Accounting 9706/23 October/November 2024: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Fundamentals of Accounting, October/November 2024. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
The company accountant of J plc had prepared draft financial statements for the year ended
30 June 2024. The following balances remained in the books of account.
$
6% bank loan (2024) 11 000
Bank 1 980
Inventory 83 900
Other payables 3 150
Other receivables 5 320
Plant and equipment
Cost 137 000
Provision for depreciation 66 940
Property
Cost 60 000
Provision for depreciation 8 160
Retained earnings 122 300
Share capital (ordinary shares of $1 each) 70 000
Share premium 4 280
Taxation 13 600
Trade payables 21 450
Trade receivables 32 680
The draft statement of profit or loss showed a profit for the year of $83 250.
It has since been discovered no account had been taken of the following errors and omissions.
1 Closing inventory had been understated by $2 000.
2 Administrative expenses included an interim dividend of 3% that had been paid on 1 April 2024.
3 An amount of $1 250 prepaid on distribution costs had been treated as an accrual.
4 The 6% bank loan (2024) had been repaid on 30 June 2024.
5 The property was purchased on 1 July 2021 and had been correctly depreciated for each of the two years ended 30 June 2023 using the straight-line method at 2% per annum. However, the depreciation charge on the property for the year ended 30 June 2024 had been incorrectly calculated using the reducing balance method at 10% per annum.
6 The taxation liability at 30 June 2024 had been over estimated by $3 000.
(a) Calculate the corrected carrying value of Property at 30 June 2024.
…… [2]
(b) Calculate the revised profit for the year ended 30 June 2024.
Workings:
[7]
(c) Prepare the statement of financial position at 30 June 2024. Use the space provided on page 5 to show your workings.
J plc
Statement of financial position at 30 June 2024
Workings:
[10]
Additional information
The directors of J plc are aware that one factor causing the value of plant and equipment to depreciate is wear and tear.
(d) State two other factors that may cause the value of plant and equipment to depreciate.
1 ……
2 ……
[2]
(e) State the formula for each of the following ratios.
Ratio Formula
Profit margin
Return on capital employed
[2]
Additional information
Having calculated both these ratios, the directors are pleased that both achieve the company’s targets.
They are wishing to expand and are planning to acquire additional plant and equipment with an estimated cost of $80 000. They are considering two financing options but are also concerned as to the effect that these will have on the ratios.
Option 1 Request a five-year bank loan to purchase the equipment outright.
Option 2 Take out a three-year lease agreement for the equipment.
(f) Advise the directors which option they should choose. Justify your advice by considering both financial and non-financial factors.
……[7]
[Total: 30]
Mark scheme
1(a) Calculate the corrected carrying value of Property at 30 June 2024. 2
$56 400 (2)
Workings
$60 000 – $3 600 (1) = $56 400 (1) OF
1(b) Calculate the revised profit for the year ended 30 June 2024. 7
$97 410 (7)
Workings
$
Draft profit 83 250 (1)
Closing inventory 2 000 (1)
Interim dividend 2 100 (1)
Distribution costs 2 500 (1)
Property depreciation 4 560 (1)
Taxation 3 000 (1)
Revised profit for the year 97 410 (1)OF
1(c) Prepare the statement of financial position at 30 June 2024. 10
J plc
Statement of financial position at 30 June 2024
$
Assets
Non-current assets
Property, plant and equipment 126 460 (1)
126 460
Current assets
Inventory 85 900 (1)
Trade and other receivables 39 250 (1)
125 150
Total assets 251 610 (1) OF
Equity and liabilities
Equity
Share capital 70 000
Share premium 4 280
Retained earnings 134 360 (1) OF
Total equity 208 640 (1)
Liabilities
Current liabilities
Bank overdraft 9 020 (1)
Trade and other payables 23 350 (1)
Taxation 10 600 (1)
Total liabilities 42 970
Total equity and liabilities 251 610 (1) OF
1(d) State two other factors that may cause the value of plant and equipment 2
to depreciate.
• obsolescence (1)
• usage (1)
• time factor (1)
• technological change (1)
Max 2 marks
Accept other valid responses
1(e) State the formula for each of the following ratios. 2
Ratio Formula
Profit margin Profit for the year
× 100 (1)
Revenue
Return on capital employed Profit from operations
× 100 (1)
Capital employed
1(f) Advise the directors which option they should choose. Justify your 7
advice by considering both financial and non-financial factors.
Option 1 Bank loan
• The company would have ownership of the asset (1)
• Would the bank be prepared to approve such a large loan? (1)
• Would the bank wish to take security for the loan (1)
• Interest payments would reduce profits (1)
• Depreciation would reduce profits (1)
• Likely to have a negative effect on the return on capital employed (1)
• May have a negative effect on profit margin unless significant increase in
revenue (1)
Option 2 Lease
• The company would not own the asset (1)
• Would not be obliged to retain the asset at the end of the agreement if not
suitable (1)
• Lease payments would reduce profits (1)
• Less vulnerable to business downturn (1)
• Less likely to have a negative effect on return on capital employed (1)
• May have a negative effect on profit margin unless significant increase in
revenue (1)
Max 6 for comments
Decision supported with a comment (1)
Accept other valid responses
Alex owns a wholesale business purchasing and selling goods on cash and on credit. Control accounts are used to check the accuracy of the individual purchases and sales ledger accounts.
The following information is available for September 2024.
1 Sales ledger account balances on 1 September 2024:
$
Amounts owed by customers 64 280
Amount overpaid by one customer 215
2 Totals from the books of prime entry:
$
Cash book
Cash sales 15 230
Receipts from credit customers 196 380
Discounts allowed 2 440
Refund of overpayment 215
Sales journal 188 740
Sales returns journal 2 560
General journal
Contras to purchases ledger 1 150
(a) Prepare the sales ledger control account for September 2024.
Sales ledger control account
$ $
[8]
Additional information
On 30 September 2024 the following information was available relating to trade payables.
$
Total of balances in the purchases ledger 41 350
Balance of the purchases ledger control account 40 592
The following errors were discovered. When corrected the balance of the purchases ledger control
account agreed with the total of the balances of the purchases ledger.
1 The total of the purchases returns journal, $1 560, had been entered in the purchases ledger control account as $1 650.
2 The balance of a trade payables account had been overstated by $80.
3 A refund of $320 to a credit supplier had been recorded correctly in the cash book but posted to the credit side of the supplier’s account.
4 The total of the discounts received column in the cash book had been understated by $68.
5 Interest charged by a supplier on an overdue account, $16, had been omitted from the purchases ledger control account.
(b) (i) Calculate the corrected total of balances in the purchases ledger.
$
Original total 41 350
Corrected total
[3]
(ii) Calculate the corrected balance of the purchases ledger control account.
$
Original balance 40 592
Corrected balance
[4]
[Total: 15]
Mark scheme
2(a) Prepare the sales ledger control account for September 2024. 8
Sales ledger control account
$ $
Balance b/d 64 280 Balance b/d 215
(1)
Sales journal 188 740 Sales returns journal 2 560
(1) (1)
Bank 215 Bank 196 380
(1) (1)
Discounts allowed 2 440
(1)
Contra 1 150
(1)
Balance c/d 50 490
253 235 253 235
Balance b/d 50 490
(1)OF
2(b)(i) Calculate the corrected total of balances in the purchases ledger. 3
$
Original total 41 350
Overstated balance (80) (1)
Refund (640) (1)
Corrected total 40 630 (1)
2(b)(ii) Calculate the corrected balance of the purchases ledger control 4
account.
$
Original balance 40 592
Purchases returns journal 90 (1)
Discounts received (68) (1)
Interest charged 16 (1)
Corrected balance 40 630 (1)
The following balances have been extracted from the records of N plc at 1 October 2023.
$
Share capital (ordinary shares of $0.50 each) 250 000
Share premium 13 400
Retained earnings 71 800
The following transactions took place during the year ended 30 September 2024.
1 November 2023 Issued 50 000 ordinary shares at $0.70 each.
Made a rights issue of one ordinary share for every five shares held at
1 March 2024 that date at an issue price of $0.65. The issue was fully subscribed.
1 May 2024 Paid a final dividend of $0.02 per share on all shares in issue at that date.
Made a bonus issue of one ordinary share for every eight shares held
1 July 2024 at that date.
The profit for the year ended 30 September 2024 was $41 800.
(a) Prepare the following accounts for the year ended 30 September 2024. Dates are not required.
Share capital
Details $ Details $
Share premium
Details $ Details $
Retained earnings
Details $ Details $
Workings:
[11]
(b) State two features of a debenture.
1 ……
2 ……
[2]
(c) State two features of ordinary shares.
1 ……
2 ……
[2]
[Total: 15]
Mark scheme
3(a) Prepare the following accounts for the year ended 30 September 2024. 11
Dates are not required.
Share Capital
Details $ Details $
Balance c/d 371 250 Balance b/d 250 000
Bank / Cash Book 25 000 (1)
Bank / Cash Book 55 000 (1)
Share premium 39 900 (1)
Retained earnings 1 350
371 250 371 250
Balance b/d 371 250 (1)OF
Share premium
Details $ Details $
Share capital 39 900 (1)OF Balance b/d 13 400
Bank / Cash Book 10 000 (1)
Bank / Cash Book 16 500 (1)
39 900 39 900
Retained earnings
Details $ Details $
Bank / Cash Book 13 200 (1) Balance b/d 71 800
Share capital 1 350 (1)OF Statement of profit 41 800 (1)
or loss
Balance c/d 99 050
113 600 113 600
Balance b/d 99 050 (1)OF
3(b) State two features of a debenture. 2
• Long term loan (1)
• Fixed interest rate (1)
• Repayable at specified date (1)
• No voting rights (1)
Max 2 marks
Accept other valid responses.
3(c) State two features of ordinary shares. 2
• Variable rate of dividend (1)
• Dividend not guaranteed (1)
• Voting rights (1)
Max 2 marks
Accept other valid responses.
H Limited is a service company providing administrative support to businesses. The company operates two separate departments, Payroll services and Accountancy services.
The directors are currently preparing budgets for the year ending 31 December 2025.
The company’s fixed overheads include the salaries of the employees.
Each department has five employees working 48 weeks each year, 40 hours per week.
The Payroll services department employees earn $18 per hour whilst the Accountancy services department employees earn $21 per hour.
The company’s other fixed overheads of $68 000 are apportioned $35 000 to the Payroll services department and $33 000 to the Accountancy services department.
Each department also incurs variable overheads of $7 per hour.
The company charges its clients $35 per hour for all services supplied.
(a) Calculate for the Payroll services department only:
(i) the total number of chargeable hours available for the year ending 31 December 2025
…… [1]
(ii) the break-even point in hours
…… [3]
(iii) the number of chargeable hours required to produce a profit of $45 000 for the year ending 31 December 2025.
…… [1]
Additional information
Due to poor motivation, the Payroll services department is expected to work at 85% capacity during the year ending 31 December 2025.
(b) Prepare a budgeted marginal cost statement to show the Payroll services department profit for the year ending 31 December 2025.
H Limited Payroll services department
Budgeted marginal cost statement for the year ending 31 December 2025
…… [4]
Additional information
The directors of H Limited are of the opinion that the performance of the Payroll services department must be improved. Two opportunities for further development have arisen.
Option 1
The company has been approached by a competitor business wishing to dispose of all of its payroll work. The extra work would require an additional 4 180 chargeable hours in the department over and above the total number of chargeable hours available.
In order to take over this work, H Limited would have to employ two new employees and would result in the department’s capacity being over 100%.
Overtime is paid at a premium of 50%. In order to increase motivation and to retain their current and new staff, the directors feel that they would have to increase the fixed salaries to $21 per hour, the same rate earned by the Accountancy services department staff.
Option 2
The company has also been approached by a large overseas company offering to process all of the payroll work for a fixed fee of $390 000 per annum.
If the directors choose this option, the Payroll services department would be closed down.
H Limited would continue to charge its clients an annual fee for providing the data. This would be based on a 22% mark up on the cost of the annual fixed fee charged.
(c) Calculate the number of overtime hours required for the Payroll services department for the year ending 31 December 2025 if the directors choose Option 1.
…… [3]
(d) Prepare a budgeted marginal cost statement to show the Payroll services department profit for the year ending 31 December 2025 if the directors choose Option 1.
…… [7]
(e) Calculate the Payroll services department contribution for the year ending 31 December 2025 if the directors choose Option 2.
…… [1]
Additional information
The directors require each department to make a profit of $45 000 for the year ending
31 December 2025. The Accountancy services department is budgeted to make a profit of $49 800 for the year.
(f) Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors.
…… [7]
Additional information
The directors make use of cost–volume–profit analysis in the decision-making process.
(g) State three limitations of cost–volume–profit analysis.
1 ……
2 ……
3 ……
[3]
[Total: 30]
Mark scheme
4(a)(i) Calculate for the Payroll services department only: 1
the total number of chargeable hours available for the year ending 31
December 2025
5 employees × 48 weeks × 40 hours = 9600 hours (1)
4(a)(ii) Calculate for the Payroll services department only: 3
the break-even point in hours.
7422 hours (3) OF W
Workings
Contribution: $35 – $7 = $28 (1)
Fixed costs: 9600 × 18 = $172 800 + $35 000 = $207 800 (1)
Breakeven point – $207 800 / $28 = 7422 hours (1) OF
4(a)(iii) Calculate for the Payroll services department only: 1
the number of chargeable hours required to produce a profit of $45 000
for the year ending 31 December 2025.
9029 hours (1) W
Working
$207 800 (OF) + $45 000 = $252 800/$28 (OF) = 9029 hours (1) OF
4(b) Prepare a budgeted marginal cost statement to show the Payroll 4
services department profit for the year ending 31 December 2025.
H Limited Payroll services department
Budgeted marginal cost statement for the year ending 31 December 2025
Revenue 8160 × $35 285 600 (1)
Variable costs 8160 × $7 (57 120)
Contribution 228 480 (1)
Fixed costs 207 800 (1) OF
Profit for the year 20 680 (1) OF
4(c) Calculate the number of overtime hours required for the payroll services 3
department for the year ending 31 December 2025 if the directors chose
Option 1.
340 hours (3)
Workings
Hours
Available 9 600
Additional required 4 180
Total required 13 780 (1)
Now available (7 × 48 × 40) 13 440 (1)
Overtime required 340 (1)
4(d) Prepare a budgeted marginal cost statement to show the Payroll 7
services department profit for the year ending 31 December 2025 if the
directors choose Option 1.
H Limited Payroll department
Budgeted marginal cost statement for the year ending 31 December 2025
Revenue 13 780 × $35 482 300 (1) OF
Variable costs 13 780 × $7 (96 460) (1) OF
Overtime payments 340 × $31.50 (10 710) (1) OF
Contribution 375 130 (1) OF
Fixed costs salaries 13 440 × $21 (282 240) (1) OF
Fixed costs other (35 000) (1)
Profit for the year 57 890 (1) OF
4(e) Calculate the Payroll services department contribution for the year 1
ended 31 December 2025 if the directors choose Option 2.
$390 000 × 22% = $85 800 (1)
4(f) Advise the directors which option they should choose. Justify your 7
answer by considering both financial and non-financial factors.
Financial
Option 1
• Exceeds the target profit by $12 890 (1)
• Results in total company profit of $107 690 (1)
• Will Accountancy department staff demand increased salary? (1)
Option 2
• Achieves positive contribution of $85 800 (1)
• Additional fixed costs must be borne leaving profit of $50 800 (1)
• Results in total company profit of $108 690 (1)
• Possible redundancy costs incurred (1)
Non-financial
• Will quality of work meet company’s requirements? (1)
• Will there be confidentiality issues? (1)
• Will deadlines be met? (1)
• Will staff be prepared to work overtime? (1)
• Will closure of payroll department result in loss of Accountancy clients?
(1)
Overall comments max 6 marks
Decision supported with a comment(1)
Accept other valid responses
4(g) State three limitations of cost-volume-profit analysis. 3
• Only relevant for single product or constant mix of products (1)
• Assumes that all variable costs per unit remain constant (1)
• Assumes that selling price remains constant (1)
• Fixed costs remain constant over the relevant range (1)
• All production is sold (1)
Max 3 marks
Accept other valid responses
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