Accounting 9706/23 October/November 2025: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 2 Structured Questions, October/November 2025. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Fazal and Naseem are in partnership. They own a retail business. The following information is available for the year ended 31 December 2024.
Debit Credit
$ $
Allowance for irrecoverable debts 310
Capital accounts
Fazal 65 000
Naseem 55 000
Cash at bank 3 180
Cost of sales 36 790
Current accounts
Fazal 1 480
Naseem 2 610
Drawings
Fazal 11 700
Naseem 14 300
General expenses 3 310
Inventory at 31 December 2024 17 900
Loan from Fazal 8 000
Non‑current assets cost 139 000 provision for depreciation 31 000
Profit on disposal of a non‑current asset 320
Rent 9 800
Revenue 98 110
Staff wages 25 830
Trade payables 7 380
Trade receivables 10 800
270 910 270 910
Additional information at 31 December 2024:
1 The account of a credit customer owing $320 is to be written off as irrecoverable.
2 The allowance for irrecoverable debts is to be maintained at 2.5% of trade receivables.
3 No entries have been made for 8% interest per annum on Fazal’s loan. The loan from Fazal was made on 1 October 2024 and is repayable in 2028.
4 Rent is charged at $2100 for three months and is payable in advance. Rent has been paid until 28 February 2025.
5 Staff wages of $810 are owing.
6 Non‑current assets are to be depreciated at 20% per annum using the straight‑line method.
* 0000800000003 * DFD
3
(a) Prepare the statement of profit or loss for the year ended 31 December 2024. Use the space provided on page 4 to show your workings.
Fazal and Naseem
Statement of profit or loss for the year ended 31 December 2024
* 0000800000004 * DFD
4
Workings:
[9]
Additional information
The partners share profits and losses equally after providing for:
1 interest on drawings of 5% per annum
2 an annual salary of $8000 for Naseem.
* 0000800000005 * DFD
5
(b) Prepare each partner’s current account for the year ended 31 December 2024. Dates are not required.
Current accounts
Details Fazal Naseem Details Fazal Naseem
$ $ $ $
Workings:
[5]
* 0000800000006 * DFD
6
(c) Prepare the equity and liabilities section of the partnership’s statement of financial position at 31 December 2024.
Fazal and Naseem
Statement of financial position at 31 December 2024
Equity and liabilities
* 0000800000007 * DFD
7
Additional information
The partners wish to improve the performance of their business. They are considering two options.
Option A: Change to a new supplier of goods for resale.
The new supplier is prepared to offer a large trade discount if orders are made in bulk. It is expected that this will increase the gross profit margin to 70% with revenue remaining unchanged on current levels.
Option B: Move their premises to a more central location.
The rent of the new premises will be 15% more than the current annual payment. The partners believe they can increase demand by 17.5%.
(d) Calculate the effect on annual profits of each option.
(i) Option A
…… [2]
(ii) Option B
…… [2]
* 0000800000008 * DFD
8
(e) Advise the partners which option they should choose. Justify your choice by discussing both the advantages and disadvantages of each option.
…… [7]
[Total: 30]
DFD
9
* 0000800000010 * DFD
10
Mark scheme
1(a) Prepare the statement of profit or loss for the year ended 31 December 2024. 9
Fazal and Naseem
Statement of profit or loss for the year ended 31 December 2024
$ $
Revenue 98 110
Cost of sales (36 790)
Gross profit 61 320 (1)
Other income
Profit on disposal of non-current assets 320 (1)
Decrease in allowance for irrecoverable 48 (1)
debts W1
368
61 688
Expenses
General expenses 3 310
Interest on loan from Fazal W2 160 (1)
Irrecoverable debt 320 (1)
Rent W3 8 400 (1)
Staff wages W4 26 640 (1)
Depreciation of non-current assets W5 27 800 (1)
66 630
Loss for the year 4 942 (1)OF
W1: Decrease in allowance for irrecoverable debts:
$310 – (2.5% × ($10 800 – 320)) = $48 (1)
W2: Interest on loan from Fazal: 8% × ¼ × $8000 = $160 (1)
W3: Rent: $9800 – prepaid $1400 = $8 400 (1)
W4: Wages: $25 830 + $810 = $26 640 (1)
W5: Depreciation: $139 000 × 20% = 27 800 (1)
1(b) Prepare each partner’s current account for the year ended 31 December 2024. 5
Dates are not required.
Current accounts
Fazal Naseem Fazal Naseem
$ $ $ $
Balance 1 480 Balance 2 610
b/d b/d
Interest 585 715 (1) Salary 8 000 (1)
on
drawings
Drawings 11 700 14 300 Interest 160 (1)OF
on loan
Residual 5 821 5 821 (1)OF Balances 19 426 10 226
loss (loss c/d
share)
19 586 20 836 19 586 20 836
Balances 19 426 10 226 (1)OF
b/d
W1: Shares of residual loss or loss share
Loss for the year $4942 add interest on drawings $1300 less salary $8000 = $11 642
(1) OF
1(c) Prepare the equity and liabilities section of the partnership’s statement of 5
financial position at 31 December 2024.
Fazal and Naseem
Statement of financial position at 31 December 2024
$ $ $
Equity and liabilities
Equity
Fazal Naseem
Capital accounts 65 000 55 000 120 000 (1)
Current accounts (19 426) (10 226) (29 652)
Total Equity 90 348 (1) OF
Non-current liability
Loan from Fazal 8 000 (1)
Current liabilities
Trade payables 7 380
Bank overdraft 3 180
Other payables 810
11 370 (1)
Total liabilities 19 370
Total equity and liabilities 109 718 (1) OF
1(d)(i) Calculate the effect on annual profits of each option. 2
Option A:
New gross profit 70% × $98 110 = 68 677 (1)
Increase: $68 677 – $61 320 = $7357 (1)
1(d)(ii) Calculate the effect on annual profits of each option. 2
Option B:
Increase in gross profit $61 320 × 17.5% = $10 731
Increase in profit for the year:
$10 731 less increase in rent $1260 (1) = $9471(1)
1(e) Advise the partners which option they should choose. Justify your choice by 7
discussing both the advantages and disadvantages of each option.
Option A (Max 4)
Produces an increase in profit/partnership will be profitable (1)
Will new supplier prove reliable? (1)
Will quality of goods be maintained? (1)
Will bulk ordering result in less frequent deliveries and possible inventory
deterioration (1)
Will additional storage be required (1)
Will the expected increase in gross profit margin prove accurate? (1)
Option B (Max 4)
Produces the largest increase in profit (1)OF
Will forecasts of increased demand prove accurate? (1)
What are the costs of changing location? (1)
Will current regular customers continue to buy? (1)
Accept other valid responses
Decision supported with a comment (1)
1 Consistency (1) The same policy should be used from year to year
to ensure valid comparisons of results can be
made. (1)
A trainee accountant recently produced the financial statements for a business for the year ended
31 December 2024. However, the following errors were discovered.
Error
1 A motor vehicle purchased on 1 January 2023 for $24 000 should have been depreciated by 20% using the reducing balance method. However, the trainee accountant had decided to change the depreciation method to 20% using the straight‑line method as it was easier to calculate.
2 The owner of the business had taken goods, with a sales price of $840, for own
use. This had not been recorded in the books of account.
3 Non‑current assets included some equipment with a carrying value of $6200 which will be used in the business for the foreseeable future. However, the equipment had been written down to show its current resale value of $3600.
4 At the end of the financial year, a customer had placed an order for goods with a selling price of $660. The order had been recorded as a sale in the books of account.
The business sells all goods with a mark‑up of 20%. The draft profit for the year ended
31 December 2024 was $36 960.
(a) Complete the table to identify and describe the accounting concept which has been ignored in each of the errors.
Accounting concept
Error Description ignored
1
2
3
4
[8]
* 0000800000011 * DFD
11
Additional information
The owner of the business wishes to correct the errors that the trainee accountant has made.
(b) Calculate the revised profit for the year ended 31 December 2024.
$
Draft profit 36 960
…… [6]
Additional information
The business has a highly skilled workforce, and the owner is of the opinion that this asset should be reflected in the statement of financial position.
(c) State which accounting concept should be applied when deciding whether or not to record this asset in the statement of financial position.
…… [1]
[Total: 15]
* 0000800000012 * DFD
12
Mark scheme
2(a) Complete the table to identify and describe the accounting concept which has 8
been ignored in each of the errors.
Error Accounting Description
concept ignored
2 Business entity (1) Only transactions that affect a business should be
recorded in the business’s books. (1)
2(b) Calculate the revised profit for the year ended 31 December 2024. 6
$
Draft profit 36 960
Error 1 Depreciation error W1 +960 2
Error 2 Goods or own use W2 +700 1
Error 3 Equipment +2 600 1
Error 4 Sale of goods –110 1
Revised profit 41 110 1 OF
W1 Depreciation charged: 20% × $24 000 = $4800; depreciation should have been
20% × ($24 000 × 80%), i.e. $3840 difference $960.
W2 Goods for own use at cost: 5/6 × $840 = $700
2(c) State which accounting concept should be applied when deciding whether or 1
not to record this asset in the statement of financial position.
Money measurement (1)
On 1 April 2024, the following balances appeared in the books of P plc.
$
Issued share capital: ordinary shares of $1 each ?
Share premium 60 000
Revaluation reserve 55 000
Retained earnings 300 200
During the year ended 31 March 2025, the following occurred:
1 May 2024 Made a bonus issue of one ordinary share for every two ordinary shares held at this date. It was decided that reserves should be left in their most flexible form.
1 June 2024 Property was revalued downwards by $72 000.
1 September 2024 Paid a final dividend of 7.5% on all shares in issue at this date.
1 January 2025 Made a new issue of 120 000 ordinary shares at a premium of
$0.20 per share.
31 March 2025 The profit for the year ended on this date was $125 400.
The share capital at 31 March 2025 was 840 000 ordinary shares of $1 each.
(a) Calculate the number of issued ordinary shares at 1 April 2024.
…… [2]
* 0000800000013 * DFD
13
(b) Prepare the following ledger accounts to record the transactions during the year ended
31 March 2025.
Share premium account
Date Details $ Date Details $
Retained earnings account
Date Details $ Date Details $
[10]
* 0000800000014 * DFD
14
(c) State three factors that directors should consider when deciding the amount to be paid as a final dividend.
1 ……
2 ……
3 ……
[3]
[Total: 15]
* 0000800000015 * DFD
15
* 0000800000016 * DFD
16
Mark scheme
3 Going concern (1) It should be assumed that a business will
continue trading for the foreseeable future, so that
resale values are considered irrelevant (1)
3(a) Calculate the number of issued ordinary shares at 1 April 2024. 2
Number of shares before general issue: 840 000 – 120 000 = 720 000 (1)
Number of shares before bonus issue: 2/3 × 720 000 = 480 000 (1)
3(b) Prepare the following ledger accounts to record the transactions during the 10
year ended 31 March 2025.
Share premium account
Date Details $ Date Details $
2024 Issued 60 000 (1) 2024 Balance 60 000 (1)
May 1 share April 1 b/d
capital
2025 2025
March Bal c/d 24 000 Jan 1 Bank 24 000 (1)
31
84 000 84 000
April 1 Balance 24 000 (1)OF
b/d
Retained earnings account
Date Details $ Date Details $
2024 Issued 180 000 2024 Balance 300 200 (1)
May 1 share April 1 b/d
capital
June Property 17 000 (1) 2025
1
Sept 1 Bank 54 000 (1) Mar 31 Statement 125 400 (1)
W1 of profit or
loss
2025 Balance 174 600 (1)
Mar 31 c/d
425 600 425 600
April 1 Balance 174 600 (1)OF
b/d
W1 Dividend: 7.5% × $720 000 = 54 000 (1)
3(c) State three factors that directors should consider when deciding the amount to 3
be paid as a final dividend.
Profits available for distribution (1)
Cash funds available to cover dividend payment (1)
Expectations of shareholders (1)
Other priorities/future plans affecting liquid funds (1)
Accept other valid responses
Max 3
V Limited is a manufacturing company which uses absorption costing at one of its factories.
(a) Explain two differences between marginal costing and absorption costing.
1 ……
2 ……
[4]
Additional information
At one of its factories, V Limited has two production departments: cutting and assembly. There are also two service departments: maintenance and stores.
All budgeted overheads for the year ended 30 September 2025 have been allocated to departments as follows:
Production departments Service departments
Total Cutting Assembly Maintenance Stores
$ $ $ $ $
Overheads
178 830 77 850 51 330 27 150 22 500 allocated
The following additional budgeted information is available about the departments.
Production departments Service departments
Cutting Assembly Maintenance Stores
Issues from
480 330 90 ‑ stores
Number of
37 23 ‑ ‑ machines
* 0000800000017 * DFD
17
(b) Complete the table to show the reapportionment of service department overheads.
Production departments Service departments
Total Cutting Assembly Maintenance Stores
$ $ $ $ $
Overheads
178 830 77 850 51 330 27 150 22 500 allocated
[4]
Additional information
The following forecast information is available for the two production departments for the year
ended 30 September 2025.
Cutting Assembly
Labour hours 6300 7855
Machine hours 8140 5020
(c) Calculate, to two decimal places, the overhead absorption rates for each department for the year ended 30 September 2025.
Cutting department
Assembly department
[4]
* 0000800000018 * DFD
18
Additional information
For the year ended 30 September 2025, actual results for the assembly department were as follows:
Total overheads $65 600
Labour hours 6 050
Machine hours 5 620
(d) Calculate the over‑absorption or under‑absorption of overheads for the assembly department for the year ended 30 September 2025.
…… [3]
Additional information
An order was received from a customer in August 2025. The following information is available.
Direct costs (material and labour) $1450
Labour hours
Cutting department 138
Assembly department 152
Machine hours
Cutting department 197
Assembly department 161
Products are sold with a gross profit margin of 40%.
(e) Calculate the selling price of the order.
…… [5]
* 0000800000019 * DFD
19
Additional information
V Limited uses marginal costing at another factory where a single type of product is made.
The following budgeted information is available.
$
Selling price per unit 32
Variable costs per unit 25
Fixed costs per month are $48 000.
Currently, the monthly production and sales are 7200 units which is 60% of normal capacity.
However, demand for the product has been falling in recent months.
The directors have received an enquiry from an overseas customer who is located in a new market area.
1 The customer would make an order for 1500 units.
2 The customer would pay a reduced price of $29 per unit.
3 V Limited would incur delivery charges of $375 on the order.
(f) Calculate the profit or loss which would be made on the order from the overseas customer.
…… [1]
* 0000800000020 * DFD
20
(g) Advise the directors whether or not they should accept the order from the overseas customer.
Justify your answer by discussing both the advantages and disadvantages of accepting the order.
…… [7]
(h) Explain the key principle of the just in time (JIT) method of inventory control.
…… [2]
[Total: 30]
Mark scheme
4 Realisation (1) Revenue should only be recognised when
payment is received or an invoice issued. (1)
4(a) Explain two differences between marginal costing and absorption costing. 4
Marginal costing treats only variable costs as product cost (1) whereas absorption
costing treats both variable and fixed costs as product costs (1)
Marginal costing classifies costs by behaviour, as to whether or not they change with
the level of output (1) whereas absorption costing classifies costs by nature, whether
they are directly or indirectly related to the production process (1)
Marginal costing is useful for short term decisions (such as make or buy) (1) whereas
absorption costing is useful for long term decisions (such as setting prices) (1)
Marginal costing is for internal reporting (1) but absorption is for external
reporting/financial statements as it follows IAS (1)
Accept other valid responses.
4(b) Complete the table to show the reapportionment of service department 4
overheads.
Production Service departments
departments
Total Cutting Assembly Maintenance Stores
$ $ $ $ $
Overheads 178 830 77 850 51 330 27 150 22 500
allocated
Stores – 12 000 8 250 2 250 (22 500) (1)
89 850 59 580 29 400 – (1)
Maintenance – 18 130 11 270 (29 400) (1)
Totals – 107 980 70 850 (1)OF
4(c) Calculate, to two decimal places, the overhead absorption rates for each 4
department for the year ended 30 September 2025.
Cutting department $107 980
= $13.27 (1) OF per machine hour (1)
8140
Assembly department $70 850
= $9.02 (1) OF per labour hour (1)
7 855
4(d) Calculate the over-absorption or under-absorption of overheads for the 3
assembly department for the year ended 30 September 2025.
Overheads absorbed: $9.02 × 6050 = $54 571 (1) OF
Under-absorption (1) $54 571 – $65 600 = $11 029 (1) OF
4(e) Calculate the selling price of the order. 5
$
Direct costs 1 450.00
Overheads
Cutting: 197 × $13.27 2 614.19 (1)OF
Assembly: 152 × $9.02 1 371.04 (1)OF
Total cost 5 435.23 (1)OF
Profit W1 3 623.49 (1)OF
Selling price 9 058.72 (1)OF
W1: gross profit margin of 40% = 2/3 × total cost = $3623.49 (1)OF
OR 5435.23/60 × 100 = $9058.72
Accept alternative approaches.
4(f) Calculate the profit or loss which would be made on the order from the 1
overseas customer.
Profit from order: 1500 × 4 = $6000 – $375 = $5625 (1)
4(g) Advise the directors whether or not they should accept the order from the 7
overseas customer. Justify your answer by discussing both the advantages
and disadvantages of accepting the order.
For (Max 3)
May lead to further orders from this customer and/or and may lead to further orders
from this new market area at a more favourable contribution (1) which would
compensate for any further loss of demand from existing customers (1)
More of the workforce is retained /avoids redundancy payments (1)
More of the plant and machinery is kept in use avoiding deterioration (1)
Makes positive contribution / profit (1)
Against (Max 3)
Knowledge of reduced price for this customer may become known to existing
customers (1)
Currency exchange rates may become unfavourable (1)
It is a short-term solution unless regular orders result (1)
Currently there is sufficient capacity but that might not always be the case. (1)
Accept other valid responses
Decision supported with a comment (1)
4(h) Explain the key principle of the Just in time (JIT) method of inventory control. 2
Supplies should be received exactly when they are needed (1) and do not need to be
stored by the business beforehand. (1)
Accept other valid responses
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Accounting 9706/23 for October/November 2025 is out of 90 marks, with 1 hour 45 minutes to answer it, across 4 questions.
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