Accounting 9706/31 October/November 2025: question paper and mark scheme

Mark scheme

1(a)(i) Explain the reason for the treatment of the following entries in the 2 research and development account: statement of profit or loss This is the amount treated as revenue expenditure/written off as an expense (1) plus reason such as: because it is pure research/costs for an item which cannot be shown to be capable of being sold / gives no future benefit (1). 1(a)(ii) Explain the reason for the treatment of the following entries in the 2 research and development account: balance c/d. This is the amount treated as capital expenditure (1) plus reason such as: because it could be demonstrated to improve the company’s product / gives future benefit (1). 1(b)(i) State the reason for the following entries in the retained earnings 1 account: ordinary share capital funding all or part of a bonus issue of shares (1) 1(b)(ii) State the reason for the following entries in the retained earnings 1 account: statement of profit or loss. transfer to retained earnings of the loss for the year (1) 1(c) Complete the following table to show the recoverable amount and any 6 impairment loss for each vehicle. vehicle carrying recoverable impairment amount amount loss $ $ $ A 16 800 15 600 (1) 1 200 (1) B 24 100 22 400 (1) 1 700 (1) C 22 800 25 600 (1) 0 (1) 1(d) Prepare the statement of profit or loss for the year ended 31 December 8 2024 in accordance with IAS1. Statement of profit or loss for the year ended 31 December 2024 $ Revenue 802 600 Cost of sales W1 547 600 (1) Gross profit 255 000 Distribution costs W2 67 200 (2) Administrative expenses W3 195 500 (3) Loss from operations 7700 (1) Finance costs 4 500 Loss for the year 12 200 (1) W1 6 300 + 541 300 = 547 600 W2 $ Rent of warehouse 5 000 Wages of delivery drivers 11 200 Other distribution costs 32 000 Depreciation 16 100 } Impairment loss 2 900 } (1) OF 67 200 (1) OF W3 $ Increase in allowance for irrecoverable debts 2 400 (1) Rent of offices 11 000 Amortisation (depreciation) of intangible assets 500 Wages of administrative staff 31 800 Depreciation of office equipment 21 100 Other administrative expenses 71 600 Research and development 57 100 (1) 195 500 (1) OF 1(e) Advise the directors whether or not the company should pay a dividend. 5 Justify your answer. For (Max 2) Would please shareholders (1) Bonus issue of shares may not have satisfied shareholders (1) Would improve reputation of and confidence in the company (1) If the research and development was a ‘one off’ the company may well return to profitability in the coming year (1) Against (Max 2) Cash may not be available to pay the dividend (1) If company continues to makes losses there might soon be no distributable reserves (1) and will not be able to invest in growth (1) Shareholders have already received a bonus issue (1) Decision supported with a comment (1) Accept other valid responses.

Mark scheme

2(a) Discuss the significance of changes in membership and the effect on 6 the club’s funds with reference to the entries in these ledger accounts. The number of members paying annual subscriptions has fallen from 397 to 386/by 11 (1). The amount received has nevertheless increased (1) because of fluctuations in the number of members in arrears (1). In 2022 the amount received was less than the amount earned / in 2023 the amount received was more than the amount earned (1). Numbers taking out life membership rose (1) from 1 in 2022 to 4 in 2023 (1). Life membership fees are released to income over a period of 10 years (1). The club will earn less income per year from a life member than from a member paying an annual subscription (1). However, the earlier receipt of funds could help cash flow/ameliorate any overdraft (1). Life membership reduces the number of members paying in arrears (1). Accept other valid responses Max 6 2(b) Prepare the income and expenditure account for the year ended 31 9 December 2024. Income and expenditure account for the year ended 31 December 2024 Income $ $ Annual subscriptions (19600 + 250 – 100) 19 750 (1) Life membership fees (8 × 40) 320 (1) Profit from tournaments W1 1 297 (4) 21 367 Expenditure Rent 12 000 (1) Wages 3 832 (1) Other operating costs 4 890 20 722 Surplus 645 (1)OF $ W1 purchases (5460 + 625 – 800) 5 285 (1) increase in inventory of prizes (50 – 490) (440) (1) wages (20% × 4790) 958 (1) 5 803 receipts 7 100 1 297 (1)OF 2(c) Calculate the accumulated fund at 31 December 2024. 5 $ Total assets 18 620 Life membership fund W1 (2 640) (2) Bank overdraft (1 520) (1) Other liabilities (270+625) (895) (1) Accumulated fund 31 December 2024 13 565 (1) OF W1 $ Opening balance 1 760 } Bank 1 200 } (1) Transferred to income (320) (1) OF 2 640 2(d) Advise the committee members whether or not the club should adopt 5 this suggestion. Justify your answer. Advantages (Max 2) The shop profit would increase the surplus (1). Might raise the profile of the club (1). Might improve members’ satisfaction with the club/increase membership (1). Disadvantages (Max 2) Start-up costs may be high (1). The overdraft would make difficult the purchase of the necessary inventory to start trading (1). Might be difficult to get volunteers to run the shop / paid staff would reduce profits (1). Might not have adequate space for storage etc. (1). There is a risk of losses (1). Decision supported with a comment (1) Accept other valid responses

Mark scheme

3(a) Explain why a statement of cash flows usually starts with profit. 2 Because the statement reconciles profit with changes in cash and cash equivalents (1) to explain reasons why they differ (1) Accept other valid responses. 3(b) Calculate the profit from operations for the year ended 31 August 2025. 5 $ decrease in retained earnings (28 000) (1) transfer to general reserve 30 000 (1) finance costs W1 17 000 (2) profit from operations 19 000 (1)OF W1 (12 000 + 6 000 – 3 000) (1) + 2 000 (1) 3(c) Complete the following table to explain the effect each action would 12 have on the statement of cash flows. As part of the explanation indicate the section(s) of the statement of cash flows which would be affected. If an action does not affect the statement of cash flows explain why it does not affect it. Increasing selling prices, sales volume being unaffected: This would cause net cash from operating activities to increase (1) as it increases profit from operations (1). Making a bonus issue of shares This would not affect the statement of cash flows (1) as it does not involve a movement of funds/is funded from reserves rather than cash (1). Paying a dividend This would decrease the cash from financing activities (1) as it involves an outflow/application of funds (1). Doubling the quantity of raw materials kept in the manufacturing facility This would decrease the net cash from operating activities (1) as it involves an outflow/application of funds (1). Selling a building, resulting in a profit on disposal The sale proceeds would increase the cash from investing activities (1) as it involves inflow of funds (1). Profit on disposal reduces cash from operating activities (1) as the profit element is included in cash inflow in investing activities (1). Revaluing the remaining building, debiting both the asset account and the provision for depreciation account This would not affect the statement of cash flows (1) as it does not involve a movement of funds/credits the revaluation reserve rather than cash (1). Accept other valid responses. 3(d) Suggest two methods of funding which would not be included in the 2 cash flow from financing activities. Bank overdraft (1) Trade credit (1) Payment by instalments (1) Rental / leasing as an alternative to purchase (1) Max 2 Accept other valid responses. 3(e) State why it is important that the financial statements of PI plc are 2 prepared with professional competence and due care. So that they give a fair presentation / true and fair view (1) To comply with International Accounting Standards / company legislation (1) facilitate comparisons / aid decision making (1) and to avoid the auditors making a qualified report (1). Max 2 Accept other valid responses. 3(f) State the main difference between the responsibilities of the directors 2 and the responsibilities of the auditor regarding the financial statements. The directors are responsible for the preparation of the financial statements (1) and the auditor is responsible for reporting on them (1). Accept other valid responses.