Accounting 9706/23 October/November 2023: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, October/November 2023. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
B Limited provided the following information for the year ended 30 September 2023.
$
8% debenture (2025) 60 000
Administrative expenses 161 100
Allowance for irrecoverable debts at 1 October 2022 3 820
Cash and cash equivalents 4 680
Distribution costs 84 650
Dividend paid 4 000
Finance costs 3 950
Inventory 74 000
Other payables 1 860
Other receivables 940
Property plant and equipment at 1 October 2022
Cost / valuation 408 400
Accumulated depreciation 110 650
Retained earnings at 1 October 2022 45 850
Revaluation reserve at 1 October 2022 10 000
Share capital (ordinary shares of $1 each) at 1 October 2022 200 000
Share premium at 1 October 2022 14 000
Trade payables 57 150
Trade receivables 82 680
The revaluation reserve relates to land only.
The gross profit for the year ended 30 September 2023 was $321 070.
The following information is also available.
Property plant and equipment at 1 October 2022
Cost / Accumulated Depreciation Allocation of valuation depreciation method depreciation
$ $
Land 95 000 Nil – Nil
Buildings 215 000 53 750 5% per annum 60% administrative straight line expenses
Equipment 98 400 56 900 20% per annum 40% distribution reducing balance costs
Total 408 400 110 650
There were no acquisitions or disposals of non-current assets during the year.
The following have not yet been accounted for:
On 30 September 2023
1 Land was revalued at $80 000.
2 A bonus issue of one ordinary share for every ten shares held was made.
At 30 September 2023
1 Irrecoverable debts of $1480 were to be written off.
2 The directors proposed to maintain the allowance for irrecoverable debts at 5% of trade receivables.
3 Depreciation was to be charged for the year ended 30 September 2023.
4 Administrative expenses of $2480 were owing.
5 Distribution costs of $750 were prepaid.
6 Debenture interest for five months was owing.
7 The charge for taxation was estimated to be $12 500.
(a) Prepare an extract from the statement of profit or loss for the year ended 30 September 2023 commencing with the gross profit for the year.
B Limited
Statement of profit or loss for the year ended 30 September 2023
$
Gross profit for the year
Distribution costs
Administrative expenses
Profit from operations
Finance costs
Profit before taxation
Taxation
Profit for the year
Workings:
Distribution costs
Administrative expenses
[10]
(b) Prepare the statement of financial position at 30 September 2023. Use the space provided on page 7 to show your workings.
B Limited
Statement of financial position at 30 September 2023
Workings:
Non-current assets
Trade and other receivables
Retained earnings
Trade and other payables
[15]
Additional information
The directors wish to raise additional finance and they are considering two options.
Option 1: make a rights issue of one ordinary share for every four shares held at a premium of
$0.10 per share.
Option 2: issue a further 8% debenture (2028) to raise $50 000.
(c) Advise the directors which option they should choose. Justify your answer.
…… [5]
[Total: 30]
Mark scheme
1(a) Prepare an extract from the statement of profit or loss for the year ended 10
30 September 2023 commencing with the gross profit for the year.
B Limited
Statement of profit or loss for the year ended 30 September 2023
$
Gross profit 321 070
Distribution costs W1 (91 520) (3)OF
Administrative expenses W2 (176 730) (5)OF
Profit from operations 52 820
Finance costs (5 950) (1)
Profit before taxation 46 870
Taxation (12 500)
Profit for the year 34 370 (1)OF
W1 Distribution costs
84 650 + 7620 (1) – 750 (1) = $91 520 (1)OF
W2 Administrative expenses
161 100 + 1480 (1) + 240 (1) + 11 430 (1) + 2480 (1) = $176 730 (1)OF
1(b) Prepare the statement of financial position at 30 September 2023. 15
B Limited
Statement of financial position at 30 September 2023
$
Assets
Non-current assets 263 700 (1)
Current assets
Inventory 74 000 (1)
Trade receivables W1 77 140 (1)
Other receivables W2 1 690 (1)
Cash and cash equivalents 4 680 (1)
157 510
Total assets 421 210 (1)OF
Equity and liabilities
Equity
Share capital 220 000
Retained earnings W3 65 220 (4)OF
Total equity 285 220
Non-current liabilities
8% debentures (2025) 60 000 (1)
Current liabilities
Trade payables 57 150 (1)
Other payables W4 6 340 (1)
Taxation 12 500 (1)
75 990
Total liabilities 135 990
Total equity and liabilities 421 210 (1)OF
W1 Trade receivables.
82 680 – 1480 – 4060 = $77 140 (1)
W2 Other receivables
940 + 750 = $1690 (1)
W3 Retained earnings.
45 850 + 34 370 (OF) – 4000 (1) – 6000 (1) – 5000 (1) = $65 220 (1)OF
W4 Other payables
1860 + 2480 + 2000 = $6340 (1)
1(c) Advise the directors which option they should choose. Justify your 5
answer.
Option 1 – rights issue
• Rights issue is a permanent source of capital (1)
• Dividend payment is discretionary (1)
• Will issue be fully subscribed? (1)
• Will raise $60 500 cash (1)
Option 2 – 10% debenture
• Debenture will have to be repaid (1)
• Interest must be paid whether profits or losses (1)
• Interest payments will reduce profits (1)
• Security may be required (1)
Accept other valid responses.
Max 4
Advice supported with a comment
Alex owns a business selling computer equipment. He provided the following information for the year ended 31 July 2023.
1 Opening inventory at 1 August 2022 was $19 100.
2 Gross profit for the year ended 31 July 2023 was $56 380.
3 Cash sales were $36 870. All other sales were made on credit.
4 All sales were made to achieve a gross margin of 25%.
5 All purchases were made on credit.
6 Inventory turnover was 8 times per annum.
7 Trade receivables at 31 July 2023 were $23 150.
8 Trade payables at 31 July 2023 were $17 370.
(a) Calculate the trade receivables turnover (days) for the year ended 31 July 2023. State the formula used.
Formula
Calculation
[3]
(b) (i) State the formula used to calculate the rate of inventory turnover (times).
…… [1]
(ii) Calculate the closing inventory at 31 July 2023.
…… [3]
(c) Calculate the trade payables turnover (days) for the year ended 31 July 2023. State the formula used.
Formula
Calculation
[3]
Additional information
Alex understands that by comparing his business’s financial results with those of various other businesses he will learn how successful his own business is.
(d) Advise Alex whether his understanding is correct. Justify your answer.
…… [5]
[Total: 15]
Mark scheme
2(a) Calculate the trade receivables turnover (days) for the year ended 31 3
July 2023. State the formula used.
Formula
Trade receivables
× 365 (1)
Credit sales
Calculation
23150
× 365 = 45 days (1)OF
188 650 (1)
2(b)(i) State the formula used to calculate the rate of inventory turnover 1
(times).
Cost of sales
(1)
Average inventory
2(b)(ii) Calculate the closing inventory at 31 July 2023. 3
Cost of sales = 56 380 × 75/25 = 169 140 (1)
8 = ((169 140/8) × 2) = 42 285 (1)
Closing inventory = 42 285 – 19 100 = $23 185 (1)OF
2(c) Calculate the trade payables turnover (days) for the year ended 31 July 3
2023. State the formula used.
Formula
Trade payables
× 365 (1)
Credit purchases
Calculation
Purchases = 169 140 + 23 185 – 19 100 = 173 225
17 370
× 365 = 37 days (1)OF
173 225 (1)
2(d) Advise Alex whether his understanding is correct. Justify your answer. 5
Different businesses may use different accounting methods (1) which will
invalidate the comparison (1).
Also, financial statements only take account of monetary data (1), ignoring
non-financial matters such as staff morale, location of the business etc (1).
Valid comparison is only useful if related to businesses of similar size in the
same business sector (1)
Max 4 for comments
Advice supported by a comment (1)
Accept other valid responses.
The directors of J Limited provided the following information at 1 September 2022.
$
Share capital (ordinary shares of $0.50 each) 60 000
Share premium 21 800
Retained earnings 32 600
Total equity 114 400
During the year ended 31 August 2023 the following transactions took place.
1 December 2022 Made a rights issue of one ordinary share for every five shares held at a premium of $0.20. The issue was fully subscribed.
1 January 2023 Paid a final dividend of 4% on all shares in issue at 1 September 2022.
1 April 2023 Made a bonus issue of three ordinary shares for every eight shares held at that date. The directors wish to leave reserves in the most flexible form.
1 June 2023 Paid an interim dividend of $0.02 per ordinary share on all shares in issue at that date.
Profit for the year ended 31 August 2023 was $16 500.
(a) Prepare the following ledger accounts to record the transactions. Dates are not required.
Share capital
Details $ Details $
Balance b/d 60 000
Share premium
Details $ Details $
Balance b/d 21 800
Retained earnings
Details $ Details $
Balance b/d 32 600
[9]
Additional information
J Limited currently operates a manual system of bookkeeping and the directors are now considering introducing a computerised accounting system.
(b) State three disadvantages of introducing a computerised accounting system.
1 ……
2 ……
3 ……
[3]
(c) State three ways in which the security of data in a computerised accounting system can be assured.
1 ……
2 ……
3 ……
[3]
[Total: 15]
Mark scheme
3(a) Prepare the following ledger accounts to record the transactions. Dates 9
are not required.
Share capital
Details $ Details $
Balance c/d 99 000 Balance b/d 60 000
Bank 12 000 (1)
Share premium 26 600 (1)
Retained earnings 400 (1)
99 000 99 000
Balance b/d 99 000 (1)OF
Share premium
Details $ Details $
Share capital 26 600 Balance b/d 21 800
Bank 4 800 (1)
26 600 26 600
Retained earnings
Details $ Details $
Bank 2 400 (1) Balance b/d 32 600
Share capital 400 Statement of profit or 16 500 (1)
loss
Bank 3 960 (1)
Balance c/d 42 340
49 100 49 100
Balance b/d 42 340 (1)OF
3(b) State three disadvantages of introducing a computerised accounting 3
system.
Installing a computerised accounting system can be expensive (1)
May involve extra expense in staff training (1)
Data may be vulnerable to hacking (1)
Data may be vulnerable to viruses (1)
Max 3
Accept other valid responses
3(c) State three ways in which the security of data in a computerised 3
accounting system can be assured.
Strong unique password protection (1)
Virus protection software (1)
Data encryption (1)
VPN (1)
Max 3
Accept other valid responses
Dev manufactures two products, Aye and Bee. He operates a system of marginal costing.
(a) Explain one difference between marginal costing and absorption costing.
…… [2]
(b) Explain one difference between a direct cost and an indirect cost.
…… [2]
(c) State the meaning of the following terms:
(i) break-even point
…… [1]
(ii) margin of safety.
…… [1]
(d) State three situations where marginal costing can help in decision-making.
1 ……
2 ……
3 ……
[3]
Additional information
Dev’s business operates from one rented factory.
The forecast data for the year ending 31 December 2024 is as follows:
Aye Bee
$ $
Revenue (60 000 units at $11.00) 660 000
Revenue (80 000 units at $8.50) 680 000
Direct materials (192 000) (256 000)
Direct labour (156 000) (208 000)
Supervisor fixed salaries (60 000) (35 000)
Variable overheads (114 000) (152 000)
Fixed factory overheads (33 000) (44 000)
Profit / (loss) 105 000 (15 000)
The fixed factory overheads are allocated on the basis of units produced.
(e) Calculate the break-even point in units for Aye.
…… [3]
(f) Calculate the break-even point in units for Bee.
…… [3]
Additional information
Dev is concerned about the forecast loss for Bee. He is considering two options.
Option 1
Replace the current model Bee with an upgraded model Bee.
Increase the selling price of Bee by 10%.
Increase the direct material price by $0.45 per unit using an upgraded material.
Pay $18 000 for an advertising campaign to announce the upgraded model.
Dev believes that this will result in a 20% increase in units of Bee sold.
Option 2
Discontinue production of Bee.
Make the supervisor of Bee redundant thereby incurring redundancy costs of $6000.
Increase the advertising budget for Aye initially by $8000.
Reduce the selling price of Aye by $0.44 per unit.
Dev believes that this will result in a 50% increase in units of Aye sold.
(g) Calculate the revised total profit of the business if option 1 is adopted.
…… [5]
(h) Calculate the revised total profit of the business if option 2 is adopted.
…… [5]
(i) Advise Dev which option he should choose. Justify your answer.
…… [5]
[Total: 30]
Mark scheme
4(a) Explain one difference between marginal costing and absorption 2
costing.
Marginal costing values inventory at variable cost only (1) whereas absorption
costing values inventory at full cost (1)
OR
Marginal costing treats fixed overheads as period costs (1) whereas
absorption costing treats fixed overheads as a product cost (1)
Accept other valid responses
4(b) Explain one difference between a direct cost and an indirect cost. 2
Direct costs can be specifically allocated to units of production (1)
whereas indirect costs cannot economically be specifically attributed to units
of production (1)
Accept other valid responses
4(c)(i) State the meaning of the following terms: 1
break-even point
Break-even point is the point at which total revenue equals total cost / there is
no profit and no loss (1)
4(c)(ii) margin of safety 1
Margin of safety is the difference between actual / budgeted output and break-
even point (1)
4(d) State three situations where marginal costing can help in decision 3
making.
Make or buy decisions (1)
Accepting a special order (1)
In limiting resource situations (1)
Closure of business unit (1)
Discontinuance of a product line (1)
Max 3
Accept other valid responses
4(e) Calculate the break-even point in units for Aye. 3
Contribution: 11.00 – (3.20 + 2.60 + 1.90) = $3.30
Fixed costs: 60 000 + 33 000 = $93 000
Break-even point: $93 000 (1) / $3.30 (1) = 28 182 (1)
4(f) Calculate the break-even point in units for Bee. 3
Contribution: 8.50 – (3.20 + 2.60 + 1.90) = $0.80
Fixed costs: 35 000 + 44 000 = $79 000
Break-even point: $79 000 (1) / $0.80 (1) = 98 750 (1)
4(g) Calculate the revised total profit of the business if option 1 is adopted. 5
$
Revised contribution:
0.80 – 0.45 + 0.85 = 1.20 × 96 000 115 200 (1)
Revised fixed costs:
79 000 + 18 000 (97 000) (1)
Revised profit Bee 18 200 (1)
Profit Aye 105 000 (1)
Revised total profit 123 200 (1)OF
4(h) Calculate the revised total profit of the business if option 2 is adopted. 5
$
Revised contribution:
3.30 – 0.44 = 2.86 × 90 000 257 400 (1)
Revised fixed costs: W (151 000) (3)
Revised profit Aye 106 400 (1)OF
W Revised fixed costs
(60 000 + 44 000 + 33 000) (1) + (6000 (1) + 8000) (1)
= $151 000
4(i) Advise Dev which option he should choose. Justify your answer. 5
Option 1
Produces higher overall profit than option 2 (1)
Will existing Bee customers favour the upgraded model? (1)
How reliable is estimated 20% sales growth? (1)
Option 2
Will redundancies affect staff morale? (1)
Will discontinuing Bee have negative affect on sales of Aye? (1)
How reliable is estimated 50% sales growth? (1)
Additional advertising and redundancy costs are one-off expenses. (1)
Max 4 for comments
Advice supported with a comment (1)
Accept other valid responses
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Accounting 9706/23 for October/November 2023 is out of 90 marks, with 1 hour 45 minutes to answer it, across 4 questions.
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