Accounting 9706/33 October/November 2023: question paper and mark scheme

Mark scheme

1(a) Complete the following table by calculating the required values for each category of property, plant and equipment 9 at 30 June 2022. Use the space provided to show your workings. Cost Accumulated Carrying value depreciation $ $ $ Premises 480 000 (1) W1 72 000 (1) 408 000 Machinery W2 240 000 (2) W3 204 000 (1) W4 36 000 (1)OF Motor 250 000 (1) W6 74 000 (1)OF W5 176 000 (1)OF vehicles Total 620 000 W1 (480 000 × 0.5) × 0.02 × 15 = 72 000 (1) W2 [12 000/(1 – 0.8) + 24 000/(1 – 0.6)] (1) × 2 (1) = 240 000 W3 240 000 – 36 000 = 204 000 (1)OF OR (240 000/2) + [(240 000/4 – 12 000) + (240 000/4 – 24 000)] = 204 000 (1)OF W4 12 000 + 24 000 = 36 000 (1) W5 620 000 – 408 000 – 36 000 = 176 000 (1)OF W6 250 000 – 176 000 = 74 000 (1)OF 1(b) Prepare the schedule of non-current assets to use as a note to the financial statements for the year ended 14 30 June 2023. K plc Schedule of non-current assets at 30 June 2023 Property, plant and equipment Land and Machinery Motor vehicles Total buildings $ $ $ $ Cost At 1 July 2022 480 000 240 000 250 000 970 000 (1)OF row Acquisitions 180 000 180 000 Disposals (120 000) (1) (80 000) (200 000) Revaluation 310 000 (1) 310 000 At 30 June 2023 790 000 300 000 170 000 1 260 000 (1)OF row Depreciation At 1 July 2022 72 000 204 000 74 000 350 000 (1)OF row Charge for the year 8 000 (1) 30 000 (1) 24 960 (1)OF 62 960 Disposals (120 000) (1)OF (28 800) (1) (148 800) Revaluation (72 000) (1)OF (72 000) At 30 June 2023 8 000 114 000 70 160 192 160 (1)OF row Carrying value at 30 June 782 000 186 000 99 840 1 067 840 (1)OF row 2023 Carrying value at 1 July 408 000 36 000 176 000 620 000 (1)OF row 2022 1(c)(i) State one implication of this for each of: 1 the directors The directors should consider replacing the computer system with one which provides automatic back up (1). Staff training should be improved (1) The directors will be personally liable as they will sign the financial statements if the figures are not correct. (1) Accept other valid responses Max 1 1(c)(ii) State one implication of this for each of: 1 the auditors. The auditors might need to undertake extra investigations to ensure that the financial statements give a true and fair view (1). The auditors might advise the directors to improve the accounting system (1). The auditors will struggle to verify the figures stated in financial statements as no records are available hence can give a qualified report. (1) Accept other valid responses Max 1

Mark scheme

2(a)(i) Calculate: 4 the profit from the sale of refreshments for the year ended 31 December 2022 Purchases = (3 720 + 19 600) (1) + (840 – 620) (1) = $23 540 Cost of sales = 23 540 +1 150 – 1 820 = $22 870 (1)OF Profit = 34 800 – 22 870 = $11 930 (1)OF 2(a)(ii) Calculate: 1 the value of life membership fees to be included in the income and expenditure account for the year ended 31 December 2022. 11 × (1000/10) = $1100 (1) 2(b) Prepare the subscriptions account for the year ended 31 December 2022. 5 Subscriptions account $ $ Balance b/d 360 Balance b/d 240 (1) both Income and 12 120 (1)OF Bank 10 320 } expenditure Cash 1 440 }(1) Irrecoverable debt 120 (1) Balance c/d 120 Balance c/d 480 (1) both 12 600 12 600 2(c)(i) Discuss the effect the following suggestions might have on the bank overdraft and the deficit. 4 Reducing the level of inventory held Bank overdraft The overdraft would reduce (1) because less cash is tied up in inventory (1) Max 2 Deficit There is no effect on the deficit (1) because reducing inventory would not directly affect cost of sales as purchases would reduce by the same amount (1). OR deficit may reduce (1) if fewer perishable items have to be thrown away (1). Max 2 Accept other valid responses 2(c)(ii) Discuss the effect the following suggestions might have on the bank overdraft and the deficit. 4 Encouraging more members to become life members Bank overdraft The overdraft would reduce in the short term (1) as there would be an increased receipt of $880 per life member in the first year (1) Max 2 Deficit The deficit would increase (1) because the income recorded would be $100 per member which is less than the annual subscription (1) Max 2 Accept other valid responses 2(d) Suggest two other ways in which the financial performance of the club could be improved. 2 Any two reasonable answers, such as Recruit new members (1) Increase annual subscriptions (1) Increase selling prices for refreshments (1) Ask for volunteers to take over the cleaning (1) Seek donations (1) Organise fund raising (1) Negotiate a rent reduction (1) Max 2 Accept other valid responses 2(e) Advise the managing committee whether or not the financial statements should be audited. Justify your answer. 5 Against [max 2] A club is not a company so an audit is not a legal requirement in most countries(1). It could involve a cost which the club cannot afford (1). For [max 2] The members would be more confident that their funds are being used correctly (1). Sabrina would be assured that no suspicion was falling on her (1). The bank manager might be happier to continue providing the overdraft facility (1). To verify the opening balances (1) Decision supported by a comment (1) Accept other valid responses

Mark scheme

3(a)(i) Explain: 2 what is measured by the working capital cycle. The formula is not required. The time it takes a business to turn the net current assets into cash (1) and measures the solvency of a business (1). 3(a)(ii) Explain: 2 why a retail business is likely to have a shorter working capital cycle than a manufacturing business. In a manufacturing business the cycle will start with the purchase of raw materials (1) and in the retail context no production time is needed before goods are ready to be sold (1). Accept other valid responses. 3(b) Calculate the working capital cycle for HT Limited using the forecast information. Assume a year of 365 days. 8 Inventory turnover 17 185 (1) / 156 814 (1) × 365 = 40 days (1)OF Trade receivables turnover 24 164/210 000 (1 both) × 365 = 42 days (1)OF Trade payables turnover 19 408/161 000 (1 both) × 365 = 44 days (1)OF Working capital cycle 40 + 42 – 44 = 38 days (1)OF 3(c) Calculate to one decimal place the net working assets to revenue ratio using the forecast information. Use the 2 closing inventory value. 24 034 (1) / 210 000 × 100 = 11.4% (1)OF 3(d) Calculate the reduction in the value of trade receivables on 31 December 2024 which would cause the working 4 capital cycle to fall by eight days. 42 – 8 = 34 days (1)OF 34 ÷ 365 × 210 000 (1 last two elements) = 19 562 (1)OF Reduction = 24 164 – 19 562 = $4 602 (1)OF 3(e) Explain how this reduction would affect the net working assets to revenue (sales) ratio. No calculations are 2 required. The ratio would become lower (1) because the net working assets of the business would be reduced (1). 3(f) Advise the directors whether or not they should try to reduce these ratios each year. Justify your answer. 5 A fall in the ratios indicates an increase in efficiency (1) but an increase in risk (1). The shorter the working capital cycle, the less time in which resources are tied up without earning a return (1). And if the same amount of working capital can generate more sales then it is being used more efficiently (1). A reduction in inventory would decrease the ratios but increase the chances of sales being lost when goods are not available for sale (1). A reduction in trade receivables could reduce the cash inflows leaving a business with insufficient cash to pay debts as they fall due (1). An increase in trade payables could damage relationships with suppliers (1). Decision supported by a comment (1) Accept other valid responses