Accounting 9706/33 October/November 2022: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 3 Structured Questions, October/November 2022. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Read Source A1 in the insert.
(a) Prepare the correct:
(i) income and expenditure account
Workings:
[12]
(ii) statement of financial position, clearly disclosing the surplus or deficit for the year.
…… [7]
(b) Advise the managing committee whether or not they should introduce a policy of cancelling the membership of members whose subscriptions are overdue by more than one month.
Justify your answer.
…… [3]
Additional information
Some clubs offer life membership.
(c) Outline the method of accounting for life membership subscriptions and state the accounting concept which is being applied.
Method: ……
Accounting concept: ……
[3]
[Total: 25]
Mark scheme
1(a)(i) GHY Club 12
Income and expenditure account for the year ended 31 December 2021
$ $
Subscriptions W1 9 400 (4)
Profit (1) from sales of refreshments W2 425 (4)
9 825
Rent 6 000
Other operating costs 1 440
Irrecoverable debts 150 (1)
Depreciation (7600+2600) – 9100 1 100 (1) 8690
Surplus 1135 (1)OF
W1 9 200 + (400 – 300) (1) +150 (1) +(200 – 250) (1) = 9 400 (1)OF
W2 810 + (95 -60) (1) + (80 – 170) (1) = 755
1 180 (1) – 755 = 425 (1)OF
1(a)(ii) Statement of financial position at 31 December 2021 7
$ $
Non-current assets
Fixtures at valuation 9 100
Current assets
Inventory 170 (1)
Subscriptions in arrears 200 (1) 370
Total assets 9 470
Accumulated fund at 1 January 2021 7 940
Surplus for the year 1 135 (1)OF
Accumulated fund at 31 December 2021 9 075 (1)OF
Current liabilities
Owing to suppliers 95 (1)
Subscriptions in advance 250 (1)
Bank overdraft 50 (1) 395
Total fund and liabilities 9 470
1(b) Funds should be received earlier. (1) 3
Irrecoverable debts should be avoided. (1)
Some members would have paid later and their subscriptions would be lost. (1)
Accept other valid points
Decision (1) Max. (2) for comments
1(c) Life membership receipts are credited to a life membership fund (1) and released to the income and expenditure account 3
over a number of years (1)
Accruals concept (1)
Read Source A2 in the insert.
(a) State when an intangible asset can be recognised in accordance with IAS 38.
…… [2]
Additional information
All three companies had ordinary share capital of $400 000. It is the policy of the companies to charge a full year’s amortisation (depreciation) on any intangible asset.
Information relating to one ordinary share was as follows:
Par value Market price
$ $
AB plc 1.00 1.20
CD plc 0.50 1.08
EF plc 0.80 2.35
(b) Calculate for each company:
(i) the earnings per share to the nearest whole cent
Workings Earnings per share
AB plc
CD plc
EF plc
[10]
(ii) the price earnings ratio to two decimal places.
Price earnings ratio
AB plc
CD plc
EF plc
[3]
Additional information
Simon is considering investing in one of the three companies.
(c) Name two other ratios of these companies which Simon might wish to consider.
1 ……
2 ……
[2]
(d) Advise Simon which company he should invest in. Justify your answer.
…… [4]
Additional information
The directors’ report of AB plc stated that the development costs had enabled the company to drastically reduce its greenhouse gas emissions.
(e) Explain how this information might affect potential investors.
…… [2]
(f) State two other matters which might be covered in the directors’ report of AB plc.
1 ……
2 ……
[2]
[Total: 25]
Mark scheme
2(a) When it is probable that future economic benefits will flow from the asset to the company (1) 2
When the cost of the asset can be reliably measured (1).
2(b)(i) 10
Earnings per share
AB plc 200000 − 80000 (1)
= 30 cents or $0.30 (1)OF
400000 (1)
CD plc 200000 − 30000 (1) − 2500 (1)
= 21 cents or $0.21 (1)OF
800000 (1)
EF plc 200 000 − 4 000 (1)
= 39 cents or $0.39 (1)OF
500 000 (1)
2(b)(ii) 3
Price earnings ratio
AB plc 1.20
= 4.00 (1)OF
0.30
CD plc 1.08
= 5.14 (1)OF
0.21
EF plc 2.35
= 6.03 (1)OF
0.39
2(c) any two ratios for (1) each, e.g. dividend yield, dividend cover, dividend per share, return on capital employed. 2
2(d) AB has the lowest profit for the year while EF has the highest (1). 4
CD has the lowest earnings per share, largely because the share capital is denominated in shares with a smaller par value
(1).
AB has the lowest price earnings ratio meaning that investors have the least confidence in the future performance of the
company (1).
Accept other valid points
Decision (1)
Max (3) for comments
2(e) This might earn the company a reputation for being a forward thinking/responsible/admirable business (1). 2
This might encourage customers to develop a brand preference for AB plc (1).
This could increase future profits and/or dividends (1).
A good reputation might cause the market value of the shares to rise meaning that investors make a capital gain (1).
Accept other valid points
Max (2)
2(f) Review of the year’s performance (1) 2
Anticipated future progress of the business (1)
Events after the date of the statement of financial position with a material effect on the business (1)
Names of the directors with their responsibilities and interest in the company (1)
Dividends (1)
Donations made by the company (1)
Policy on the employment of disabled people (1)
Employee representation (1)
Accept other valid points
Max (2)
Read Source A3 in the insert.
(a) Suggest two reasons why the merger made possible the savings in administrative expenses.
1 ……
2 ……
[2]
(b) Prepare the forecast income statement for the partnership for the year ending 30 June 2023.
…… [8]
Additional information
The partners expect that in the year ending 30 June 2023 they will make drawings as follows:
$
Alan 19 800
Doreen 17 200
The partners decided to maintain fluctuating capital accounts.
(c) Prepare the partners’ forecast capital accounts for the year ending 30 June 2023.
Workings:
[10]
(d) State two advantages of a partnership maintaining fixed capital accounts and current accounts.
1 ……
2 ……
[2]
(e) Advise Doreen whether or not merging her business with Alan’s business is a good strategy.
Justify your answer.
…… [3]
[Total: 25]
PLEASE TURN OVER
Mark scheme
3(a) Doreen could start selling Alan’s products saving on invoicing (1). 2
Staff requirements may be reduced (1).
Economies of scale (1).
Savings in office costs (1)
Accept other valid points
Max (2)
3(b) Alan and Doreen 8
Forecast income statement for the year ending 30 June 2023
$ $
Revenue (76 900 + 112 000) 188 900 (1)
Inventory of finished goods at 1 July 2022 13 480 *
Purchases 58 600 (1)
Cost of production 31 110 (1)
103 190
Inventory of finished goods at 30 June 2023 13 290 (1)* both
Cost of sales 89 900
Gross profit 99 000
Administrative expenses W1 35 840 (2)
Distribution costs (11 200 + 18 600 – 1 680) 28 120 (1)
Profit from operations 35 040
Finance costs (1 510 – 640) 870 (1)
Profit for the year 34 170
W1 (20 950 × 0.8) + (21 200 × 0.9) = 16 760 (1) + 19 080 (1) = 35 840
3(c) Capital accounts 10
Alan Doreen Alan Doreen
$ $ $ $
Goodwill 32 000 (1) 48 000 (1) Opening 142 600 245 230 W1
balance
Drawings 19 800 17 200 (1) Profit 13 668 20 502 (1)OF
Bal c/d 104 468 200 532
156 268 265 732 156 268 265 732
W1 EITHER
Alan Doreen
$ $
Original capital 89 200 (1) 126 230 (1)
Revaluation 23 400 (1) 69 000 (1)
Goodwill 30 000 (1) 50 000 (1)
Revised capital 142 600 245 230
OR
Alan Doreen
$ $
Non-current assets 122 000 (1) 192 000 (1)
Other assets less liabilities (9 400) (1) 3 230 (1)
Goodwill 30 000 (1) 50 000 (1)
Revised capital 142 600 245 230
3(d) The capital accounts identify partners’ permanent investment (1). 2
The current accounts show up when a partner’s drawings exceed the profit share (1).
The capital accounts enable interest on capital to be calculated easily (1).
They separate revaluation gains from trading profits (1).
Accept other valid points
Max (2)
3(e) Cost savings mean that both partners have an increase in profit (1)OF. 3
Doreen is now a partner in a business with a stronger capital base (1).
Doreen has a partner to provide new ideas and possibly help with the workload (1).
Alan is taking out more in drawings than his share of profit which may cause problems in the longer run (1).
Doreen is no longer in sole charge and disagreements may arise (1).
Accept other valid points
Decision (1).
Max (2) for comments
Read Source A4 in the insert.
(a) State three reasons why a business prepares a statement of cash flows.
1 ……
2 ……
3 ……
[3]
(b) Prepare the statement of cash flows for XY plc for the year ended 31 December 2021 in accordance with IAS 7. Use the space provided to show your workings.
Workings:
…… [22]
[Total: 25]
Section B: Cost and Management Accounting
Answer all questions.
Mark scheme
4(a) It may be a regulatory requirement (1) 3
Prepared on a cash basis (1)
Shows movement of cash (1)
Reconciles profit with cash movement (1)
Max (3)
Accept other valid answers.
4(b) XE plc 22
Statement of cash flows for the year ended 31 December 2021
$ $
Profit from operations (66.5 + 11.2 ) 77 700 (1)
Depreciation – motor vehicle 20 800 (1)
- fittings 7 100 (1)
Loss on disposal W1 1 100 (2)
Increase in inventory (9 900) (1)
Increase in trade receivables W2 (7 900) (3)
Decrease in trade payables W3 (3 000) (3)
Cash from operations 85 900
Interest paid (8 600) (1)
Net cash from operating activities 77 300 (1)OF
Cash flow from investing activities
Purchase of fittings (3 700) (1)
Proceeds of sale of motor vehicle 17 600 (1)
Net cash used in investing activities 13 900 (1)OF
Cash flow from financing activities
Loan repayment (32 000) (1)
Dividends paid (24 000) (1)
Net cash from financing activities (56 000) (1)OF
Net increase in cash and cash equivalents 35 200 (1)OF
Cash and cash equivalents on 31 December 2020 (22 600)
Cash and cash equivalents on 31 December 2021 12 600 (1)
W1 depreciation on disposal = 53 200 + 20 800 – 66 800 = 7 200 (1)
loss on disposal = 25 900 – 17 600 – 7 200 = 1 100 (1of)
W2 (710 400 – 5 000) (1) – (701 600 – 4 100) (1) = 7 900 (1of)
W3 426 800(1) – (431 700 – 1 900 (1) = (3 000) (1of)
Read Source B1 in the insert.
(a) Calculate, for month 2, the following:
(i) sales volume variance
…… [2]
(ii) material price variance
…… [2]
(iii) material usage variance
…… [2]
(iv) labour rate variance
…… [2]
(v) labour efficiency variance.
…… [2]
(b) Discuss the change between month 1 and month 2 for each of the following variances.
Suggest one reason for the change.
(i) material price variance
…… [2]
(ii) material usage variance
…… [2]
(iii) labour rate variance
…… [2]
(iv) labour efficiency variance
…… [2]
Additional information
Tommy so far has only calculated variances for sales, direct material and direct labour. His brother has suggested that in future Tommy should extend his variance analysis to fixed overheads.
(c) Advise Tommy whether or not he should also start to calculate fixed overhead variances.
Justify your answer.
…… [5]
(d) State two reasons why setting standard costs might be useful, other than for variance analysis.
1 ……
2 ……
[2]
[Total: 25]
Mark scheme
5(a) Sales volume 105 × (12 500 – 10 000) = 262 500 F (2) 10
Material price 26 250 × (12 – 11.9) = 2 625 F (2)
Material usage 12 × (25 000 – 26 250) = 15 000 A (2)
Labour rate 40 000 × (11 – 10.6) = 16 000 F (2)
Labour efficiency 11 × (37 500 – 40 000) = 27 500 A (2)
* one mark for amount and one mark for direction
5(b) Material price This has improved/gone from adverse to favourable (1). 8
As the business became more established it could negotiate a better deal (1).
With the increase in production discounts were available for bulk purchases (1).
Material usage This has improved but is still adverse (1).
Staff are new and inexperienced which leads to wastage, but their skills are improving (1).
Labour rate This has become less favourable (1).
Staff have become unionized and now demand higher wages/higher skilled staff (1).
Labour efficiency This is much improved but still adverse (1).
As they become more used to the job staff are able to work faster, and then can be expected to improve further (1).
Per variance – (1) mark for change and max (1) for comments
Accept other valid points for comments
5(c) It would be time consuming (1). 5
It might only inform Tommy about changes over which he had no control (1).
It would enable him to reconcile total actual cost with total standard cost/total actual profit with total standard profit (1).
The fixed overhead expenditure variance would show if there had been any cost savings (1).
The fixed overhead volume variance would show if fixed overheads had been under or over absorbed because of changes
in output (1).
Decision (1) and comments max (4)
Accept other valid points
5(d) Quoting prices for orders (1) 2
Setting budgets (1)
Accept other valid points
Read Source B2 in the insert.
(a) State the term used to describe the factor which causes a change in the cost of an activity.
…… [1]
(b) Complete the table to calculate the total profit made in the month by each of Product A and
Product B. Apportion the administration and distribution costs on the basis of the number of units sold.
Product A Product B
$ $
Sales value
Direct material
Direct labour
Machine set-ups
Quality inspections
Administration and distribution
Profit
Workings:
[11]
(c) Calculate the total profit made in the month by each of Product A and Product B if the administration and distribution costs are apportioned on the basis of sales value. Start your calculation with your answer from (b).
…… [6]
(d) Suggest two different bases which LT plc could use to apportion administration and distribution costs, other than sales units and sales value.
1 ……
2 ……
[2]
Additional information
The directors are also considering changing their pricing strategy so that a fixed mark-up on total cost is applied to both products.
(e) Advise the directors whether or not a fixed mark-up on total cost should be applied. Justify your answer.
…… [5]
[Total: 25]
Mark scheme
6(a) Cost driver (1) 1
6(b) 11
Product A Product B
$ $
Sales value 108 000 105 000 (1) both
Direct material (30 000) (36 000) (1) both
Direct labour (50 000) (24 000) (1) both
Machine set-ups (9 000) (1) (12 000) (1)
Quality inspections (5 000) (1) (10 000) (1)
Administration and distribution (11 502) (1) (17 253) (1)
Profit 2 498 (1)OF 5 747 (1)OF
6(c) 6
Product A Product B
$ $
Profit from (b) 2 498 5 747 (1OF) both
Add back
Administration and distribution 11 502 17 253 (1OF) both
Less
Administration and distribution (14 580) (1) (14 175) (1)
Revised profit/(loss) (580) (1)OF 8 825 (1)OF
6(d) Any two reasonable answers for (1) each, e.g. 2
Number of orders processed and shipped for each product.
Number of staff employed for each product.
6(e) It would ensure the profitability of the business (1) as it would not be possible for a product to make a loss as appears in 5
part (c) (1) and would ensure consistency across products (1).
It would be impossible to apply when there is still disagreement as to how to apportion costs (1) and as the basis of
apportionment may be subjective (1) any loss which the directors seek to eliminate may not be realistic (1).
Additional analysis may first be needed to establish the most suitable cost drivers (1).
Since the business is able to sell all its production at present, it may be better not to increase the existing selling prices (1)
as demand may fall (1). It would be useful to consider what competitors are charging for their products (1). How would the
directors decide on a rate? (1)
Decision (1) and comments max (4)
Accept other valid points
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Accounting 9706/33 for October/November 2022 is out of 150 marks, with 3 hours to answer it, across 6 questions.
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