.00 (1) OF
4(e) 5
$
Sales revenue (220 × $44) + (80 × $48) 13 520 (1)
Variable costs (220 × $36.80) + (80 × $42.40) (11 488) (1) OF
Contribution 2 032 (1) OF
Fixed costs ($1 350 (OF) + $150) (1 500) (1) OF
Profit for the week 532 (1) OF
4(f) 532 (OF) – 192 = $340 (1)OF 1
4(g) Financial (max 3 marks) 7
Will earn additional annual profit of $5512. (1) OF
Target profit will be met. (1) OF
Will H Co expect a similar settlement discount? (1)
Produces a positive contribution. (1)
Non-financial (max 3 marks)
Less reliance on only one customer (1)
Utilises spare capacity (1)
How long-term will the contract be? (1)
Will customer abide by the agreed settlement terms? (1)
Accept any other valid responses
Advise (1)
4(h) Aids short-term decision making. (1) 2
Enables the setting of the most profitable combination of selling price, cost and volume. (1)
Assists management in reviewing and controlling costs. (1)
Accept any other valid responses
Max 2 marks
4(i) Only relevant when dealing with a single product / constant product mix. (1) 3
Assumes that the selling price remain constant. (1)
Assumes that production volume matches sales volume. (1)
Assumes variable cost per unit remains constant (1)
Assumes fixed costs remain fixed (1)
Accept any other valid responses
Max 3 marks
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 9706/23 October/November 2021 mark scheme?+
On this page, free: the mark scheme for AS & A Level Accounting 9706/23, October/November 2021 (9706_w21_ms_23), and the question paper (9706_w21_qp_23), to read or download, with each question's marking points written out underneath.
How many marks is 9706/23 out of?+
Accounting 9706/23 for October/November 2021 is out of 90 marks, with 1 hour 30 minutes to answer it, across 4 questions.
Can I get my 9706/23 answers marked?+
Yes. Upload your answers to 9706/23/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.