Accounting Past Papers All

Cambridge International Examinations
Cambridge International Advanced Subsidiary and Advanced Level

*1257680194*
ACCOUNTING 9706/22
Paper 2 Structured Questions February/March 2016
1 hour 30 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
READ THESE INSTRUCTIONS FIRST
Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for rough working.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.
Answer all questions.

All accounting statements are to be presented in good style.
International accounting terms and formats should be used as appropriate.
Workings must be shown.
You may use a calculator.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
This document consists of 19 printed pages and 1 blank page.
IB16 03_9706_22/4RP
© UCLES 2016 [Turn over
2
1 The trial balance of Seema Limited for the year ended 30 June 2015 shows these figures:
Debit Credit
$ $
Revenue 526 000

Purchases 342 000
Inventory at 1 July 2014 37 500
Selling and distribution expenses 37 510
Administrative expenses 36 130
Provision for doubtful debts 125
Interest paid 625
Non-current assets at cost
Warehouse buildings 300 000
Motor vehicles 70 000
Office equipment 25 000
Provision for depreciation
Warehouse buildings 12 000
Trade receivables 5 020
Trade payables 6 270
Cash and cash equivalents 27 200
140 000 Ordinary shares of $1 each 140 000
5% Debentures (2021 – 2025) 25 000
General reserve 25 000
Retained earnings 140 990
Interim ordinary dividends paid 8 400
889 385 889 385
Additional information
1 Inventory on 30 June 2015 was valued at $29 400.
2 Depreciation is to be charged as follows:
Warehouse buildings 4% using straight line method

Motor vehicles 25% using straight line method
Office equipment 10% using reducing balance method.
3 The provision for doubtful debts is to be maintained at 5% of the trade receivables.
4 An irrecoverable debt of $200 should be written off.
5 The directors have decided to transfer $25 000 to the general reserve.
6 The directors have proposed a final dividend of $0.07 per share.
7 The debentures were issued in 2011.
8 The motor vehicles were used by the sales team.
© UCLES 2016 9706/22/F/M/16

3
REQUIRED
(a) Prepare the income statement for the year ended 30 June 2015.
[10]
© UCLES 2016 9706/22/F/M/16 [Turn over

4
(b) Prepare the statement of financial position at 30 June 2015.
[8]
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5
(c) Explain the importance to a business of the current ratio.
[4]

6
The directors of Seema Limited have calculated the current ratio to be 8.87 : 1.
They regard the ratio calculated to be too high and are considering repaying the debentures.
REQUIRED
(d) Discuss the effect of this course of action on:
(i) working capital
[2]
(ii) the return on capital employed
[2]
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7
(e) Advise the directors on whether they should repay the debentures early. Justify your answer.
[4]
[Total: 30]

8
2 James and Lewis have been in partnership for some years sharing profits and losses equally.
They had no partnership agreement. Their statement of financial position at 30 September 2015
showed the following information.
$
Non-current assets 230 000
Net current assets 60 000
290 000
Capital accounts
James 200 000
Lewis 70 000
270 000
Current accounts
James Lewis
$ $
Opening balance 31 000 17 000
Share of profit 15 000 15 000
Drawings (21 000) (37 000)
Closing balance 25 000 (5 000) 20 000
290 000
On 1 October 2015 Ahmed joined the partnership. A partnership agreement was drawn up. The
terms set out in the agreement were:
1 Profits and losses are to be shared equally.
2 Interest is to be charged at 5% on drawings.
3 Interest is to be allowed at 10% on capital.
The following also took place:
1 Ahmed introduced capital of $80 000, which he paid into the business bank account.
2 Goodwill was valued at $60 000 but no goodwill account is to be maintained in the books of
account.
3 Non-current assets were revalued at $270 000.
4 The inventory value was to be reduced by $4000.
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9
REQUIRED
(a) Prepare the revaluation account.
[3]
(b) Prepare the capital accounts of the partners to record the admission of Ahmed.
[4]

10
(c) State the advantages of interest on capital and interest on drawings.
(i) Advantage of interest on capital
to the partners
to the partnership
[2]
(ii) Advantage of interest on drawings
to the partners
to the partnership
[2]
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11
(d) Explain how the terms of the partnership agreement will affect James and Lewis.
(i) James
[2]
(ii) Lewis
[2]
[Total: 15]

12
3 The equity and reserves section of Howard Limited’s statement of financial position at
31 December 2014 was as follows:
$000
Ordinary shares of $0.50 each 1400
Share premium 260
Retained earnings 195
1855
During the year ended 31 December 2015, the following transactions took place:
February 1 Issued 200 000 ordinary shares at $0.70 each.
Paid final dividend of $0.04 per ordinary share on all shares in issue at
May 1
31 December 2014.
Made a bonus issue of ordinary shares on the basis of two ordinary
June 1
shares for every fifteen ordinary shares held at that date.
REQUIRED
(a) State the double entry to record each of these transactions. Dates and narratives are not
required.
Dr Cr
Name of the account
$000 $000
[6]
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13
On 1 August 2015, Howard Limited also made a rights issue of one ordinary share for every ten
ordinary shares held at a price of $0.60. All shareholders took up their rights.
REQUIRED
(b) Prepare a schedule showing the movement in the share premium account during the year
ended 31 December 2015.
[3]
(c) State three reasons why a company may make a bonus issue of shares.
[3]
(d) State three differences between ordinary shares and preference shares.
[3]
[Total: 15]

14
4 Lin, a manufacturer, makes three products: X, Y and Z. He uses cost-volume-profit (CVP) analysis
in his business.
He has prepared the following profit/volume (P / V) chart for product X for the year ending
31 December 2016.
$ 000s
80
60
40
20
A
0
20 40 60
– 20
– 40
B – 60
– 80
Sales units 000s
REQUIRED
(a) Identify from the P / V chart for the year ending 31 December 2016:
(i) what point A 20 000 represents
[1]
(ii) what point B ($60 000) represents
[1]
(b) State what is meant by P / V ratio.
[1]
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15
(c) State two benefits and two drawbacks of CVP analysis.
Benefits
Drawbacks
[4]
Lin has provided you with the following budgeted information for the year ending
31 December 2016.
X Y Z
Annual sales (units) 15 000 5 000 8 000
$ $ $
Selling price (per unit) 8 10 7
Variable cost (per unit) 5 4 2
Annual allocated fixed costs 60 000 25 000 30 000
Lin is considering stopping production of X.

16
REQUIRED
(d) Calculate for the year ending 31 December 2016:
(i) the total contribution for each product
[3]
(ii) the total profit or loss for each product
[1]
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17
(e) Discuss whether or not Lin should continue to produce all three products. Justify your
answer.
[4]
Since preparing his budget, Lin has received two separate orders.
For order 1 the customer has offered an amount in total of $10 000.
For order 2 the customer has offered a price per unit for each separate product.
The details are as follows:
Order 1 Order 2
proposed price
units units per unit $
X 1000 X 1000 6
Y 1000 Y 1000 5
Z 1000 Z 1000 4
Proposed total order price $10 000
Lin has spare production capacity and the fixed costs will not be affected by the orders.

18
REQUIRED
(f) Calculate the contribution gained or lost on each order.
[5]
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19
(g) Advise Lin whether or not each of the orders should be accepted. Justify your decision.
[6]
(h) Explain, giving two reasons, why a business needs to plan for the future.
[4]
[Total: 30]
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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
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Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2016 9706/22/F/M/16


ACCOUNTING 9706/22
1 hour 30 minutes
You may use an HB pencil for any diagrams or graphs or for rough working.

This document consists of 17 printed pages and 3 blank pages.
IB17 03_9706_22/4RP
2
1 Razia, a sole trader, started her business on 1 July 2015 selling ladies’ clothing. Razia did not
keep proper books of account, but was able to provide the following information.
Summary of bank account for the year ended 30 June 2016
$ $
Capital introduced 36 340 Payments to trade payables 80 690
Cash banked 78 780 Shop rental 25 200
Balance c/d 4 330 Shop fixtures and fittings 3 600
Purchase of motor vehicle 5 800
Motor expenses 3 140
Light and heat 1 020
119 450 119 450
1 Total revenue for the year was $92 600. All sales were made for cash.
2 Razia kept no record of her cash drawings.
3 The following expenses were paid from cash takings before the money was banked:
$
General expenses 950
Assistants’ wages 2870
4 Cash in hand at 30 June 2016 was $1250.
REQUIRED
(a) Prepare the cash account, showing clearly the value of Razia’s drawings for the year.
[4]
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3
1 All sales made a gross margin of 40%.
2 During the year, Razia had taken goods, $640 at cost price, for her own use.
3 Inventory at 30 June 2016 had been counted and was valued at cost price $31 900. Razia
was aware that some goods had been stolen during the year.
4 Razia owed $8940 to trade suppliers at 30 June 2016.
REQUIRED
(b) Calculate the value of inventory stolen during the year ended 30 June 2016 at cost price.
[4]
1 At 30 June 2016, the following expenses were accrued:
$
Assistants’ wages 120
Light and heat 150
2 Non-current assets should be depreciated as follows:
Shop fixtures and fittings at 15% per annum using the reducing balance method
Motor vehicle using the straight-line method over five years. The estimated residual
value of the motor vehicle after five years is $400.
3 The annual charge for shop rental is $21 600.

4
REQUIRED
(c) Prepare the income statement for the year ended 30 June 2016.
[8]
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5
(d) Calculate, to two decimal places, the following ratios at 30 June 2016. State the formula
used in each case.
(i) Current ratio
Formula
Calculation
[2]
(ii) Liquid (acid test) ratio
Formula
Calculation
[2]
(e) (i) Name two other ratios a business could calculate to explain its liquidity position.
2 [2]
(ii) State two limitations of using ratio analysis.
[2]

6
Razia’s brother has suggested that Razia should increase the mark-up on her goods.
REQUIRED
(f) Advise Razia whether or not she should increase the mark-up on her goods. Justify your
answer by discussing advantages and disadvantages of doing this.
[6]
[Total: 30]
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7
Question 2 is on the next page.

8
2 Sturgess has provided the following information:
1 The provision for doubtful debts at 1 August 2015 was $1940.
2 Trade receivables at 31 July 2016 were $48 500.
3 A customer owing $2100 has been declared bankrupt. This amount is to be written off.
4 A customer owing $900 did not pay within the agreed credit terms. There are concerns about
the recovery of this debt.
5 The business policy is to make a 5% provision for doubtful debts on remaining trade
receivables.
REQUIRED
(a) (i) State one reason why a business may make a provision for doubtful debts.
[1]
(ii) State one accounting concept applied while making the provision for doubtful debts.
[1]
(iii) Prepare the provision for doubtful debts account for the year ended 31 July 2016.
[5]
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9
(b) Explain how a provision for doubtful debts is treated in:
(i) the statement of financial position
(ii) the income statement
[3]
1 Accrued telephone expenses at 1 August 2015 were $275.
2 Prepaid telephone expenses at 1 August 2015 were $380.
3 The total amounts paid for telephone expenses during the year were $4750. This included a
rental charge of $2980 covering the period from 1 November 2015 to 31 October 2016.
4 Telephone call charges of $840 were paid on 12 September 2016 covering the period from
1 June 2016 to 31 August 2016.
REQUIRED
(c) Prepare the telephone expenses account for the year ended 31 July 2016.
[5]
[Total: 15]

10
3 King provided the following information for non-current assets at 1 April 2015.
$
Property plant and machinery
Land and buildings – cost 252 000
Plant and machinery – cost 123 000
Accumulated depreciation
Buildings 21 000
Plant and machinery 49 000
During the year ended 31 March 2016, the following took place:
1 Land was revalued to $202 500. It had originally cost $182 000.
2 A machine was sold on 30 November 2015. It had a net book value on 1 April 2015 of $46 350
and an original cost of $76 200.
3 A machine was purchased on 1 December 2015 at a cost of $62 850.
The depreciation policy for non-current assets is as follows:
Buildings 2% per annum using the straight-line method
Plant and machinery 20% per annum using the reducing balance method
Depreciation is charged on a month-by-month basis.
REQUIRED
(a) Calculate the total depreciation charge for buildings for the year ended 31 March 2016.
[1]
(b) Calculate the total depreciation charge for plant and machinery for the year ended
31 March 2016.
[3]
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11
(c) Prepare an extract from the statement of financial position at 31 March 2016 for non-current
assets.
King
Extract from Statement of Financial Position at 31 March 2016
Accumulated
Cost / Valuation Depreciation Net Book Value
$ $ $
Workings:
[8]

12
(d) State three causes of depreciation.
[3]
[Total: 15]
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13
4 Miu owns a manufacturing business making a single product.
REQUIRED
(a) State the difference between a cost unit and a cost centre.
[2]
(b) State the difference between a production cost centre and a service cost centre.
[2]
(c) State what is meant by contribution.
[2]

14
Miu currently uses marginal costing to value her inventory. The following budgeted information is
available for the months of January and February:
Per unit $
Selling price 12
Variable production cost 5
January February
$ $
Fixed production overhead costs 9000 9000
Fixed administrative costs 800 800
Units Units
Sales 3600 5400
Production 4500 4500
There was no opening inventory in January.
Production is expected to be 54 000 units for the year.
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15
REQUIRED
(d) Prepare a budgeted profit statement for each of the two months, January and February,
using marginal costing. Clearly show the opening and closing inventories each month.
Budgeted Profit Statement
January February
$ $ $ $
[7]

16
Miu is considering using absorption costing to value her inventory.
REQUIRED
(e) Calculate the production overhead absorption rate per unit.
[1]
(f) Prepare a budgeted profit statement for each of the two months, January and February,
using absorption costing. Clearly show the opening and closing inventories each month.
Budgeted Profit Statement
January February
$ $ $ $
[8]
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17
(g) Reconcile the difference in budgeted profit figures in parts (d) and (f).
January February
$ $
[3]
(h) Advise Miu whether or not she should change from marginal costing to absorption costing.
Give reasons to justify your answer.
[5]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB18 03_9706_22/5RP
2
1 Delph started trading on 1 July 2016.

For the year ended 30 June 2017 he provided the following information relating to his sales and
purchases.
$
Bank payments to credit suppliers 39 826
Cash purchases 692
Credit purchases 74 779
Credit purchases returns 6 813
Discount received 1 764
At 30 June 2017
Sales ledger control account balance 21 555 Debit
REQUIRED
(a) Explain two benefits of using control accounts.
[4]
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3
The following book-keeping errors have been discovered in the sales ledger:
1 The sales journal total for June 2017 was understated by $1470.
2 A customer’s invoice for $2910 was entered in the sales journal as $2190.
3 Discounts allowed in June 2017 amounting to $435 were debited to the sales ledger control
account.
4 A sales invoice for $1520 dated 30 June 2017 was omitted from the sales journal.
REQUIRED
(b) Prepare the amended sales ledger control account at 30 June 2017.
Delph
Amended sales ledger control account
$ $
Balance b/d 21 555
[5]

4
At 30 June 2017 there was a debit balance on the purchases ledger account of $384.
REQUIRED
(c) Prepare the purchases ledger control account for the year ended 30 June 2017.
Delph
Purchases ledger control account
$ $
[5]
Delph has also provided the following information.
At 1 July 2016 $
Capital introduced 10 500
Loan from the bank (repayable 2021) 3 000
During the year ended 30 June 2017
Bank payments
Motor vehicle 13 560
Loan 500
Drawings 12 625
At 30 June 2017
Inventory 3 700 Debit
Cash in hand 360 Debit
Rent 650 Debit
Bank 856 Credit
Wages 1 890 Credit
The motor vehicle is to be depreciated at 25% using the reducing balance method.
© UCLES 2018 9706/22/F/M/18

5
REQUIRED
(d) Prepare the statement of financial position at 30 June 2017.
Delph
Statement of financial position at 30 June 2017
[9]

6
Delph has calculated the following ratios for the year ended 30 June 2017 for his own business
and for his main competitor, Nadia.
Delph Nadia
Gross margin 26% 21%
Profit margin 9% 12%
REQUIRED
(e) Advise Delph whether or not his business is more profitable than Nadia’s business. Justify
your answer.
[7]
[Total: 30]
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7
PLEASE TURN OVER

8
2 The following is an extract from the statement of financial position of X Limited at 31 December 2016.
$
Equity
Share capital ($1 ordinary shares) 400 000
Share premium 20 000
Total equity 610 000
Non-current liabilities
8% debentures (201920) 80 000
Current liabilities
Trade and other payables 20 000
80 000
Total liabilities 160 000
Total equity and liabilities 770 000
During the year ended 31 December 2017 the following transactions took place.
1 January 2017 Issue of 80 000 ordinary shares at $1.25 each.
30 June 2017 Rights issue of 3 ordinary shares for every 8 shares held on this date
at an issue price of $1.30. This was fully subscribed.
30 September 2017 Bonus issue of 1 ordinary share for every 6 shares held on this date.
© UCLES 2018 9706/22/F/M/18

9
REQUIRED
(a) Prepare journal entries to record each of these transactions in the books of account. Dates
and narratives are not required.
Debit Credit
$ $
[6]
(b) Prepare a statement to show the effect that the transactions had on the total equity.
[3]

10
(c) State three uses of a share premium account.
[3]
(d) State three reasons why a company may make a bonus issue of shares.
[3]
[Total: 15]
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11
3 Paul and Angela are in partnership sharing profits and losses in the ratio of 3:2 respectively. No
separate current accounts are maintained.
On 1 May 2017, Rachael was admitted into the partnership.
(a) (i) State two advantages to existing partners of introducing a new partner.
[2]
(ii) State two disadvantages to existing partners of introducing a new partner.
[2]

12
A summarised statement of financial position at 30 April 2017 before the admission of Rachael is
as follows:
$
Other current assets 61 500
293 950
Capital accounts:
Paul 145 000
Angela 95 000
Current liabilities 53 950
293 950
The following information is available:
1 Rachael paid $75 000 as capital into the partnership bank account.
2 Goodwill was valued at $50 000. No goodwill account was to be maintained in the books of
account.
3 Non-current assets were revalued at $270 000.
4 Current assets (excluding cash and cash equivalents) were revalued at $40 500.
5 Current liabilities were revalued at $45 950.
6 Paul, Angela and Rachael will share profits and losses in the ratio 5:3:2 respectively.
REQUIRED
(b) Calculate the profit or loss from revaluation on 1 May 2017 when Rachael was admitted.
Show how this is divided between the partners.
Profit or loss from revaluation
Division between partners
[2]
(c) Prepare, on the next page, the partners’ capital accounts on 1 May 2017 after the admission
of Rachael.
© UCLES 2018 9706/22/F/M/18

Capital Accounts
© UCLES 2018
Paul Angela Rachael Paul Angela Rachael
$ $ $ $ $ $
13
9706/22/F/M/18
[5]
[Turn over
14
(d) Explain why an adjustment for goodwill may be made when a new partner joins a business.
[2]
(e) State two factors that may result in the creation of goodwill for a business.
[2]
[Total: 15]
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15
PLEASE TURN OVER

16
4 K Limited has two production departments. Department A produces bicycles and Department B
produces scooters.
The company splits the costs of its maintenance department across the two production
departments on the basis of stores requisitions.
REQUIRED
(a) (i) Name the accounting term which describes the splitting of a service department’s costs
based on stores requisitions.
[1]
(ii) Explain how the cost of direct materials is charged to each production department.
[2]
K Limited provided the following budgeted information for January 2018.
Department Department
A B
Production (units) 1 000 1 200
Total production costs $ $

Direct materials 16 000 26 000
Direct labour 18 000 21 000
Indirect materials 4 000 3 000
Maintenance department costs 4 500 7 000
Factory rent 10 000 8 000
Depreciation of factory machinery 10 500 19 000
63 000 84 000
The selling and distribution costs for January were budgeted to be $33 000 and the administrative
expenses for January were budgeted to be $66 000. These were to be split between the two
departments on the basis of units produced.
The budgeted selling prices were calculated using a mark-up of 25% on total cost.
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17
REQUIRED
(b) State the bases which the company may have used to split each of the following costs
between the two departments.
(i) factory rent
[1]
(ii) depreciation of factory machinery
[1]
(c) Calculate the inventory value of one bicycle produced by Department A
(i) using marginal costing
[1]
(ii) using absorption costing.
[1]
(d) (i) Calculate the budgeted profit for one bicycle.
[4]
(ii) Calculate the budgeted profit for one scooter.
[4]

18
The sales director has suggested that the company should reduce production of bicycles by 500
a month and increase production of scooters by 500 a month.
REQUIRED
(e) Advise the directors whether or not they should proceed with this suggestion. Justify your
answer using both financial and non-financial factors.
[7]
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19
K Limited pays its production workers $9 an hour.
In January 2018 actual results for Department A showed the following.
hours worked 2 100

total overheads $76 200
REQUIRED
(f) Calculate the overhead absorption rate per direct labour hour for Department A.
[3]
(g) Calculate the under-absorption or over-absorption of overheads for Department A in

January 2018.
[5]
[Total: 30]
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© UCLES 2018 9706/22/F/M/18

Cambridge Assessment International Education

ACCOUNTING 9706/22
1 hour 30 minutes
Write your centre number, candidate number and name on all the work you hand in.

This document consists of 20 printed pages.
IB19 03_9706_22/5RP
2
1 The following balances were extracted from the books of K Limited at 30 September 2018.
Debit Credit
$000 $000
8% Debentures (2022-2024) 75
Administrative expenses 42
Cash and cash equivalents 11
Cost of sales 587
Debenture interest 3
Distribution costs 46
Dividends paid 60
Equipment
cost 90
provision for depreciation at 1 October 2017 30
Land and buildings
cost 980
provision for depreciation at 1 October 2017 135
Inventory at 30 September 2018 19
Issued share capital: ordinary shares of $0.50 each 450
Retained earnings at 1 October 2017 106
Revenue 936
Share premium 90
Trade payables 35
Trade receivables 41
The following information is also available.
1 Administrative expenses includes a payment, $9000, for insurance for the three months
ended 30 November 2018.
2 Carriage inwards of $3000 had been included in distribution costs.
3 Land and buildings includes land at a cost of $260 000.
4 The company’s depreciation policy is as follows:
20% per annum using the reducing

Equipment Charged to distribution costs
balance method
2½% per annum using the
Buildings Charged to administrative expenses
straight-line method
Land No depreciation
© UCLES 2019 9706/22/F/M/19

3
REQUIRED
(a) Prepare the income statement for the year ended 30 September 2018.
K Limited
Income statement for the year ended 30 September 2018
$000
Workings:
[10]

4
During the year ended 30 September 2018 the directors had made a rights issue of 1 ordinary
share for every 2 shares held at a price of $0.70 per share. The issue was fully subscribed and
had been recorded in the books of account.
REQUIRED
(b) Prepare the statement of changes in equity for the year ended 30 September 2018.
Share Share Retained Total

capital premium earnings
$000 $000 $000 $000
Workings:
[6]
© UCLES 2019 9706/22/F/M/19

5
The directors wish to raise additional finance. They are considering making either a further rights
issue of ordinary shares or issue another debenture.
REQUIRED
(c) Advise the directors which option they should choose. Justify your answer.
[5]

6
The directors have provided the following information:
Year ended Year ended Industry

30 September 30 September average for
2018 2017 both years
Trade payables turnover 29 days 35 days 34 days
Trade receivables turnover 39 days 31 days 32 days
REQUIRED
(d) Analyse the effect that the changes in each of these ratios had on the company’s liquidity
using all the available information.
[3]
© UCLES 2019 9706/22/F/M/19

7
(e) State three ways in which a business could reduce trade receivables turnover.
[3]
(f) State three drawbacks of increasing trade payables turnover.
[3]
[Total: 30]

8
© UCLES 2019 9706/22/F/M/19

9
2 Mira, Sasha and Peta have been trading as a partnership.
They share profits and losses in the ratio of 2 : 2 : 1 respectively. The partnership ceased trading
on 31 January 2019.
REQUIRED
(a) State four reasons why a partnership may be dissolved.
[4]

10
The following information is available on dissolution of partnership.
1 Mira, Sasha and Peta

Statement of financial position at 31 January 2019
$
Assets
Non-current assets
Fixtures and fittings 45 200
67 200
Current assets
Inventory 20 600
63 400
Total assets 130 600
Capital and liabilities

Capital accounts
Mira 45 500
Sasha 42 800
Peta 14 000
102 300
Current liabilities
Bank overdraft 1 900
28 300
Total capital and liabilities 130 600
2 Sasha took a motor vehicle at an agreed valuation of $4500. The remaining non-current
assets were sold for $64 300.
3 Inventory was sold for $19 800.
4 Received $40 500 from trade receivables.
5 Trade payables were paid $26 000.
6 The costs of dissolution were $3700.
© UCLES 2019 9706/22/F/M/19

11
REQUIRED
(b) Prepare the partnership realisation account.
[5]
(c) Prepare, on the next page, the partners’ capital accounts on dissolution. [2]

Mira, Sasha and Peta
Capital accounts
© UCLES 2019
Mira Sasha Peta Mira Sasha Peta
Details Details
$ $ $ $ $ $
12
9706/22/F/M/19
13
(d) Prepare the final bank account to show the closure of the partnership.
[2]
(e) Suggest two reasons why the trade receivables did not pay the full amount they owed.
[2]
[Total: 15]

14
3 Noor, a sole trader, was preparing her business’s financial statements for the year ended
31 December 2018.
The following information is available.
At 1 January 2018
$
General expenses prepaid 480
During the year ended 31 December 2018

$
General expenses paid 12 400
Insurance premiums paid 6 480
Rent received 5 460
At 31 December 2018
1 General expenses, $1210, were due but unpaid.
2 Insurance premiums paid included $630 covering the six months ended 31 January 2019.
3 Rent receivable of $1200 for the three months ended 28 February 2019 had not yet been
received.
4 Inventory had been valued at a cost of $11 400. However, it included several damaged items
which had a selling price of $840. All goods are sold with a mark-up of 50%. The damaged
items could be sold but would require repairs costing $360.
REQUIRED
(a) Calculate the amount to be recorded in the income statement for the year ended
31 December 2018 for each of the following items.
(i) General expenses
[3]
(ii) Insurance
[1]
© UCLES 2019 9706/22/F/M/19

15
(iii) Rent receivable
[1]
(iv) Closing inventory
[3]
Noor’s policy is to maintain a provision for doubtful debts at 5% of trade receivables at the end of
the financial year.
REQUIRED
(b) State two accounting concepts which are applied when recording a provision for doubtful
debts.
2 [2]

16
At 31 December 2017 Noor’s trade receivables were $34 200 after deducting the provision for
doubtful debts.
At 31 December 2018 total trade receivables were $37 200. This total included the accounts of
the following two credit customers.
$
MN Limited 680
S Wells 360
Noor decided to write off these two accounts. She will maintain her provision for doubtful debts at
5% of trade receivables.
REQUIRED
(c) Calculate the increase or decrease in the provision for doubtful debts at 31 December 2018.
[5]
[Total: 15]
© UCLES 2019 9706/22/F/M/19

17
4 W Limited operates a system of marginal costing. The company makes two products, Product A
and Product B. The directors provided the following budgeted information for a year.
Product A Product B
Production and sales (units) 10 000 6 000
$ $
Allocated fixed overheads 130 000 120 000
Per unit
selling price 60 80
direct material 14 16
direct labour 15 21
variable overheads 10 15
REQUIRED
(a) Prepare a statement for the year to show:
the budgeted total contribution for each product

the budgeted total profit for each product
the budgeted total profit.
Product A Product B Total

$ $ $
[8]

18
Included in the allocated fixed overheads is rental of machinery at a cost of $100 000 a year. This
cost is allocated 75% to Product A and 25% to Product B.
The directors are now considering two options.
Option 1: Continue with the existing machinery rental on the same terms.
Option 2: Taking out a new rental agreement for new machinery. The new rental agreement
would consist of a fixed fee of $28 000 a year plus $4 for each unit produced. The fixed
fee would be split across the products in the same proportions as under the current
agreement.
REQUIRED
(b) Complete the following table to show the effect of Option 2.
Product A Product B Total

Revised unit contribution
Revised allocated total

fixed overheads, total for
the year
Revised budgeted profit

for the year
Workings:
[9]
© UCLES 2019 9706/22/F/M/19

19
(c) Advise the directors which option they should choose. Justify your answer using both
financial and non-financial factors.
[7]
(d) Explain how unit contribution can be used by a business manufacturing multiple products
when there is a shortage of production materials.
[4]

20
(e) State two other uses of marginal costing to a business.
[2]
[Total: 30]
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.
Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.
© UCLES 2019 9706/22/F/M/19

Cambridge International AS & A Level
* 7 5 8 5 9 6 5 5 6 2 *
ACCOUNTING 9706/22
1 hour 30 minutes
You must answer on the question paper.
No additional materials are needed.
INSTRUCTIONS
● Answer all questions.
● Use a black or dark blue pen.
● Write your name, centre number and candidate number in the boxes at the top of the page.
● Write your answer to each question in the space provided.
● Do not use an erasable pen or correction fluid.
● Do not write on any bar codes.
● You may use an HB pencil for any rough working.
● You may use a calculator.
● You should present all accounting statements in good style.
● International accounting terms and formats should be used as appropriate.
● You should show your workings.
INFORMATION
● The total mark for this paper is 90.
● The number of marks for each question or part question is shown in brackets [ ].
This document has 16 pages. Blank pages are indicated.
DC (PQ) 181349/2
2
1 The following information is available for S Limited for the year ended 31 December 2019.
Balances at 1 January 2019

$
Inventory 122 000
Administrative expenses accrued 3 875
Amounts paid during the year ended 31 December 2019
Distribution costs 84 475

Purchases 435 000
Amounts received during the year ended 31 December 2019
Revenue 998 400
Balances at 31 December 2019
Inventory 134 200

Administrative expenses prepaid 7 500
6% debenture (2024) 100 000
1 Inventory at 31 December 2019 included some damaged goods which had cost $5000. These
goods can only be sold for $3000 after repairs costing $700 have been carried out.
2 The 6% debenture (2024) was issued on 1 September 2019.
© UCLES 2020 9706/22/F/M/20

3
REQUIRED
(a) Prepare the income statement for the year ended 31 December 2019.
S Limited
Income statement for the year ended 31 December 2019
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Workings:
[10]
4
The following additional balances were also available at 1 January 2019.
$
Ordinary shares of $1 each 100 000
1 An interim dividend of $0.08 per share was paid on 30 June 2019.
2 A bonus issue of one ordinary share for every four shares held was made on 31 October 2019.
Reserves were maintained in their most flexible form.
3 A final dividend of $0.09 per ordinary share was proposed on 31 December 2019.
REQUIRED
(b) Explain what is meant by ‘Reserves were maintained in their most flexible form’.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(c) Prepare the ordinary share capital account for the year ended 31 December 2019.
Ordinary share capital account
$ $
[4]
© UCLES 2020 9706/22/F/M/20

5
(d) Prepare the statement of changes in equity for the year ended 31 December 2019.
S Limited
Statement of changes in equity for the year ended 31 December 2019
Share Retained
Share capital premium earnings Total
$ $ $ $
[5]

6
The directors are planning to acquire more machinery in the following year and require a further
investment of $50 000. They are considering two options:
option 1: issue an additional 6% debenture for $50 000
option 2: make a rights issue of one ordinary share for every five shares held at a premium of $1
per share.
REQUIRED
(e) Advise the directors on which option they should choose. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[9]
[Total: 30]
© UCLES 2020 9706/22/F/M/20

7
2 Depreciation is provided for by a business when accounting for non-current assets.
(a) (i) State three possible causes of depreciation.
1 ........................................................................................................................................
2 ........................................................................................................................................
3 ........................................................................................................................................
[3]
(ii) Explain two accounting concepts which are applied when providing for depreciation.
1 Concept .....................................................
Explanation
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
2 Concept .....................................................
Explanation
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[4]

8
The directors of K Limited prepare financial statements to 31 December. They have provided the
following information.
$
Motor vehicles cost 180 000
Motor vehicles provision for depreciation 105 000
1 A new motor vehicle was acquired for $50 000.
2 A motor vehicle which had cost $40 000 and been depreciated by $17 500 was sold for
$16 500.
The company policy is to depreciate motor vehicles at 25% per annum using the reducing balance
method.
A full year’s depreciation is charged in the year of acquisition and none in the year of disposal.
REQUIRED
(b) Prepare for the year ended 31 December 2019:
(i) motor vehicles provision for depreciation account
Motor vehicles provision for depreciation account
$ $
[6]
© UCLES 2020 9706/22/F/M/20

9
(ii) disposal account
Disposal account
$ $
[2]
[Total: 15]

10
3 Eden runs a small business and has provided the following information for the year ended
31 December 2019.
$
Trade receivables at 1 January 2019 45 000
Contra sales ledger to purchases ledger 780
Discounts allowed 1 025
Discounts received 695
Interest charged on a customer’s overdue account 65
Irrecoverable debt 945
Receipts from trade receivables 128 600
Returns inwards 2 500
Returns outwards 1 800
Total sales 190 000
20% of total sales are cash sales; the remainder are credit sales.
REQUIRED
(a) Explain three advantages to a business of preparing control accounts.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[6]
© UCLES 2020 9706/22/F/M/20

11
(b) Prepare the sales ledger control account for the year ended 31 December 2019.
Sales ledger control account
$ $
[9]
[Total: 15]

12
4 Cuthbert runs a manufacturing business which has two production departments and one service
department. The business allocates and apportions overhead expenditure between production
and service departments.
REQUIRED
(a) Explain one difference between overhead allocation and overhead apportionment.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(b) State what is meant by:
(i) a production department
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[1]
(ii) a service department
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[1]
© UCLES 2020 9706/22/F/M/20

13
The following budgeted information has been provided.
$
Rent 18 000
Heating and lighting 12 500
Depreciation 11 200
Employee overheads 8 300
50 000
Production Production Service

department 1 department 2 department
Area (Square metres) 4 500 3 000 1 500
Electricity used (Kilowatt hours) 60 000 30 000 10 000
Non-current assets at net book value ($) 75 000 45 000
Number of employees 45 25 13
Direct labour hours 4 000 1 200
Machine hours 1 500 2 000
Service department costs are re-apportioned on the basis of electricity used.
REQUIRED
(c) Complete the table to apportion the budgeted overheads to each department. Re-apportion
the service department costs to the two production departments.
Production Production Service

Overhead department 1 department 2 department Total
$ $ $ $
Rent
Heating and lighting
Depreciation
Employee
overheads
Service department
re-apportionment
[8]
14
(d) Calculate the overhead absorption rate for both production departments using an appropriate
basis. Give your answers to two decimal places.
Production department 1
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Production department 2
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(e) Explain the reason for the re-apportionment of the service department costs.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(f) State three limitations of using absorption costing.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
© UCLES 2020 9706/22/F/M/20

15
A customer made a request for a special order.
The manufacture of this order would require direct materials of $2 800 and direct labour of $3 200.
Production department 1 Production department 2
Direct labour hours 80 20
Machine hours 30 100
Cuthbert wishes to achieve a profit margin of 35% on this order.
REQUIRED
(g) Calculate the price to quote for this special order.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]

16
The customer offered $9 000 for this order.
REQUIRED
(h) Advise Cuthbert whether or not he should accept the order. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[5]
[Total: 30]
© UCLES 2020 9706/22/F/M/20

* 9 8 0 2 8 1 5 4 3 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
This document has 20 pages.
DC (CJ) 201861/3
2
1 Faraz, Javed and Leah were in partnership. Their agreement included the following terms:
1 Interest on drawings to be charged at 5% on total drawings for the year.
2 Interest at 12% per annum to be provided on fixed capitals.
3 Javed to receive a salary of $9000 per annum.
4 Remaining profits and losses to be shared in the ratio Faraz, Javed and Leah, 4 : 3 : 3
respectively.
The following information was available for the year ended 31 December 2020.
Faraz Javed Leah

$ $ $
Capital accounts 80 000 60 000 50 000
Current accounts 3 400 credit 2 900 debit 1 700 debit
For the year ended 31 December 2020
Drawings 22 400 17 200 20 200
The profit for the year ended 31 December 2020, before appropriation, was $31 500.
REQUIRED
(a) State two reasons why partnership agreements sometimes include a provision to charge
interest on drawings.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2021 9706/22/F/M/21

3
(b) Prepare the appropriation account for the year ended 31 December 2020.
Faraz, Javed and Leah

Appropriation account for the year ended 31 December 2020
$ $
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
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........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................

[5]

4
(c) Prepare Javed’s current account for the year ended 31 December 2020.
Javed
Current account
$ $
[6]
© UCLES 2021 9706/22/F/M/21

5
On 1 January 2021, Javed retired from the partnership. It was agreed that on this date:
1 Javed would keep some equipment for personal use. The equipment had a net book value of
$15 400 and was to be transferred to Javed at a value of $13 000.
2 Other non-current assets were to be revalued upwards by $24 000.
3 Goodwill was valued at $50 000. A goodwill account was not to be maintained in the
partnership’s books.
REQUIRED
(d) Explain the meaning of goodwill.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(e) Explain why a valuation of goodwill could be made when a partner retires.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]

6
(f) Prepare a statement to show the amount due to Javed on his retirement from the partnership.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[6]
© UCLES 2021 9706/22/F/M/21

7
Faraz and Leah continued in partnership sharing profits and losses equally. They discussed
how best to finance the amount due to Javed on his retirement from the partnership. They are
considering two options.
Option 1: Take out a bank loan to cover the amount due.
Option 2: Admit a new partner whose capital contribution would cover the amount due.
REQUIRED
(g) Advise the partners which option they should choose. Justify your answer by discussing both
options.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
[7]
[Total: 30]

8
2 Myra owns a delivery business. The following information is available about her business’s delivery
vehicles.
Vehicle Date of purchase Cost

$
A 1 August 2017 30 000
B 1 February 2018 36 000
C 1 June 2019 39 000
Vehicles are depreciated using the straight-line method at 20% per annum. Depreciation is
charged on a month-by-month basis. The business’s financial year end is 31 December.
REQUIRED
(a) Calculate the balance on the provision for depreciation of vehicles account at
31 December 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
© UCLES 2021 9706/22/F/M/21

9
On 1 March 2020, Vehicle A was sold in part exchange for Vehicle D. Vehicle D cost $42 000 of
which $29 200 was paid by cheque.
REQUIRED
(b) Prepare the vehicle disposal account.
Vehicle disposal account
$ $
[5]

10
(c) Prepare the provision for depreciation of vehicles account for the year ended
31 December 2020.
Provision for depreciation of vehicles account
$ $
[3]
© UCLES 2021 9706/22/F/M/21

11
Businesses may use the revaluation method of depreciation for some of their non-current assets.
REQUIRED
(d) Explain one reason why some businesses may use the revaluation method of depreciation.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(e) State how an annual depreciation charge is calculated using the revaluation method.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[1]
[Total: 15]

12
3 The directors of B Limited have provided the following information.
Statement of financial position at 31 December 2020
Assets $
Current assets
Inventory 34 000
65 000
Equity and liabilities
Equity
Issued share capital 500 000
8% Debenture (2025) 50 000
50 000
Current liabilities
36 000
1 The company’s revenue for the year ended 31 December 2020 was $540 000 of which 60%
was on credit.
2 The company’s profit for the year was $80 000.
REQUIRED
(a) Calculate the following ratios at 31 December 2020.
(i) Current ratio (to two decimal places)
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[1]
© UCLES 2021 9706/22/F/M/21

13
(ii) Trade receivables turnover (days)
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[1]
(iii) Return on capital employed (to two decimal places)
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[2]
The following ratios are available for 2019 along with comparative ratios for 2018.
At 31 December At 31 December
2019 2018
Current ratio 2.20 : 1 2.10 : 1
Trade receivables turnover 37 days 38 days
Return on capital employed 15.57% 14.32%
REQUIRED
(b) Compare the company’s position at 31 December 2020 with that of the previous two years in
regard to the following ratios:
(i) Current ratio
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[2]

14
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[2]
(iii) Return on capital employed
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[2]
(c) State two ways in which a company could improve its current ratio.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2021 9706/22/F/M/21

15
Companies compare their financial performance with that of different businesses.
REQUIRED
(d) State three limitations of comparing the financial performance of different businesses.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 15]

16
4 K Limited produces goods at two sites and uses marginal costing.
At one site the company makes a single product. The following details are available.
Maximum capacity 14 500 units per month
Fixed costs $216 000 per month
$
Unit selling price 90
Costs per unit:
Direct materials 25
Direct labour 36
Other variable costs 11
REQUIRED
(a) Calculate the break-even point per month in units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
(b) Define the term ‘margin of safety’.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
The directors have decided to make the following changes:
1 Reduce selling price by 2%.
2 Introduce a sales commission of $2 per unit on every unit sold in excess of 5000 units per
month.
3 Purchase direct materials in bulk and obtain a trade discount of 20%.
Buying direct materials in bulk will increase storage costs by $4000 per month.
Demand will be 98% of factory capacity.
© UCLES 2021 9706/22/F/M/21

17
REQUIRED
(c) Prepare a marginal costing statement to show the monthly profit based on these changes.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[6]
(d) Explain two advantages of using a system of marginal costing.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]

18
At its other site the company makes three products: Product X, Product Y and Product Z. The
following details are available.
Product X Product Y Product Z

Contribution per unit $15 $20 $27
Machine hours per unit 1.5 2.5 3
Maximum monthly output in units 600 300 200
Fixed costs per month are $14 100.
Each month the company plans to work to full capacity producing the maximum output of each
product.
In August 2021 only two-thirds of the month’s machine hours will be available.
REQUIRED
(e) Calculate the machine hours available in August 2021.
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
The company has a regular order to supply one major customer with 50% of the output of each
product per month.
Two options are being considered to deal with the shortage of machine hours.
Option 1: The finance director has recommended the company makes the maximum profit possible
in August 2021 and if necessary not complete all of the major customer’s order.
Option 2: The sales director has recommended that the company should ensure it fulfils the major
customer’s order.
© UCLES 2021 9706/22/F/M/21

19
REQUIRED
(f) Calculate the profit or loss for August 2021 based on:
(i) Option 1
...........................................................................................................................................
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...........................................................................................................................................
[4]
(ii) Option 2
...........................................................................................................................................
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[5]
20
(g) Advise which option the company should choose. Justify your advice by discussing both
options. (Consider both financial and non-financial factors.)
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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[5]
[Total: 30]
© UCLES 2021 9706/22/F/M/21

* 9 5 8 7 0 7 0 3 5 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
This document has 20 pages. Any blank pages are indicated.
DC (RW) 303870/3
2
1 Rafiq owns a retail business. When the business was opened a few years ago, Rafiq maintained
only minimal accounting records.
REQUIRED
(a) State two reasons why the owner of a business might maintain minimal accounting records.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(b) Identify four benefits of maintaining full accounting records.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
4 ................................................................................................................................................
[4]
More recently Rafiq has been able to provide more detailed financial information.
1 On 1 January 2021, the business’s assets and liabilities were as follows:
$
Cash in hand 840
Furniture and fittings at valuation 22 710
Inventory 14 430
Rent prepaid 1 250
© UCLES 2022 9706/22/F/M/22

3
2 The following summary of receipts and payments for the year ended 31 December 2021 has
been prepared from the business’s bank statements.
Receipts $ $
Cash sales banked 132 200
Disposal of furniture and fittings 3 480
Total receipts 135 680
Payments
Drawings 18 390
Rent 14 750
Additional furniture and fittings 8 000
Installation costs for new fittings 380
General expenses 5 940
Total payments 140 560
3 Rafiq purchases all goods for resale on a credit basis.
4 All sales are on a cash basis.
5 A cash discount of 5% was received when Rafiq settled debts with trade payables during the
year ended 31 December 2021.
6 At 31 December 2021 trade payables totalled $9230.
REQUIRED
(c) Calculate the total purchases for the year ended 31 December 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[3]

4
During the year ended 31 December 2021:
1 Some cash takings were not banked but were used to pay wages, $21 540, and drawings,
$2580.
2 Rafiq took goods costing $480 for private use.
3 Furniture and fittings with a value of $2950 were sold.
At 31 December 2021:
1 Cash takings of $1200 had not yet been banked.
2 The balance of cash in hand was $920.
3 Inventory was valued at $11 920.
4 Furniture and fittings were valued at $23 400.
5 Rent of $1440 was prepaid.
REQUIRED
(d) Prepare the income statement for the year ended 31 December 2021.
Workings:
© UCLES 2022 9706/22/F/M/22

5
Rafiq
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
[14]

6
Rafiq would like to expand his business but requires additional finance to carry out this plan. He is
considering two options.
Option 1: Invite a friend, Khaled, to become a partner in the business. Khaled would introduce
capital of $10 000.
Option 2: Apply for a bank loan of $10 000.
REQUIRED
(e) Advise Rafiq which option he should choose. Justify your answer by discussing both financial
and non-financial issues of each option.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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[7]
[Total: 30]
© UCLES 2022 9706/22/F/M/22

7
2 T Limited’s statement of financial position at 28 February 2021 included the following:
$
Equity
Issued capital: ordinary shares of $0.50 each 450 000
914 000
On 31 August 2021 the directors paid an interim dividend of $0.05 per share.
REQUIRED
(a) Calculate the amount paid as an interim dividend.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[1]
(b) Identify two factors which directors should take into account when deciding the amount of a
dividend payment to shareholders.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]

8
On 1 December 2021, the directors made a bonus issue on the basis of two ordinary shares for
every three ordinary shares currently held. The directors wished to leave the reserves in their
most flexible form.
REQUIRED
(c) Prepare the journal entry to record the bonus issue of shares. A narrative is not required.
Journal
Dr Cr
$ $
[3]
On 28 February 2022, the directors paid a final dividend of $0.07 per share on all ordinary shares
issued at this date.
The company’s profit for the year ended 28 February 2022 was $114 000.
REQUIRED
(d) Calculate the closing balance of the company’s retained earnings account at 28 February 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[6]
© UCLES 2022 9706/22/F/M/22

9
(e) State three reasons why a company sometimes makes a rights issue of shares rather than
a general issue of shares.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 15]

10
3 Bipin, Feroz and Neeru have been in partnership for many years sharing profits and losses in the
ratio 3 : 1 : 2 respectively.
Feroz decided to retire from the partnership with effect from 1 January 2022. On this date the
statement of financial position was available.
Statement of financial position
$ $
Assets
Non-current assets at net book value 132 000
Current assets
Inventory 17 560
Cash at bank 18 490
46 590

Capital accounts
Bipin 72 000
Feroz 44 300
Neeru 57 000
173 300
Current accounts
Bipin 4 240
Feroz (1 980)
Neeru (2 750)
(490)
Total capital 172 810
Current liabilities
1 Non-current assets were revalued at $155 000 and inventory was revalued at $13 160.
2 Goodwill was valued at $39 000. It was agreed that a goodwill account was not to be
maintained in the books of the partnership.
3 Bipin and Neeru agreed to remain in partnership sharing profits and losses equally.
4 On his retirement, Feroz agreed to take a non-current asset at its valuation of $15 000. He
agreed to leave the remaining amount due to him as a loan to the partnership.
REQUIRED
(a) Prepare, on the next page, the partners’ capital accounts to record the retirement of Feroz.
© UCLES 2022 9706/22/F/M/22

Capital accounts
Bipin Feroz Neeru Bipin Feroz Neeru

$ $ $ $ $ $
© UCLES 2022
11
[7]
9706/22/F/M/22
[Turn over
12
Bipin and Neeru have agreed the following for the new partnership.
1 They will no longer use current accounts. Each partner’s current account balance is to be
transferred to the partner’s capital account.
2 The opening balances of their capital accounts are to reflect their new profit and loss sharing
ratio.
Neeru was to introduce or withdraw funds in order to achieve this.
REQUIRED
(b) Calculate the amount Neeru should introduce or withdraw.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(c) Explain one reason for valuing goodwill when a partner retires.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2022 9706/22/F/M/22

13
(d) State two reasons why it is usual not to maintain a goodwill account in the books of a
partnership.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

14
4 R Limited uses absorption costing at one of its factories. This factory has two production
departments: Machining and Assembly, and two service departments: Support and Canteen.
Some budgeted overheads have already been apportioned for April 2022. The remaining budgeted
overheads for April 2022 are as follows:
$
Depreciation of machinery 25 000
Production departments’ supervisor’s wages 19 800
The following additional information is available.
1
Production departments Service departments
Machining Assembly Support Canteen
Floor area (m2) 7000 2000 400 600
Power (Kwh) 4500 1800 300 900
Machinery cost ($) 850 000 110 000 15 000 25 000
Number of employees 75 35 8 7
2 The canteen provides meals for staff in the Machining, Assembly and Support departments.
3 The Support department’s overheads should be reapportioned on the basis of production

departments’ machinery cost.
REQUIRED
(a) Complete the following table showing the apportionment of overheads and the reapportionment
of service department overheads.

Machining Assembly Support Canteen
$ $ $ $
Overheads already
106 350 28 600 7 180 13 870
apportioned
Depreciation of
machinery
Production departments’
supervisor’s wages
Reapportioned Canteen
Reapportioned Support
Total
[5]
© UCLES 2022 9706/22/F/M/22
15
Machining Assembly
Direct labour hours per month 3200 2400
Machine hours per month 5600 1800
REQUIRED
(b) Calculate the overhead absorption rate for each production department to two decimal
places.
Machining
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Assembly
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(c) State two reasons why overheads may be under-absorbed.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]

16
At another factory a single product is made. This factory uses marginal costing.
$
Direct materials per unit 8.80
Direct labour per unit 10.10
Selling price per unit 27.00
Fixed costs per month $44 000

Production capacity per month 15 000 units
The factory has been operating at below its normal capacity. However, recently demand for the
company’s product has increased considerably. The directors believe there is an opportunity to
increase profits. They are considering two options to meet increased demand.
Option 1
1 Increase the selling price per unit by 5%.
2 Increase production to 16 000 units per month.
3 Overtime is paid at an additional $4.10 per unit.
4 Reduce monthly advertising by $2 000.
Option 2
1 Increase production capacity per month by 15% by purchasing additional machinery costing
$78 000. This machinery will be depreciated at 20% per annum.
2 Selling price will remain at $27 per unit.
3 The supplier of materials currently offers a trade discount of 20%. This will increase to 30%.
4 The additional machinery will be more efficient and production will not require any overtime
working.
© UCLES 2022 9706/22/F/M/22

17
REQUIRED
(d) Calculate the monthly profit to be made for each option.
(i) Option 1
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[5]
(ii) Option 2
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[5]

18
The cost of the additional machinery required in Option 2 would be financed by an issue of ordinary
shares.
REQUIRED
(e) Advise the directors which option they should choose. Justify your answer by considering
both financial and non-financial factors.
...................................................................................................................................................
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[5]
© UCLES 2022 9706/22/F/M/22

19
(f) (i) State two benefits of budgetary control.
1 ........................................................................................................................................
...........................................................................................................................................
2 ........................................................................................................................................
...........................................................................................................................................
[2]
(ii) State two limitations of budgetary control.
1 ........................................................................................................................................
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2 ........................................................................................................................................
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[2]
[Total: 30]
© UCLES 2022 9706/22/F/M/22

20
BLANK PAGE
Cambridge Assessment International Education is part of Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2022 9706/22/F/M/22

* 2 7 2 8 7 0 6 7 1 6 *
ACCOUNTING 9706/22
Paper 2 Fundamentals of Accounting February/March 2023
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 311559/5
2
1 Nibras and Raif are in partnership. They own a car hire business.
The following balances were available at 31 December 2022.
Debit Credit
$ $
Allowance for irrecoverable debts 380
Cash at bank 7 370
Capital accounts
Nibras 180 000
Raif 120 000
Current accounts
Nibras 5 950
Raif 4 760
Drawings
Nibras 19 200
Raif 12 140
Insurance 15 400
Interest on loan from Raif 750
Loan from Raif 9 000
Motor vehicle expenses 12 420
Motor vehicles
Cost 144 000
Provision for depreciation 1 January 2022 33 200
Premises
Cost 220 000
Provision for depreciation 1 January 2022 44 000
Rent receivable 6 050
Repairs and maintenance 8 270
Revenue from car hire 88 300
Wages and salaries 18 460
Totals 485 690 485 690
1 Interest at 10% per annum on the loan from Raif is accrued for the last two months of the
year.
2 Insurance payments covered the period 1 January 2022 to 28 February 2023. Monthly
insurance costs have remained unchanged during this period.
3 The partners have agreed that the allowance for irrecoverable debts is no longer required.
4 Rent receivable by the partnership is $550 per month. Part of the premises have been rented
for the full year.
5 Motor vehicles are to be depreciated at 25% per annum using the reducing balance method.
6 Premises are to be depreciated by 2% per annum using the straight-line method.

© UCLES 2023 9706/22/F/M/23
3
REQUIRED
(a) Prepare the statement of profit or loss for the year ended 31 December 2022. Use the space
on page 4 to show your workings.
Nibras and Raif

Statement of profit or loss for the year ended 31 December 2022
$ $
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................

4
Workings:
[9]
© UCLES 2023 9706/22/F/M/23

5
Nibras and Raif agreed the following terms for the appropriation of profits and losses.
1 Interest on capital to be 10% per annum.
2 Nibras to receive a partnership salary of $6000 per annum.
3 Remaining profits and losses to be shared in the ratio Nibras:Raif, 3:2.
REQUIRED
Nibras and Raif

...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [3]

6
The partners would like to know what difference it would have made if they had operated without a
partnership agreement during the year ended 31 December 2022.
REQUIRED
(c) Calculate by how much Nibras’ current account balance at 31 December 2022 would
have been different if there had been no partnership agreement during the year ended
31 December 2022.
...................................................................................................................................................
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............................................................................................................................................. [8]
© UCLES 2023 9706/22/F/M/23

7
The partners had considered charging interest on drawings as part of their agreement.
REQUIRED
(d) State one reason for including interest on drawings in a partnership agreement.
...................................................................................................................................................
............................................................................................................................................. [1]
(e) State the double entry for recording interest on drawings.
Debit .........................................................................................................................................
Credit ........................................................................................................................................
[2]

8
Nibras and Raif would like to expand their business but they require additional finance. They have
considered two options:
Option 1: Nibras to introduce additional capital by selling some personal investments
Option 2: Arrange a bank loan
REQUIRED
(f) Advise the partners which option they should choose. Justify your answer by discussing both
options.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/22/F/M/23

9
2 Jakoub owns a restaurant. The business’s financial year end is 31 December.
The business owns many small items of kitchen equipment. The following information is available.
1 On 1 January 2022 kitchen equipment was valued at $3450.
2 Additional kitchen equipment was purchased for cash, $1680, during the year ended
31 December 2022.
3 On 31 December 2022 kitchen equipment was valued at $3950.
REQUIRED
(a) Prepare the kitchen equipment account for the year ended 31 December 2022.
Kitchen equipment
$ $
[4]
(b) State two reasons why the reducing balance method of depreciation might be chosen by a
business for depreciating non-current assets.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]

10
On 1 January 2022, a new delivery vehicle was purchased in part exchange for the business’s
old delivery vehicle. A payment of $22 500 was made. The old delivery vehicle had originally cost
$24 000 when it was purchased on 1 January 2020. The old delivery vehicle was part exchanged
at net book value.
Delivery vehicles are depreciated by 25% per annum using the reducing balance method of
depreciation.
REQUIRED
(c) Prepare a journal entry to record the charge for depreciation of vehicles for the year ended
31 December 2022. A narrative is not required.
Journal
Dr Cr
$ $
Workings:
[5]
© UCLES 2023 9706/22/F/M/23

11
(d) Define each of the following terms:
(i) capital expenditure
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) capital receipts.
...........................................................................................................................................
..................................................................................................................................... [1]

12
Jakoub is preparing his business’s financial statements for the year ended 31 December 2022.
Payments $
Purchase of new ovens 5 600

Installation costs for new ovens 400
Repairs to electrical equipment 2 600
Maintenance of computer equipment 300
Extension to restaurant 85 000
Decoration of restaurant extension 3 200
Receipts $
Bank loan 25 000

Additional capital provided by Jakoub 40 000
Proceeds from the disposal of unwanted furniture 2 800
REQUIRED
(e) Calculate the total amount for each of the following:
(i) capital expenditure
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) capital receipts.
...........................................................................................................................................
..................................................................................................................................... [1]
[Total: 15]
© UCLES 2023 9706/22/F/M/23

13
3 Haniya wished to compare some ratios for her business. The following information is available for
the year ended 30 November 2021.
Acid test ratio 0.8:1

Trade receivables turnover (days) 34 days
Trade payables turnover (days) 36 days
The following extract was taken from the statement of financial position at 30 November 2022.
$
Current assets
Inventory 11 500
Cash at bank 6 250
27 350
Current liabilities
Bank loan 10 000
Other payables 1 720
18 300
For the year ended 30 November 2022 credit sales totalled $94 800 and credit purchases totalled
$88 300.
REQUIRED
(a) Calculate each of the following ratios for the year ended 30 November 2022.
(i) Acid test ratio (to two decimal places)
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
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...........................................................................................................................................
..................................................................................................................................... [2]

14
(iii) Trade payables turnover (days)
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(b) Explain the importance of the acid test ratio to a business.
...................................................................................................................................................
............................................................................................................................................. [2]
(c) Identify two ways in which the owner of a business could improve the acid test ratio.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(d) Discuss the changes that have occurred in the trade receivables turnover (days) ratio
and the trade payables turnover (days) ratio for Haniya’s business during the year ended
30 November 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 15]
© UCLES 2023 9706/22/F/M/23

15
4 G Limited manufactures a single product type at one of its factories. The company uses marginal
costing.
REQUIRED
(a) Define each of the following terms:
(i) contribution per unit
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) stepped costs
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) margin of safety.
...........................................................................................................................................
..................................................................................................................................... [1]
(b) State two benefits of using marginal costing.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]

16
The following budgeted information is available for September 2022.
Selling price per unit $59

Direct materials per unit 8 kg at $2.70 per kg
Direct labour per unit 4 hrs at $8.20 per hour
All units produced are sold.
REQUIRED
(c) Calculate the monthly break-even point in units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
The directors hope to increase demand by improving the product.
1 Current production of the original product is 7200 units per month. This represents 90% of
normal capacity.
2 Direct materials will cost $3 per kg for the improved product. Each unit of the improved
product will require 15% more material.
3 The selling price of the improved product will be $65.
4 It is expected that monthly production will increase by 20%.
5 The factory can operate in overtime conditions. Direct labour is paid 1.5 times the normal rate
in overtime conditions.
6 An additional machine costing $40 000 will be required. Non-current assets are depreciated
by 15% per annum.
© UCLES 2023 9706/22/F/M/23

17
REQUIRED
(d) Prepare a marginal costing statement to show the monthly forecast profit if the improved
product is made.
...................................................................................................................................................
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............................................................................................................................................. [7]

18
At a second factory the company manufactures another single product type. The following
information is available.
$
Direct material per unit 13
Direct labour per unit 11
Other variable costs per unit 3
Selling price per unit 42
Fixed costs per week 12 000
The factory uses 10 machines, each producing 300 units per week. The directors are aware that
problems have arisen with 4 machines which require urgent repairs. These machines will be taken
out of production for 8 weeks.
The directors are considering two options.
Option A: Buy in goods

The goods will be provided by an overseas supplier at $34 per unit.
Total delivery costs of $4200 for 8 weeks will be charged.
The supplier can only provide 75% of the lost production.
Option B: Hire replacement machines

Only two replacement machines are available at a cost of $150 per machine per week.
The machines will only be available for 7 weeks.
Staff will require training on the replacement machines at a total cost of $700.
REQUIRED
(e) Calculate the profit for the 8 weeks for each option.
(i) Option A
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© UCLES 2023 9706/22/F/M/23

19
(ii) Option B
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20
(f) Advise the directors which option they should choose. Justify your answer by considering
both options.
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[Total: 30]
© UCLES 2023 9706/22/F/M/23

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
General Certificate of Education
Advanced Subsidiary Level and Advanced Level
* 6 3 0 5 5 1 9 0 5 5 *
ACCOUNTING 9706/21
Paper 2 Structured Questions May/June 2011
1 hour 30 minutes
You may use a soft pencil for rough working.
Do not use staples, paper clips, highlighters, glue or correction fluid.

For Examiner’s Use
Total
DC (NH) 31862/3
2
1 Henry and Robin are in partnership with capitals of $120 000 and $80 000 respectively. For
Examiner’s
On 1 June 2010 Henry had a debit balance on his current account of $6 600 and Robin had Use
a credit balance on his current account of $1 000.
On 31 May 2011 Henry had a credit balance on his current account of $10 400.
The partnership agreement stated:
1 Interest on capital is payable at 8% per annum.
2 The maximum drawings permitted in any one year is 10% of capital invested.
3 Interest on drawings is charged at 5% on total drawings for the year.
4 Annual partnership salaries were Henry: $5 000 and Robin: $4 000.
5 Profits and losses are to be shared in the ratio of capital invested.
Both partners withdrew the maximum amount permitted during the year.
REQUIRED
(a) Prepare the current account of each partner for the year ended 31 May 2011.
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© UCLES 2011 9706/21/M/J/11
3
(b) Calculate the profit for the year (net profit) made by the partnership for the year ended For
31 May 2011. Examiner’s
Use
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(c) Before forming a partnership both Henry and Robin were sole traders.
State four advantages of a partnership compared to a sole trader.
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[Total: 30]
© UCLES 2011 9706/21/M/J/11 [Turn over

4
2 The Welcome Cricket Club has the following assets and liabilities. For
Examiner’s
30 April 2011 1 May 2010 Use
$ $
Equipment (at cost) 104 000 40 000
Equipment – depreciation provision 14 400 4 000
Café inventory 4 800 6 500
Cash at bank ? 12 800
Subscriptions outstanding 3 600 2 200
Subscriptions paid in advance 3 500 5 000
Café staff wages accrued 4 000 500
Loan from cricket association 20 000 –nn
Loan interest ? –nn
The receipts and payments for the year ended 30 April 2011 are:
Receipts $
Café revenue (sales) 90 000
Subscriptions 34 000
Loan from cricket association 20 000
Donations 450
Ticket sales 14 560
Payments $
Equipment 64 000
Rent 21 000
Wages of café staff 28 800
Café purchases for resale 36 000
Additional information:
1 Wages are a direct cost of the café and are charged to the trading account.
2 The rent and heating and lighting are apportioned 40% to the café and 60% to the
rest of the club.
3 The loan from the cricket association was received on 1 November 2010. Interest is
payable at 10% per year.
4 Depreciation is charged to the income and expenditure account.
© UCLES 2011 9706/21/M/J/11

5
REQUIRED For
Examiner’s
(a) Prepare the café income statement to show the gross profit and the profit for the year Use
(net profit) made by the café during the year ended 30 April 2011.
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6
(b) Prepare the income and expenditure account of the Welcome Cricket Club for the year For
ended 30 April 2011. Examiner’s
Use
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© UCLES 2011 9706/21/M/J/11

7
(c) Prepare the balance sheet of the Welcome Cricket Club at 30 April 2011. For
Examiner’s
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[Total: 30]

8
3 Largos Ltd produces three types of security camera – Ojo 1, Ojo 2 and Ojo 3. For
Examiner’s
The following forecast data is available for the year ended 30 June 2012. Use
Ojo 1 Ojo 2 Ojo 3
Forecast demand (units) 1 000 700 400
Selling price (per unit) $400 $450 $550

Costs (per unit)
Raw materials $150 $170 $241
Direct labour $100 $150 $175
Variable overheads $50 $60 $70
Fixed overheads $50 $60 $60
Labour is highly skilled and may be used to produce any of the three types of security
camera.
REQUIRED
(a) Prepare a statement to show the forecast contribution and profit or loss made by one
unit of each type of camera produced.
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© UCLES 2011 9706/21/M/J/11

9
(b) Prepare a statement to show the forecast total contribution and profit/loss made by For
each product for the year ended 30 June 2012. Examiner’s
Use
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(c) If the forecast output is produced, calculate the break-even point and the margin of
safety in units for each product. Show your workings.
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10
Largos Ltd also operates a factory which manufactures and sells underwater cameras. For
Examiner’s
The following details per unit are available for the quarter ended 30 April 2011. Use
$0
Sales price 700
Variable costs 400
Fixed production overhead 100
Fixed production overhead is absorbed on forecast production of 40 cameras per month.
Actual production and sales (units)

February March April
Sales 30 40 45
Inventory at start of month 10 0 5
Inventory at end of month 0 5 10
REQUIRED
(d) Prepare an income statement to show the profit or loss in each month using marginal
costing.
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© UCLES 2011 9706/21/M/J/11

11
(e) Prepare an income statement to show the profit or loss in each month using absorption For
costing. Examiner’s
Use
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[Total: 30]
© UCLES 2011 9706/21/M/J/11

12
BLANK PAGE
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2011 9706/21/M/J/11

* 2 1 2 0 4 3 7 0 8 5 *
ACCOUNTING 9706/22
1 hour 30 minutes

Total
DC (NH) 31866/3
2
1 Marcel owns a wholesale business supplying shops, hotels and restaurants with tea and For
coffee. He does not keep formal accounting records but is able to supply the following Examiner’s
information for the year ended 30 April 2011. Use
30 April 2011 1 May 2010

$ $
Trade receivables 17 000 18 200
Trade payables 14 800 16 600
Inventories 20 600 33 000
Wages accrued 9 350 9 200
General expenses prepaid – 900
General expenses owing 800 –
Transactions during the year ended 30 April 2011 were as follows:

$
Cash received from credit customers 103 160
Cash paid to credit suppliers 88 400
Cash sales to staff 10 750
Sales returns from credit customers 9 200
Discounts received 9 000
Bad debts 8 200
Wages 13 650
REQUIRED
(a) (i) Prepare a purchases ledger control account to find out the total amount of credit
purchases for the year ended 30 April 2011.
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© UCLES 2011 9706/22/M/J/11

3
(ii) Prepare a sales ledger control account to find out the amount of credit sales for the For
year ended 30 April 2011. Examiner’s
Use
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1 The normal gross profit to sales margin is 33.33%.
2 Staff are permitted to buy goods at cost plus 25%.
3 Goods sold in the annual clearance sale, $29 700, were sold at cost price.
4 On 8 March 2011 an unknown quantity of goods was destroyed by fire.

4
REQUIRED For
Examiner’s
(b) There were no further losses of goods during the year. Starting with the opening Use
inventory, calculate the value of the goods destroyed by the fire on 8 March 2011.
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© UCLES 2011 9706/22/M/J/11

5
(c) Prepare the income statement (trading account only) for the year ended 30 April 2011. For
Examiner’s
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[Total: 30]

6
2 The following information is available for the Northern Division of Blackford Industrial Ltd: For
Examiner’s
Statement of financial position at 30 April 2011 Use
$000 $000 $000
Non-current assets at net book value 180
Current assets
Inventory 40
Bank 43
118
Current liabilities
Trade payables 55
Other payables 23
78
Net current assets 40
Capital employed 220
Equity
Ordinary share capital – $1 each 190
Share premium 10
30
Total shareholders’ funds 220
Additional information for year ended 30 April 2011

$000
Total revenue (sales) 480
Cash purchases 240
Cash paid to credit suppliers 60
Operating expenses 120
At 30 April 2010, the following balances were reported: $000

Inventory 28
Trade payables 15
REQUIRED
(a) Calculate the following amounts for the year ended 30 April 2011:
(i) cost of sales
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© UCLES 2011 9706/22/M/J/11

7
(ii) gross profit and profit for the year (net profit). For
Examiner’s
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An analysis of the Southern Division of Blackford Industrial Ltd for the year ended 30 April
2011 yielded the following results.
Southern Division
1 Mark-up 40%
2 Gross profit percentage 28.57%
3 Expenses to sales 20%
4 Net profit percentage 8.57%
5 Return on capital employed 18.00%
6 Rate of inventory (stock) turnover 8.95 times
7 Liquid ratio (acid test) 1.1:1
REQUIRED
Northern Division
(b) Calculate each of the same ratios for the Northern Division of Blackford Industrial Ltd,
for the year ended 30 April 2011. The calculations should be correct to two decimal
places.
(i) Mark-up
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(ii) Gross profit percentage
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8
(iii) Expenses to sales For

Examiner’s
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(iv) Net profit percentage
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(v) Return on capital employed
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(vi) Rate of inventory (stock) turnover
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(vii) Liquid ratio (acid test)
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© UCLES 2011 9706/22/M/J/11

9
(c) Using the profitability ratios (i) – (v) compare the performance of the Northern and For
Southern Divisions of Blackford Industries and explain the significance of each ratio. Examiner’s
Use
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[Total: 30]
10
3 Ventana Ltd produce three different types of slatted wooden blinds, Pine, Teak and Oak. The For
company’s forecast figures for the year ended 30 April 2012 were: Examiner’s
Use
Pine Teak Oak

$ $ $
Costs (per unit)

Direct material 30 60 80
Direct labour 15 46 24
Variable overhead 6 12 16
Fixed overhead is absorbed on the basis of 50% of direct material cost.
Annual production and sales are forecast to be:
Pine 2000 units

Teak 1600 units
Oak 1000 units
REQUIRED
(a) For the year ended 30 April 2012:
(i) Prepare a statement to show the contribution per unit for each product.
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(ii) Calculate the total forecast fixed cost for the year.
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© UCLES 2011 9706/22/M/J/11

11
(iii) Prepare a statement to show the break-even point for each type of blind in units For
and dollars. Examiner’s
Use
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(b) Prepare a statement, using the contribution per unit, to show the total profit or loss
made by each type of blind for the year.
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12
One of the directors wishes to stop production of the pine blinds. For
Examiner’s
This would increase the total forecast fixed costs by 25%. However, the director estimates Use
that sales of the teak and the oak blinds would increase by 50%.
REQUIRED
(c) Prepare a detailed marginal cost statement, using the contribution per unit, to show the
effect on total profit of stopping production of the pine blinds.
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[Total: 30]
© UCLES 2011 9706/22/M/J/11

* 8 3 8 8 0 9 8 3 9 3 *
ACCOUNTING 9706/23
1 hour 30 minutes

Total
DC (NH) 31868/4
2
1 The following is the draft balance sheet of Marshall Klingsman, a sole trader, at 30 April 2011. For
Examiner’s
Balance Sheet at 30 April 2011 Use
$ $ $
Non-current assets
Buildings at valuation 300 000
Equipment at book value 540 000
Motor vehicles at book value 330 000
1 170 000
Current assets
Inventories 70 000
Other receivables 2 000
95 000
Current liabilities
Other payables 3 000 60 000

1 205 000
Loan 200 000
Net assets 1 005 000
Financed by:
Capital at start 1 000 000
Add Profit for the year (net profit) 80 000
1 080 000
Less Drawings 75 000
Capital at end 1 005 000
After preparation of the draft balance sheet the following errors were found.
1 Goods in inventory at 30 April 2011, valued at cost $15 000, were found to be
damaged. The estimated net realisable value is $8 000.
2 Loan interest of 4% per annum had been omitted from the accounts.
3 No provision for depreciation on equipment had been made for the year. Depreciation
should have been provided at 5% per annum using the reducing balance method.
4 Motor vehicles are depreciated by 10% per annum. During the year vehicle repairs
of $10 000 had been incorrectly debited to the motor vehicles account.
5 On 28 April 2011 a credit customer, who owed $3600, was declared bankrupt. It
was decided to write off this amount in full. No record of this has been made in the
accounts.
© UCLES 2011 9706/23/M/J/11

3
REQUIRED For
Examiner’s
(a) Prepare a statement to show the corrected profit for the year (net profit) ended Use
30 April 2011.
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4
(b) Prepare the corrected balance sheet at 30 April 2011. For

Examiner’s
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© UCLES 2011 9706/23/M/J/11

5
(c) (i) Explain two differences between cost and net realisable value. For
Examiner’s
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(ii) Discuss the accounting treatment of the damaged inventory in item 1.
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(d) Using your answers to (a) and (b) calculate the following ratios to two decimal places:
(i) current ratio
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(ii) liquid ratio (acid test).
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6
(e) State four ways in which Klingsman could improve his working capital. For
Examiner’s
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(f) Explain why the liquid ratio (acid test) is a more reliable indicator of liquidity than the
current ratio.
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[Total: 30]
© UCLES 2011 9706/23/M/J/11

7
BLANK PAGE

8
2 Robbie and Liza are in partnership with capitals of $90 000 and $60 000 respectively. For
Examiner’s
The following information is available for the year ended 30 April 2011. Use
Revenue $240 000

Inventory (30 April 2011) $9 000
Gross profit as a percentage of turnover 35%
Inventory turnover 12 times
Expenses ratio 15%
All purchases and sales of inventory are on credit.
REQUIRED
(a) Prepare a detailed income statement (profit and loss account) showing gross profit and
profit for the year (net profit) for the year ended 30 April 2011.
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© UCLES 2011 9706/23/M/J/11

9
On 1 May 2010 the current account balances were Robbie $5000 (credit) and Liza $2000 For
(debit). Examiner’s
Use
The partnership agreement provides for the following:
1 Partners are permitted to withdraw up to a maximum of 20% of capital invested.
2 Interest is charged on drawings at 8% per year.
3 Interest on capital is payable at 5% per year.
4 Liza is to receive a salary of $1250 per month.
5 Profits and losses are shared in the ratio of capital invested.
Both partners withdrew the maximum amount of drawings permitted during the year.
REQUIRED
(b) Prepare the appropriation account of the partnership for the year ended 30 April 2011.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
......................................................................................................................................[9]

10
At 30 April 2011 Robbie and Liza had a debit balance in the bank column of their cash book For
of $12 000. Their bank statement, however, showed that the partnership had $9000 in the Examiner’s
bank at that date. Use
On comparing the cash book with the bank statement the following differences were found:
1 Bank charges of $250 appeared in the bank statement but had not been entered in
the cash book.
2 Cheques received from customers amounting to $3750 had been entered in the
cash book but had not been credited by the bank.
3 A cheque for $600 received from a debtor had been entered in the cash book but
had been returned by the bank marked ‘insufficient funds for payment’.
4 Cheques issued by the business amounting to $1600, recorded in the cash book,
did not appear in April’s bank statement.
REQUIRED
(c) (i) Update Robbie and Liza’s cash book for the month of April 2011.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[4]
(ii) Prepare a bank reconciliation statement at 30 April 2011 to reconcile the bank
statement balance with the updated cash book balance.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[4]
© UCLES 2011 9706/23/M/J/11

11
(d) Give three reasons why the bank column balance in the cash book does not always For
agree with the balance shown in the bank statement at the same date. Examiner’s
Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
......................................................................................................................................[6]
[Total: 30]

12
3 Paul owns two car wash businesses, called City Centre Car Wash and Suburban Car Wash. For
Examiner’s
City Centre Car Wash has the following monthly costs: Use
Per car $
Detergent 1.00
Electricity 0.50
Water costs 0.05
Wage costs 1.25
Per month $
Insurance of site 800
Lease of equipment 2040
Manager’s salary 1000
Both car wash businesses are open for 400 hours every month.
The cars are washed one at a time.
The average time taken to wash each car is 10 minutes.
City Centre Car Wash is currently operating at 80% capacity and Suburban Car Wash at
70% capacity.
REQUIRED
(a) For City Centre Car Wash, calculate the following correct to two decimal places:
(i) the total number of cars washed per month
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(ii) the total variable operating cost per month
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
© UCLES 2011 9706/23/M/J/11

13
(iii) the total operating cost per month For

Examiner’s
.................................................................................................................................. Use
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(iv) the average cost per car wash
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(v) the price to be charged per car to give a profit margin of 20%
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(vi) the total profit per month.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]

14
(b) Using the price calculated in (a)–(v) above, calculate the following for City Centre Car For
Wash, correct to two decimal places: Examiner’s
Use
(i) the contribution per car (per unit)
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(ii) the break-even point in units
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(iii) the margin of safety, in dollars, when operating at 80% capacity
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(iv) the margin of safety, in dollars, if operating efficiency falls to 60% capacity
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(v) the contribution/sales (C/S) ratio when operating at 80% capacity.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
© UCLES 2011 9706/23/M/J/11

15
Suburban Car Wash charges the same price as City Centre Car Wash. For
Examiner’s
At that price Suburban Car Wash shows a contribution to sales (C/S) ratio of 40%. Fixed Use
costs are $3240.
REQUIRED
(c) Calculate, for Suburban Car Wash
(i) the break-even point in units and in dollars
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[4]
(ii) the total monthly profit when operating at 70% capacity.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[4]
[Total: 30]
© UCLES 2011 9706/23/M/J/11

16
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© UCLES 2011 9706/23/M/J/11

*4122114519*
ACCOUNTING 9706/21
1 hour 30 minutes

For Examiner's Use
Total

IB12 06_9706_21/RP

2
1 Alana owns and manages a shop with three separate departments selling food, clothing
and toys. The following trial balance is available for the year ended 30 April 2012.
$ 000 $ 000
Inventory at 1 May 2011:

Food 10
Clothing 12
Toys 31
Purchases and sales
Food 67 250
Clothing 50 150
Toys 57 100
Sales staff wages 80
Advertising 8
Heat and light 30
Insurance 5
Fixtures and fittings at cost 120
Provision for depreciation, fixtures and fittings 12
Property 200
Bank 55
Trade payables 40
Capital 268
820 820
1 Inventory at 30 April 2012: $

Food 17 000
Clothing 12 000
Toys 43 000
2 The shop has 2 floors with the food department on the ground floor and both the
clothing and toys departments taking up equal floor space on the floor above.
3 At 30 April 2012:
an invoice for advertising amounting to $2000 remained unpaid;
$6000 had been paid in advance for heating and lighting.
4 Expenses are apportioned between departments as follows:
Apportioned on the basis of sales income:

sales staff wages; advertising.
Apportioned on the basis of floor area:

heat and light; insurance; depreciation.
5 Straight line depreciation is charged on fixtures and fittings at 10% per annum.
© UCLES 2012 9706/21/M/J/12

3
REQUIRED For
Examiner's
Use
(a) Prepare, in columnar format, a departmental income statement for the year
ended 30 April 2012.
Food Dept Clothing Dept Toys Dept
$000 $000 $000 $000 $000 $000
[18]

4
(b) Explain how the preparation of a departmental income statement might assist For
Alana in managing the business. Examiner's
Use
[6]
(c) Alana’s accountant values some inventory at cost of purchase and some at
net realisable value.
Explain these terms to Alana:
(i) cost of purchase
[3]
(ii) net realisable value.
[3]
[Total: 30]
© UCLES 2012 9706/21/M/J/12

5
2 Jackie and Kim are in partnership sharing profits and losses in the ratio of 3:2. The following
statement of financial position was provided on 30 April 2012.
Statement of Financial Position at 30 April 2012

$ $ $
Non-current assets at net book value

Premises 120 000
192 000
Current assets
Inventory 30 000
Bank 16 000
66 000
Current liabilities
Wages accrued 1 000
13 000

Net assets 245 000
Capital accounts
Jackie 141 000
Kim 94 000 235 000
Current accounts
Jackie 6 000
Kim 4 000 10 000
245 000
Maura is a long-term employee of the partnership. Her current annual salary is $16 500.
She recently inherited a sum of $60 000 and is considering an invitation from Jackie and
Kim to invest $50 000 in the business in return for becoming a partner on 1 May 2012.
If she agrees, the following terms would apply:
1 Maura is to be paid a partnership salary of $11 000 per year.
2 All partners are to receive interest on capital of 3% per year.
3 All partners are permitted to withdraw up to $10 000 per year.
4 All partners are to pay interest on annual drawings at 5% per year.
5 Maura is to receive a 10% residual share of profits and losses. The remaining profit or
loss is to be divided between the other partners in ratio to their capital.
6 Jackie and Kim will withdraw the full amount available to them while Maura will withdraw
$5 500.
The profit for the year ended 30 April 2013 is forecast to be $121 000.

6
REQUIRED For
Examiner's
Use
(a) Prepare an estimated profit and loss appropriation account for the year ended
30 April 2013, assuming Maura accepts the invitation to join the partnership.
[11]
© UCLES 2012 9706/21/M/J/12

7
(b) Prepare Maura’s current account for the year ended 30 April 2013. For
Examiner's
Use
[5]
(c) Instead of investing in the partnership Maura could bank her $50 000 at an annual
interest rate of 5%.
Using appropriate figures calculated in (a) and (b), advise Maura whether or not to
accept the offer of a partnership.
[6]

8
Jackie and Kim provided the following accounting ratios: For

Examiner's
Use
Year ended Year ended
30 April 2011 30 April 2012
Percentage of gross profit to sales 21% 24%

Percentage of net profit to sales 10% 11%
REQUIRED
(d) Suggest two reasons for the change in the percentage of gross profit to sales.
[4]
(e) Suggest two reasons for the change in the percentage of net profit to sales.
[4]
[Total: 30]
© UCLES 2012 9706/21/M/J/12

9
3 Blue Skies Ltd manufactures three types of tent: Beach, Explorer and Family. For
Examiner's
Use
The company provides the following forecast data for the year ending 30 April 2013:
Beach Explorer Family

Forecast demand (units) 30 000 40 000 24 000
Per Unit $ $ $
Selling price 70 130 200
Raw materials 30 36 54
The same waterproof material is used in the manufacture of each tent.
The cost of material is estimated to be $6 per square metre.
Fixed costs for the year ending 30 April 2013 are estimated to be $3 500 000.
.
REQUIRED
(a) (i) Calculate the unit contribution for each product.
[5]

10
(ii) Calculate the total contribution and profit for the year based on forecast For
demand. Examiner's
Use
[5]
There is only one supplier capable of producing waterproof tent material of the
required quality.
They have informed Blue Skies Ltd that the maximum amount they can supply in the
year will be 546 000 square metres.
REQUIRED
(b) Calculate the contribution per square metre for each product produced.
[3]
© UCLES 2012 9706/21/M/J/12

11
(c) Using the quantity of material that is available for production, calculate the For
number of each type of tent that should be produced so that total profit is Examiner's
Use
maximised.
[7]
(d) Using the quantity of material that is available, prepare a marginal cost profit
statement.
Clearly show the contribution made by each type of tent and the total profit
made in the year.
[5]

12
(e) The directors determine that at least 27 000 units of the Beach tent have to be For
produced in the coming year. Examiner's
Use
Prepare a revised marginal cost statement to show the contribution made by

each type of tent and total profit made in the year.
[5]
[Total: 30]
© UCLES 2012 9706/21/M/J/12

*7802200239*
ACCOUNTING 9706/22
1 hour 30 minutes

For Examiner's Use
Total

IB12 06_9706_22/RP

2
1 Bart, a sole trader, provided the following trial balance for the year ended 30 April 2012.
$ $
Sales Revenue 799 000

Inventory at 1 May 2011 (at cost)
Raw materials 20 000
Work-in-progress 52 000
Finished goods 78 000
Purchase of raw materials 238 000
Purchase returns 10 000
Manufacturing wages 265 000
Indirect factory wages 46 000
Factory buildings at cost 600 000
Factory machinery at cost 260 000
Office equipment at cost 148 000
Provision for depreciation:
Factory machinery 60 000
Insurance 14 000
General factory expenses 6 000
Factory supervision salaries 15 000
Heat and light 6 000
Office salaries 55 000
Provision for doubtful debts 2 000
Bank 3 000
Capital 932 000
1 879 000 1 879 000
.
Additional Information:
1 Inventory at 30 April 2012 (at cost): $

Work-in-progress 58 000
2 Depreciation is provided on non-current assets at a rate of 20% per year using

the reducing balance method.
3 The following expenses should be apportioned as follows:

Factory Office
Insurance 70% 30%
Heat and light 80% 20%
4 On 30 April 2012 indirect factory wages of $5000 were unpaid and insurance of
$7000 had been paid in advance.
5 Provision for doubtful debts is to be maintained at 3% of trade receivables.
© UCLES 2012 9706/22/M/J/12

3
REQUIRED For
Examiner's
Use
(a) Prepare Bart’s manufacturing account for the year ended 30 April 2012.
[19]

4
(b) Prepare Bart’s income statement for the year ended 30 April 2012. For
Examiner's
Use
[8]
© UCLES 2012 9706/22/M/J/12

5
(c) State three examples of how the prudence concept has been applied in the For
preparation of Bart’s manufacturing account and income statement. Examiner's
Use
[3]
[Total: 30]

6
2 The following statement of financial position of Mhairi, a sole trader, was drawn up at
30 April 2012.
$ $ $
Non-current assets
Equipment 232 000
392 000
Current assets
Inventory 86 000
Current liabilities
Bank 14 000 52 000

442 000
Financed by
Capital 400 000
Add Profit for the year 86 000
486 000
442 000
.
1 On 1 May 2012 Mhairi admitted Aiden as a partner.
2 The profit sharing ratio between Mhairi and Aiden was agreed at 3:2.
3 Aiden agreed to pay a cheque to the partnership for $200 000 and bring in
vehicles valued at $94 000 and inventory valued at $26 000.
4 It was agreed that goodwill be valued at 2 times the average net profit earned
over the past 4 years. Goodwill is not to be retained in the books.
The following figures were available:
Year ended 30 April Net sales income Net profit percentage

$ %
2009 200 000 6
2010 400 000 8
2011 500 000 8
2012 860 000 10
© UCLES 2012 9706/22/M/J/12

7
REQUIRED For
Examiner's
Use
(a) Calculate the value of the goodwill.
[3]
(b) Prepare the capital accounts of Mhairi and Aiden after the admission of Aiden
as a partner.
[11]

8
(c) Prepare the statement of financial position of the new partnership at 1 May 2012. For
Examiner's
Use
[8]
© UCLES 2012 9706/22/M/J/12

9
(d) Outline four advantages to Mhairi of forming a partnership with Aiden. For
Examiner's
Use
1
[8]
[Total: 30]

10
3 Winston Ltd had estimated the following factory indirect costs for its financial year
$
Indirect wages 2 120 000
Repairs and maintenance of machinery 410 000
Rent and rates 53 000
Machinery insurance 24 000
Premises insurance 28 000
Electricity – power 48 000
Consumables 21 150
The company calculated a suitable overhead absorption rate for each of its two
production departments using the following information.

Machining Assembly Maintenance Canteen
Machine cost ($) 617 500 332 500 – –
Direct machine hours 202 500 22 500 – –
Direct labour hours 55 500 314 500 – –
Floor area (square metres) 9 000 8 000 2 000 1 000
Power usage (%) 55 35 5 5
Consumables ($) 9 550 9 800 550 1 250
The proportion of work done by each service department was:
Machining Assembly Maintenance
Canteen (%) 35 60 5
Maintenance (%) 80 20 –
© UCLES 2012 9706/22/M/J/12

11
REQUIRED For
Examiner's
Use
(a) Complete the following table to calculate the total overheads for each production
cost centre.
Cost Basis Machining Assembly Maintenance Canteen
[12]
(b) Calculate the appropriate overhead absorption rate for each production
department.
Machining
Assembly
[4]

12
The actual results for the year ended 30 April 2012 were as follows: For
Examiner's
Use
Machining Assembly
Factory indirect costs ($) 1 410 000 1 312 000

Direct machine hours 195 000 21 000
REQUIRED
(c) Calculate the amount of overhead which would be over or under-absorbed by

each production department.
[4]
(d) Explain how the results in (c) could have occurred.
[4]
© UCLES 2012 9706/22/M/J/12

13
(e) Explain the problems associated with using predetermined overhead absorption For
rates in calculating the price of a product. Examiner's
Use
[6]
[Total: 30]
© UCLES 2012 9706/22/M/J/12

14
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© UCLES 2012 9706/22/M/J/12

15
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© UCLES 2012 9706/22/M/J/12

16
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© UCLES 2012 9706/22/M/J/12

*1132581871*
ACCOUNTING 9706/23
1 hour 30 minutes

For Examiner's Use
Total

IB12 06_9706_23/RP

2
1 Shaun is a sole trader. He pays all the sales receipts into the business bank account.
He provided his accountant with the following information for the year ended
31 December 2011.
Bank account summary for the year ended 31 December 2011
Dr. $ Cr. $
Rent received 16 800 Balance b/d 5 620

Trade receivables 203 200 Trade payables 122 460
Cash sales 18 510 General expenses 22 000
Wages 32 560
Equipment 17 400
Drawings 27 560
Shaun’s remaining assets and liabilities were:
1 January 2011 31 December 2011
$ $
Inventory (at cost) 22 300 17 400

Premises (at cost) 100 000 100 000
Equipment (net book value) 28 400 27 600
Motor vehicles (net book value) 65 000 68 200
General expenses prepaid 1 100 900
Rent received prepaid 800 –
Rent received owing – 1 300
Wages owing 2 400 500
1 Shaun allowed his customers discounts of $4000.
2 Discounts received from suppliers were $3100.
3 Shaun has decided to create a provision for doubtful debts of 2% of the trade
receivables outstanding at 31 December 2011.
4 General expenses in the bank account summary include an amount of $660

which relates to the payment of Shaun’s private house insurance.
5 Shaun had taken goods at a cost price of $3700 for his personal use.
© UCLES 2012 9706/23/M/J/12

3
REQUIRED For
Examiner's
Use
(a) Calculate the value of Shaun’s sales and ordinary goods purchased for the year
(i) Sales
[4]
(ii) Ordinary goods purchased
[4]

4
(b) Prepare Shaun’s income statement for the year ended 31 December 2011. For
Examiner's
Use
[10]
© UCLES 2012 9706/23/M/J/12

5
(c) Prepare Shaun's statement of financial position at 31 December 2011. For

Examiner's
Use
[12]
[Total: 30]

6
2 Amirtha commenced business on 1 January 2010. During the first two years of business For
the following non-current assets were purchased on the dates shown: Examiner's
Use
Motor vehicles
2010 $
1 January MV1 26 000
1 July MV2 18 000
2011
1 April MV3 24 000
Equipment
2010
1 January EQ1 30 000
2011
1 January EQ2 44 000
Amirtha has a policy to depreciate motor vehicles at 20% per annum on cost (straight
line method) and equipment at 15% per annum on cost (straight line method), rates
being charged for each month of ownership.
REQUIRED
(a) Calculate the total depreciation for each of the years 2010 and 2011.
(i) Motor vehicles
[3]
(ii) Equipment
[2]
© UCLES 2012 9706/23/M/J/12

7
Early in 2012, consideration was given to changing to the reducing (diminishing) For
balance method, with the following rates applying to the balance at the end of each Examiner's
Use
year.
Motor vehicles 25%

Equipment 20%
A full year’s depreciation would be charged irrespective of the date of purchase.
REQUIRED
(b) Calculate the total depreciation for each of the years 2010 and 2011, using the
reducing (diminishing) balance method for:
(i) Motor vehicles
[5]
(ii) Equipment.
[3]

8
The original profits for the first two years in business were: For
Examiner's
Use
2010 $86 000
2011 $94 000
REQUIRED
(c) Prepare a statement to show the revised profits for the years 2010 and 2011, if
the reducing (diminishing) balance method had been used.
[4]
(d) Explain why it is appropriate to use the reducing (diminishing) balance method for
motor vehicles.
[3]
© UCLES 2012 9706/23/M/J/12

9
For
Examiner's
The following information is also available from the books of Amirtha. Use

$ $
Wages 2 040 accrued 2 130 accrued

Insurance 130 accrued 610 prepaid
Rent received 1 490 prepaid 1 320 prepaid
During the year ended 31 December 2011 the following transactions took place.
$
Wages paid 24 100
Insurance paid 1 400
Rent received 14 000
All transactions are through the bank account.
REQUIRED
(e) Prepare the following ledger accounts for the year ended 31 December 2011,
showing the closing entry to the financial statements at the end of the year.
Dates are not required.
(i) Wages account
[3]

10
(ii) Insurance account For

Examiner's
Use
[3]
(iii) Rent received account
[4]
[Total: 30]
© UCLES 2012 9706/23/M/J/12

11
For
Examiner's
Use
3 Wigmore Ltd uses one factory overhead recovery rate which is a percentage of total
direct labour costs. The rate is calculated from the following budgeted data.
Department Factory Direct labour Direct labour Direct machine

overheads costs hours hours
$ $
Production 150 000 500 000 120 000 7 000
Assembly 450 000 1 000 000 225 000 10 000
Packing 360 000 900 000 200 000 –
The cost sheet for job 787 shows the following information.
Department Direct labour Direct labour Direct machine Direct material

costs hours hours costs
$ $
Production 2 400 400 80 180
Assembly 1 100 700 90 150
Packing 1 000 650 – 170
General administration expenses of 20% are added to the total factory cost. The selling
price to the customer is based on a 25% net profit margin.
REQUIRED
(a) Calculate the current factory overhead rate for Wigmore Ltd.
[3]

12
(b) Prepare a detailed cost statement to calculate the selling price for job 787. For
Examiner's
Use
[6]
(c) Calculate the overhead rate for each department using the following methods:
(i) Percentage of direct labour cost
Production
Assembly
Packing
[3]
© UCLES 2012 9706/23/M/J/12

13
(ii) Direct labour hour rate For

Examiner's
Use
Production
Assembly
Packing
[3]
(d) Using the direct labour hour rates calculated in (c) (ii), prepare a detailed cost
statement to calculate the new selling price for job 787.
[9]

14
(e) (i) Discuss the problems associated with using predetermined overhead For
absorption rates. Examiner's
Use
[2]
(ii) State the effect on profits if the factory does not operate at full capacity.
[4]
[Total: 30]
© UCLES 2012 9706/23/M/J/12

15
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© UCLES 2012 9706/23/M/J/12

16
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© UCLES 2012 9706/23/M/J/12

*0827092880*
ACCOUNTING 9706/21
1 hour 30 minutes

IB13 06_9706_21/5RP
2
1 The Klassik Music Society produced the following receipts and payments summary for the
year ended 31 March 2013.
Receipts $
Sales of food and drink 50 000
Bank loan 30 000
Income from concerts 116 800
Sale of surplus equipment 30 000
Payments
Balance, 1 April 2012 12 000
Purchase of new equipment 10 000
Hire of hall for concerts 27 000
Printing 14 000
Equipment maintenance and repairs 8 000
Purchases of food and drink 23 000
Salaries 45 000
Cost of concerts 83 500
Sundry expenses 760
Sponsorship 1 000
Balance, 31 March 2013 ?
31 March 2012 31 March 2013

$ $
1 Salaries in arrears 2 800 1 600
Subscriptions owing 1 600 2 600
Subscriptions prepaid 1 000 400
Printing accrued 2 600 2 800
Equipment (cost $200 000), at NBV 160 000 ?
Food and drink inventory 15 400 13 200
2 The bank loan was received on 1 July 2012. Interest is charged at 12% per annum. No
interest had been paid by the year end.
3 The equipment sold was purchased on 1 June 2011 and had a NBV of $32 000.
4 Depreciation is provided at 20% on cost for equipment in use at the year end.
© UCLES 2013 9706/21/M/J/13

3
REQUIRED For
Examiner's
Use
(a) Prepare the trading section of the income statement for the year ended 31 March 2013.
[2]
(b) Calculate the gross profit percentage, to one decimal place, made on sales of food and
drink.
[2]
(c) The prices of food and drink sold had been planned to obtain a gross margin of 70%.
Compare this figure with the figure calculated in (b) and state two reasons why these
figures may differ.
[4]

4
(d) Prepare the income and expenditure account of the Klassik Music Society for the year For
ended 31 March 2013. Examiner's
Use
[12]
© UCLES 2013 9706/21/M/J/13

5
(e) Prepare the statement of financial position of the Klassik Music Society at 31 March 2013. For
Examiner's
Use
[10]
[Total: 30]

6
2 Bach runs a manufacturing business. An extract from his statement of financial position at
1 January 2012 is shown below:
Non-current Accumulated
assets Cost depreciation Net book value
$ $ $
Factory premises 220 000 26 400 193 600
Machinery 138 600 52 200 86 400
During 2012 the following transactions took place for machinery.
Disposals
Machinery Year of Disposal

Date reference purchase Initial cost proceeds
$ $
26 March M12 2009 14 000 7 100
17 August M18 2008 8 000 1 320
13 December M20 2007 9 600 850
Additions
Machinery
Date reference Cost
$
20 April M27 11 500
25 October M31 16 200
All receipts and payments for these transactions are processed through the business bank
account.
All of the remaining machinery at 31 December 2012 was purchased after 2008.
Depreciation on the factory premises is charged on a straight line basis based on a 50 year
life, with no residual value.
Depreciation on machinery is charged on a straight line basis based on a five year life and
an estimated residual value of 10% of the original cost.
It is the company policy to charge a full year’s depreciation in the year of purchase but none
in the year of disposal.
© UCLES 2013 9706/21/M/J/13

7
REQUIRED For
Examiner's
Use
(a) Prepare the following ledger accounts for the year ended 31 December 2012.
(i) Machinery account
[5]
(ii) Provision for depreciation of machinery account
[6]

8
(iii) Machinery disposals account For

Examiner's
Use
[6]
(b) Identify two alternative methods of providing for depreciation.
[2]
(c) State three causes of depreciation.
[3]
© UCLES 2013 9706/21/M/J/13

9
Bach’s statement of financial position showed the following at 1 January 2013: For
Examiner's
Use
Trade receivables $12 000
Trade payables $10 000
Bank balance $800 Dr
Sales are paid in full one month after the sale
Purchases are payable 50% in the month of purchase, the remainder one month later
Other expenses are paid in the month they occur
Budgeted sales, purchases and other expenses for the period January to March 2013 are
as follows:
January February March

$ $ $
Sales 10 000 12 000 14 000
Purchases 8 000 12 000 16 000
Other expenses 5 000 5 000 5 000
(d) Complete the following table to show the budgeted closing bank balance on
31 March 2013.
Receipts January February March
Receipts from customers
Payments
Payments to suppliers
Other expenses
Opening bank balance
Net cash flow
Closing bank balance

[6]

10
(e) Suggest two ways Bach could improve his budgeted bank balance at 31 March 2013. For
Examiner's
Use
1
[2]
[Total: 30]
© UCLES 2013 9706/21/M/J/13

11

12
3 Bazeri Limited manufactures a range of components and the directors provide the following For
forecast information for the year ended 31 December 2014. Examiner's
Use
Direct material 125 000 kilos @ $2.48 per kilo

Direct labour – Department A 32 000 hours @ $10.00 per hour
Direct labour – Department B 20 000 hours @ $9.00 per hour
Production overhead – Department A $520 000
Production overhead – Department B $480 000
Administration overhead $405 000
Profit margin 20%
REQUIRED
(a) Calculate the forecast profit for Bazeri Limited for the year ended 31 December 2014.
[9]
Production overheads are to be recovered for both departments A and B on the basis of
direct labour hours.
Administration overheads are to be recovered as a percentage of direct production costs.
© UCLES 2013 9706/21/M/J/13

13
REQUIRED
For
(b) Calculate the following forecast overhead absorption rates: Examiner's
Use
(i) Production overhead – Department A
[2]
(ii) Production overhead – Department B
[2]
(iii) Administration overhead
[2]

14
Bazeri Limited has been asked to quote for a job, reference J316, that would use the For
following: Examiner's
Use
Direct material 5625 kilos

Direct labour – Department A 1500 hours
Direct labour – Department B 1200 hours
REQUIRED
(c) Calculate the total costs of job J316.
[11]
(d) Calculate the price Bazeri Limited will quote for job J316.
[4]
[Total: 30]
© UCLES 2013 9706/21/M/J/13

15
BLANK PAGE
© UCLES 2013 9706/21/M/J/13

16
BLANK PAGE
© UCLES 2013 9706/21/M/J/13

*4875869639*
ACCOUNTING 9706/22
1 hour 30 minutes

IB13 06_9706_22/4RP
2
1 The following information relates to two businesses, one of which manufactures computers For
whilst the other is a food wholesaler. All sales and purchases are on credit. Examiner's
Use
Business X Business Y
Gross profit ratio 54% 30%

Net profit ratio 18% 6%
Current ratio 1.6:1 0.5:1
Return on capital employed 5.4% 12%
Cost of sales $248 400 $1 050 000
Closing inventory $38 000 $48 000
Cash and cash equivalents $30 000 $14 000
Long-term loan $1 000 000 $50 000
For calculations, assume a 360-day year.
REQUIRED
(a) State and explain which business is the computer manufacturer and which is the food
wholesaler.
[3]
© UCLES 2013 9706/22/M/J/13

3
(b) Prepare, as fully as the given information allows, income statements for both businesses. For
Examiner's
Use
Income Statements
$ $
Revenue
Less Cost of sales
Gross profit
Expenses
Profit for the year [8]
(c) Prepare, as fully as the given information allows, statements of financial position for
both businesses.
Statements of Financial Position
$ $ $ $
Non-current assets
Current assets
Inventory
Trade receivables
Cash and cash

equivalents
Total assets
Current liabilities
Trade payables
Net assets
Capital
Loan
Capital employed [12]

4
(d) (i) Define the term liquidity. For

Examiner's
Use
[2]
(ii) State which business is more likely to have liquidity problems.
[1]
(iii) State which ratio gives most concern and why it does so.
[4]
[Total: 30]
© UCLES 2013 9706/22/M/J/13

5

6
2 The following is the draft statement of financial position of George Grosz, a sole trader, at
30 June 2012.
Statement of Financial Position at 30 June 2012

$ $ $
Non-current assets
Buildings at valuation 108 000
Equipment at net book value 7 000
Motor vehicles at net book value 35 000
150 000
Current assets
Inventory 21 000
Other receivables 13 000 60 000
Current liabilities
18 000
168 000
Loan 50 000
118 000
Capital at 1 July 2011 90 000

Add Draft profit for the year 30 000
120 000
Less Drawings 2 000
118 000
1 Provision for depreciation on motor vehicles for the year ended 30 June 2012 had not
yet been charged. Depreciation is charged at 10% on the net book value at the year
end.
2 Items included in inventory and valued at their cost price of $9500 were damaged and
had an estimated net realisable value of $2000.
3 A purchase invoice for goods valued at $2000 had been omitted from the books.
4 Sales invoices for goods valued at $4000 had been omitted from the books.
5 The loan was received at 1 March 2012. Loan interest of 6% due at the year end had
not yet been paid.
© UCLES 2013 9706/22/M/J/13

7
REQUIRED For
Examiner's
Use
(a) Prepare a statement to show the corrected profit for the year ended 30 June 2012.
[7]
(b) Calculate Grosz’s capital at 30 June 2012.
[2]

8
Grosz decided to form a partnership with Omar Kayal with effect from 1 July 2012, sharing For
the profits and losses in the ratio of 3:2 respectively. Examiner's
Use
Goodwill was to be valued at double the amount of the corrected profit for the year. Kayal
was to contribute cash of $30 000, inventory of $24 000 and equipment of $60 000.
(c) State two reasons why goodwill has arisen.
[4]
(d) Prepare the capital accounts of Grosz and Kayal immediately after the formation of the
partnership.
[7]
© UCLES 2013 9706/22/M/J/13

9
The following conditions were included in the partnership agreement: For

Examiner's
Use
1 A partnership salary of $10 500 is payable to Kayal.
2 Maximum drawings permitted each year – Grosz $20 000; Kayal $10 000.
3 Interest is to be charged on drawings at 10% per annum.
4 Interest on capital is payable at the rate of 5% per annum.
5 The first 40% of any residual profits is to be shared equally and transferred to the
partners’ capital accounts.
In the first year of the partnership the profit for the year was $88 600.
Grosz and Kayal both withdrew the maximum amount allowable during the year.
REQUIRED
(e) Prepare the appropriation account for the year ended 30 June 2013.
[10]
[Total: 30]

10
3 Clarke Limited manufactures one product, the Apex. The following forecast information for For
the Apex is available for the year ending 31 December 2014: Examiner's
Use
Per unit:
Selling price $45.50
Direct material ($4 per metre) $14.00
Direct labour ($12 per hour) $18.00
Variable production overhead $ 3.00
Sales demand 4 000 units
Fixed overheads are forecast to be $23 100 for the year.
REQUIRED
(a) Calculate the breakeven point in units for the sales of the Apex.
[4]
(b) Calculate the margin of safety for the Apex in terms of revenue.
[3]
© UCLES 2013 9706/22/M/J/13

11
Clarke Limited has decided to introduce two new products in addition to the Apex; the Bond For
and the Cord. Both products use the same direct material and the same grade of direct Examiner's
Use
labour as the Apex. The following forecast information is available for the year ending
31 December 2014:
Per unit: Bond Cord

Selling price $52.00 $67.50
Direct material ($4 per metre) $16.00 $20.00
Direct labour ($12 per hour) $24.00 $30.00
Variable production overhead $ 4.00 $ 5.00
Sales demand 6 000 units 2 000 units
Fixed overheads are expected to double as a result of producing all three products.
REQUIRED
(c) Calculate the contribution per unit of the Bond and the Cord.
[2]
(d) Calculate the total quantity of direct material required by Clarke Limited for the year
ending 31 December 2014.
[4]
(e) Clarke Limited has been told that due to a shortage of direct material, only 40 000
metres will be available for the year. Calculate the maximum forecast profit for Clarke
Limited for the year ending 31 December 2014 using 40 000 metres of direct material.

12
For
Examiner's
Use
[13]
(f) Explain why profit calculated using marginal costing would be different to that calculated
using absorption costing.
[4]
[Total: 30]
© UCLES 2013 9706/22/M/J/13

*1858801816*
ACCOUNTING 9706/23
1 hour 30 minutes

IB13 06_9706_23/4RP
2
1 Eagle Manufacturing Limited produces components for cars and lorries. The following
figures have been taken from their books of account.
$000
Revenue 816
Inventories at 1 April 2012
Raw materials 17
Work in progress 19
Finished goods 32
Factory machinery – cost 420
– accumulated depreciation 52
Office equipment – cost 30
Motor vehicles – cost 60
Purchases of raw materials 194
Labour 153
Electricity 25
Carriage inwards 6
Carriage outwards 22
Rent 60
Salaries 14
Sundry expenses 12
Insurances 18
1 Inventories at 31 March 2013 were:

Raw materials $18 000
Work in progress $15 000
Finished goods $41 000
2 Factory machinery and motor vehicles are to be depreciated at 25% using the
reducing balance method.
Office equipment is to be depreciated at 10% on cost.
During the year a motor vehicle was sold for $4 000. The profit on disposal was
$1 000. A new motor vehicle was purchased for $9 000.
All motor vehicles are used by the sales staff.
A full year’s depreciation is charged in the year of purchase, no depreciation is
charged in the year of sale.
3 At 31 March 2013 electricity of $5 000 was accrued and rent of $10 000 was
prepaid.
4 Labour costs include $16 000 for indirect labour. The balance is direct labour.
5 Electricity is apportioned between the factory and office in the ratio 4:1.
6 Rent is apportioned between factory and offices in the ratio 3:2.
7 Sundry expenses are apportioned between factory and offices in the ratio 1:2.
8 Insurances are apportioned between factory and offices in the ratio 5:1.
© UCLES 2013 9706/23/M/J/13

3
REQUIRED For
Examiner's
Use
(a) Prepare the manufacturing account for the year ended 31 March 2013.
[12]

4
(b) Prepare the income statement for the year ended 31 March 2013. For
Examiner's
Use
[10]
© UCLES 2013 9706/23/M/J/13

5
(c) Explain how the following will be affected if the company makes a loss in the year: For
Examiner's
Use
(i) Dividend payable for cumulative preference shares
[2]
(ii) Dividend payable for ordinary shares
[2]
(iii) Dividend payable on non-cumulative preference shares
[2]
(iv) Interest payable on debentures.
[2]
[Total: 30]

6
2 B M Reid’s books of account showed the following figures for the year ended 31 December 2012: For
Examiner's
Use
$
Revenue 200 000
Ordinary goods purchased 145 000
Profit from operations 22 500
Reid’s balances at 31 December 2012 were:

Inventory 12 500
Finance costs (interest owing) 12 500
1 80% of revenue was on credit

2 Inventory at 1 January 2012 was $17 500
3 Trade payables and trade receivables balances were unchanged since
1 January 2012.
REQUIRED
(a) Calculate the following ratios, correct to two decimal places, in each case stating the
formula used.
(i) Mark-up
[3]
(ii) Inventory turnover
[3]
(iii) Trade receivables turnover
[3]
© UCLES 2013 9706/23/M/J/13

7
(iv) Operating expenses to revenue ratio For

Examiner's
Use
[3]
(v) Current ratio
[3]
(vi) Acid test/liquid ratio
[3]
(vii) Non-current asset turnover.
[3]

8
For the year ended 31 December 2011 the following ratios were: For
Examiner's
Use
Inventory turnover 13 times
Trade receivables turnover 70 days
REQUIRED
(b) Use the above ratios to compare B M Reid’s performance with the year ended
31 December 2012. State possible reasons for the changes.
[5]
(c) State two limitations of the uses of ratios.
[4]
[Total: 30]
© UCLES 2013 9706/23/M/J/13

9
3 At 1 January 2013, Brahms had opening inventory of 50 teddy bears at a purchase price of For
$30 each. Examiner's
Use
His transactions for the first three months of 2013 were:
Date Purchases Purchase price Sales

(units) (per unit) (units)
Jan 8 30
10 100 $30.00
12 80
21 120 $30.50
28 90
Feb 1 50
14 150 $31.00
23 100
March 1 30
4 120 $31.50
19 120
23 100 $32.00
27 120
No other transactions took place during these months.

Each teddy bear was sold for $50.
REQUIRED
(a) Calculate the value of the inventory at 31 March 2013 using the following methods of
valuation.
(i) FIFO
[3]

10
(ii) AVCO. For

Examiner's
Use
[3]
(b) Using each method of valuation, calculate the gross profit for the three months ending
31 March 2013.
(i) FIFO
[5]
(ii) AVCO.
[2]
© UCLES 2013 9706/23/M/J/13

11
(c) State one advantage and one disadvantage of using the following methods of inventory For
valuation: Examiner's
Use
(i) FIFO
[2]
(ii) AVCO.
[2]
(d) Brahms currently uses FIFO to value his inventory. He is considering changing the
method to show a lower profit each year. State two reasons why he should not do this.
Make reference to any relevant accounting principles, concepts and conventions.
[4]

12
Charlie runs a similar business and also completes his financial year on 31 March 2013. He For
is unable to value his inventory at that date. The stock count takes place on 7 April 2013. Examiner's
Use
The value at that date is $1000. Between the two dates the following transactions had
occurred.
Sold goods at a selling price of $120. (Charlie normally marks up his goods for sale at 25%.
These goods were in stock on 31 March 2013.)
Purchased goods at an invoice price of $70.
Goods sold to a customer for $80 had been returned by them. (The sale took place on
28 March 2013.)
Damaged goods were discovered which had been included at a cost of $30. Charlie could
only sell them for $20.
REQUIRED
(e) Calculate the value of Charlie’s closing inventory at 31 March 2013.
[9]
[Total: 30]
© UCLES 2013 9706/23/M/J/13

*3024092065*
ACCOUNTING 9706/21
1 hour 30 minutes

IB14 06_9706_21/4RP
2
1 Shane Limited is a small manufacturing company.

The directors provided the following information for the six months ended 31 December 2013.
$000
Trade receivables at 1 July 2013 40
Trade receivables at 31 December 2013 54
Cash received from trade receivables 3320
Sales returns 60
Bad debts 80
All sales are on credit.
REQUIRED
(a) Prepare a sales ledger control account to calculate Shane Limited’s sales for the 6 months
ended 31 December 2013
[6]
© UCLES 2014 9706/21/M/J/14

3
Shane Limited’s financial statements also showed the following information for the 6 months
$000
Inventories at 1 July 2013
Raw materials 80
Work in progress 110
Finished goods 204
Purchases
Raw materials 780
Finished goods 150
Carriage inwards 128
Factory power (direct) 88
Factory machinery at cost 160
Motor vehicles at cost 140
Production wages 480
Electricity 138
Rent 326
Factory expenses 56
General office expenses 45
1 Inventories at 31 December 2013

Raw materials $112 000
Work in progress $146 000
Finished goods $210 000
2 Rent prepaid at 31 December 2013, $26 000.
3 Expenses were allocated as follows:

Electricity 2/3 factory, 1/3 office
Rent 3/5 factory, 2/5 office
4 Motor vehicles were used solely for the distribution of finished goods.
5 Depreciation was provided annually on a straight-line basis as follows:

Factory machinery 20%
Motor vehicles 10%

4
REQUIRED
(b) Prepare Shane Limited’s manufacturing account for the 6 months ended 31 December 2013.
[10]
© UCLES 2014 9706/21/M/J/14

5
(c) Prepare Shane Limited’s income statement for the 6 months ended 31 December 2013.
[8]

6
(d) Explain the following concepts:
(i) Matching
[3]
(ii) Materiality
[3]
[Total: 30]
© UCLES 2014 9706/21/M/J/14

7

8
2 Richard commenced business on 1 May 2011. At the end of the first year of trading an extract
from his statement of financial position showed:
Non-current assets Cost Accumulated Net book value

Depreciation
$ $ $
Freehold land and Buildings 100 000 2 000 98 000
Machinery 64 000 16 000 48 000
Motor vehicle 12 000 3 600 8 400
Richard has a policy to depreciate non-current assets as follows:
• Buildings at 2% per annum on cost.

• Machinery at 25% per annum on cost.
• Motor vehicles at 30% per annum using the reducing balance method.
• Depreciation is charged for each month of ownership.
On 1 August 2012 additional machinery, costing $18 000, was purchased.
On 1 January 2013 a new motor vehicle costing $24 000 was purchased. On the same date the
old motor vehicle was traded in. Richard received an allowance of $2 600 against the cost of the
new vehicle. The vehicle disposed had originally cost $12 000 and was purchased on
1 May 2011. All payments and receipts for purchases and disposals were in cash.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 30 April 2013. Dates are not
required.
(i) Motor vehicles (at cost)
[5]
© UCLES 2014 9706/21/M/J/14

9
(ii) Provision for depreciation of motor vehicles
[5]
(iii) Disposal of motor vehicles
[5]

10
(b) Calculate the depreciation charge for the year ended 30 April 2013 to be shown in the
income statement, clearly identifying the amount charged for each category of asset.
[6]
Richard is considering the admission of a partner and feels that he should be rewarded for his
efforts in starting and developing the business. His accountant has advised him that there is an
asset called goodwill.
REQUIRED
(c) Explain the meaning of the term goodwill and suggest two reasons how it may arise.
[5]
© UCLES 2014 9706/21/M/J/14

11
(d) Explain how goodwill should be treated in the books of partnership.
[4]
[Total: 30]

12
3 Airlie Limited manufactures one product. The following information is available for the production
of one unit of product for the year ending 30 June 2014.
Selling price 32.00
Direct materials 6.50
Direct labour 8.50
Fixed factory overheads 5.00
Variable factory overheads 3.00
Fixed selling and administration overheads 3.50
Variable selling and administration overheads 2.50
The budgeted output is 18 000 units per year, which represents 75% of total production capacity.
REQUIRED
(a) Calculate the breakeven point in units.
[5]
(b) Calculate the breakeven point as a percentage of capacity.
[3]
© UCLES 2014 9706/21/M/J/14

13
(c) Prepare a marginal cost statement to show Airlie Limited’s budgeted total profit for the year
ending 30 June 2014 based on the budgeted output of 18 000 units.
Marginal cost statement

year ending 30 June 2014
$ $
[3]
1 The directors are considering purchasing additional machinery at a cost of $45 000.
2 This will increase capacity by 10%.
3 The machinery will be written off over five years, with an estimated residual value of $5000.
4 The directors plan to reduce the selling price by 12.5% and this will increase demand by
50%.
5 Fixed selling and administration overheads will increase by 10%.

14
REQUIRED
(d) Calculate the revised breakeven point in units.
[5]
(e) Calculate the revised breakeven point as a percentage of capacity.
[3]
(f) Prepare a marginal cost statement to show Airlie Limited’s revised total profit for the year
ending 30 June 2014 if the machinery is purchased.
Revised marginal cost statement

year ending 30 June 2014
$ $
[4]
© UCLES 2014 9706/21/M/J/14

15
(g) Advise the directors whether they should go ahead with their plans. Give reasons for your
answer.
[7]
[Total: 30]

16
BLANK PAGE
© UCLES 2014 9706/21/M/J/14

*2149896998*
ACCOUNTING 9706/22
1 hour 30 minutes

IB14 06_9706_22/4RP
2
1 Charles Altas does not keep books on a double-entry basis. He provided the following
information.
Charles Altas
Statement of Financial Position at 1 January 2013
$ $
Current assets
Inventory 29 600
Cash and cash equivalents 9 800 72 400

Capital at 1 January 2013 108 600
Current liabilities
Other payables 5 600 23 800
132 400
Additional information for the year ended 31 December 2013

$
Cheques received from credit customers 166 660
Cash takings banked 30 000
Cheques paid to credit suppliers 155 690
Expenses paid 26 100
Purchase of non-current assets 20 000
Bad debts 2 200
All cash takings were banked except for $29 000. Of this $10 000 was used to pay wages and the
remainder kept for personal use. All other payments were made by cheque.
On 31 December 2013 Charles Altas had the following assets and liabilities:
$
Inventory 35 200
No non-current assets were disposed of during 2013.

All purchases were made on credit.
© UCLES 2014 9706/22/M/J/14

3
REQUIRED
(a) Prepare the sales ledger control account for the year ended 31 December 2013.
[6]
(b) Prepare the purchases ledger control account for the year ended 31 December 2013.
[5]

4
(c) Calculate the total expenses for the year ended 31 December 2013.
[4]
© UCLES 2014 9706/22/M/J/14

5
(d) Prepare the income statement for the year ended 31 December 2013.
[15]
[Total: 30]

6
2 SMC Limited is a wholesale business. An extract from their statement of financial position at
31 December 2012 showed:
Non-current Assets
$ $ $
Fittings and fixtures 240 000 96 000 144 000
Equipment 60 000 18 000 42 000
SMC Ltd has a policy to depreciate fittings and fixtures at 20% per annum on cost (straight line
method) and equipment at 10% per annum on cost. Depreciation is charged for each month of
ownership.
No allowance is made for any residual value.
All fittings and fixtures held by the company at the end of the financial year had been purchased
within the previous four years. All equipment had been purchased within the previous seven
years.
During the year ended 31 December 2013 the following transactions took place:
Purchases
1 January 2013 fittings and fixtures $16 000, purchased on credit from Walker.
1 July 2013 equipment $14 000, purchased on credit from Arcadia Limited.
Disposals
31 March 2013 equipment (original cost $8 000, bought on 1 January 2010) was sold for $6 000.
Disposal proceeds were received in full by cheque.
© UCLES 2014 9706/22/M/J/14

7
REQUIRED
(a) Prepare journal entries to record the following (narratives are not required).
(i) The purchase of the equipment.
Account Debit Credit

$ $
[2]
(ii) The depreciation charge for fittings and fixtures for the year ended 31 December 2013.

$ $
[4]
(iii) The depreciation charge for equipment for the year ended 31 December 2013.

$ $
[4]

8
(iv) The disposal of equipment.

$ $
[8]
(b) (i) Explain the purposes of the journal.
[2]
(ii) State two examples of transactions which would be recorded in the journal, other than
the purchase of non-current assets on credit.
2 [2]
© UCLES 2014 9706/22/M/J/14

9
SMC is considering changing the depreciation method for equipment to reducing balance
method.
REQUIRED
(c) (i) State an accounting concept which is applied when depreciation is provided.
[1]
(ii) Explain the possible reasons why the business is considering this change.
[7]
[Total 30]

10
3 Sparkle produces one product, the Esprit. During the year ended 31 December 2013, the
company produced 15 000 units of Esprit and incurred the following total costs:
$
Direct materials 90 000
Direct labour 67 500
Variable production overhead 45 000
Fixed production overhead 60 000
Other fixed overheads 25 000
Each Esprit is sold for $26.00
There was no opening inventory of finished goods at 1 January 2013, and only 13 000 units were
sold in the year ended 31 December 2013.
REQUIRED
(a) Calculate the marginal cost of producing one unit of Esprit.
[4]
Sparkle absorbs fixed production overheads on a unit basis. Other fixed overheads are not
absorbed.
REQUIRED
(b) Calculate the cost of producing one unit using absorption costing.
[5]
© UCLES 2014 9706/22/M/J/14

11
(c) Calculate the profit for the year ended 31 December 2013 if Sparkle values inventory on a
marginal cost basis.
[6]
(d) Calculate the profit for the year ended 31 December 2013 if Sparkle values inventory on an
absorption cost basis.
[5]
(e) Prepare a statement reconciling the profit from 3(c) with your profit from 3(d).
[2]

12
(f) Explain the reason why valuing inventory on a marginal cost basis produces a different profit
figure than valuing it on an absorption cost basis.
[4]
The directors of Sparkle have discovered that $7 500 fixed production overhead was incorrectly
analysed as direct materials.
REQUIRED
(g) Explain the effect that this error will have on contribution and profit when using marginal
costing.
[4]
[Total: 30]
© UCLES 2014 9706/22/M/J/14

*0761978044*
ACCOUNTING 9706/23
1 hour 30 minutes

IB14 06_9706_23/4RP
2
1 The treasurer of the Ocean Fishing Club has prepared the following receipts and payments
account for the year ended 31 March 2014.
Receipts Payments
$ $
Balance at 1 April 2013 6 570 Payments to trade payables 2 974
Subscriptions received 7 400 Shop wages 3 670
Donations 1 450 Administration expenses 2 790
Receipts from annual family day 2 300 New equipment 5 600
Shop takings 7 690 Repairs to equipment 2 500
Transfer to deposit account 7 000
_____ Balance c/d 876
25 410 25 410
1 April 2013 31 March 2014

$ $
Shop inventory 975 859
Trade payables for shop 560 784
Deposit account 6 000 13 000
Equipment at cost 9 800 ?
Provision for depreciation 2 940 ?
Repairs to equipment owing 420 370
Shop wages due 250 195
Shop fittings at net book value 750 640
1 The donations are to be capitalised.
2 There are 350 members who pay an annual subscription of $20.
At 1 April 2013, 30 members had paid in advance for the coming year but 24 members had
not yet paid for the year ended 31 March 2013.
At 31 March 2014, 10 members had yet to pay and some members had paid in advance but
the treasurer has not yet calculated how many.
3 Interest of 5% per annum is credited to the deposit account by the bank on 31 March each
year. This has not yet been entered in the books.
The transfer of $7000 to the deposit account was made on the 31 March 2014.
4 Equipment is depreciated at 15% per annum using the reducing (diminishing) balance
method. A full year’s depreciation is charged in the year of purchase.
© UCLES 2014 9706/23/M/J/14

3
REQUIRED
(a) Prepare the shop trading account for the year ended 31 March 2014.
[4]

4
(b) Prepare the income and expenditure account for the year ended 31 March 2014.
[6]
© UCLES 2014 9706/23/M/J/14

5
(c) Prepare the statement of financial position at 31 March 2014.
[11]

6
The club wishes to buy a new boat for use by members. It will cost $12 500.
REQUIRED
(d) Suggest three ways the club could raise the finance to purchase the new boat.
[3]
(e) State one advantage and one disadvantage of each method you have suggested.
1 Advantage
Disadvantage
© UCLES 2014 9706/23/M/J/14

7
2 Advantage
Disadvantage
3 Advantage
Disadvantage
[6]
[Total: 30]

8
2 Helen Ossetia provides the following information for the year ended 31 May 2013.
Non-current assets Buildings Machinery Motor vehicles Total

$000 $000 $000 $000
Cost 2000 2000 700 4700

at 31 May 2013 (120) (800) (300) (1220)
Net Book Value 1880 1200 400 3480
Depreciation charge for the year 40 400 100 540
A full year’s depreciation is charged in the year of purchase and no depreciation is charged in the
year of disposal.
Buildings and machinery are depreciated using the straight line method.
Motor vehicles are depreciated using the reducing (diminishing) balance method.
REQUIRED
(a) Explain why Helen needs to depreciate her non-current assets.
[3]
(b) State three causes of depreciation of motor vehicles.
3 [3]
© UCLES 2014 9706/23/M/J/14

9
(c) Calculate the rate of depreciation used by Helen at 31 May 2013 to depreciate each class of
non-current asset.
[4]
(d) Explain why machinery is usually depreciated using the straight line method while motor
vehicles are usually depreciated using the reducing balance method.
[4]

10
During the year ended 31 May 2014:
1 Helen bought new machinery costing $720 000 and sold old machinery which had cost
$160 000. The old machinery had been bought on 1 December 2011.
2 Helen bought a new motor vehicle. She traded in an old vehicle valued at $40 000 and paid
the balance of $160 000, by cheque.
The trade in vehicle had cost $100 000 and had a net book value of $60 000 at the date of
disposal.
3 A new building costing $1 000 000 was completed during the year.
REQUIRED
(e) Complete the non-current asset schedule below for the year ended 31 May 2014.
Buildings Machinery Motor vehicles Total
$000 $000 $000 $000
COST
Balance at 31 May 2013 2000 2000 700 4700
Additions
Disposals
Balance at 31 May 2014
DEPRECIATION
Balance at 31 May 2013 120 800 300 1220
Charge for the year
Disposals
Balance at 31 May 2014
NBV at 31 May 2014
NBV at 31 May 2013 1880 1200 400 3480

[16]
[Total: 30]
© UCLES 2014 9706/23/M/J/14

11

12
3 Chester Limited manufactures clothing. The work takes place in three production departments –
cutting, sewing and finishing. In addition, the business has two service departments – stores and
maintenance.
The budgeted overheads for the year ending 31 March 2014 were as follows:
Indirect wages 185 400
Power 32 600
Machine depreciation 73 700
Buildings insurance 18 200
Cutting Sewing Finishing Stores Maintenance
Number of indirect employees 3 5 3 4 5
Floor space (square metres) 5 000 6 000 3 000 3 000 4 000
Net book value of machinery ($) 86 000 64 000 12 000 - 5 000
Machine hours 40 000 50 000 4 000 - -
Direct labour hours 84 000 22 000 56 000 - -
Raw material issues 75% 17.5% 2.5% - 5%
Chester Limited uses a single overhead rate to absorb all overheads on a direct labour hour basis.
© UCLES 2014 9706/23/M/J/14

13
REQUIRED
(a) State one advantage and one disadvantage to Chester Limited of using a single overhead
absorption rate.
Advantage
Disadvantage
[4]
(b) Calculate, correct to two decimal places, the overhead absorption rate for the year ending
31 March 2014.
[1]

14
The directors of Chester Limited are considering changing the basis for recovering overheads to
calculate a separate overhead absorption rate for each production department.
REQUIRED
(c) Apportion the costs to the five departments and re-apportion the service departments’ costs
to production departments using a suitable basis.
Total Cutting Sewing Finishing Stores Maintenance

$ $ $ $ $ $
Indirect wages
Rent and rates
Power
Light and heat
Machine
depreciation
Buildings
insurance
Reapportion
stores
Reapportion
maintenance
[10]
© UCLES 2014 9706/23/M/J/14

15
(d) Calculate, correct to two decimal places, appropriate overhead absorption rates for each
production department.
[6]
The actual results for the year were as follows:
Cutting Sewing Finishing
Factory overheads $168 180 $146 320 $51 870
Direct labour hours 85 200 20 950 58 140
Direct machine hours 42 330 52 450 4 280
REQUIRED
(e) Calculate the under- or over-absorption of overheads for each production department.
Cutting Sewing Finishing

$ $ $
[6]

16
(f) Manufacturing businesses classify costs by function. State three functional groups of costs.
3 [3]
[Total: 30]
© UCLES 2014 9706/23/M/J/14

*6802433027*
ACCOUNTING 9706/21
1 hour 30 minutes

IB15 06_9706_21/4RP
2
1 Patel, a sole trader, does not keep proper books of account. He provided the following information.

$ $
Land and buildings at cost 50 000 50 000
Fixtures and fittings at valuation 6 000 4 500
Motor vehicles at net book value 7 600 ?
Wages owing 1 200 1 400
Inventory 21 750 22 450
Cash in hand 800 950
Rent in advance 1 000 ?
Summary of Patel’s bank account for the year showed the following.
Receipts $ Payments $
Balance b/d 16 980 Payments to credit suppliers 109 620

Receipts from credit customers 156 420 Wages 22 670
Cash sales 20 700 Rent 19 000
Proceeds from sale of motor vehicle 1 500 Electricity 8 650
Purchase of new motor vehicle 16 400
______ Balance c/d 14 510
195 600 195 600
1 Before banking his receipts from cash sales Patel took $400 per month for his personal
drawings. All other payments were made from the bank.
2 During the year he took goods costing $2600 for his own use.
3 Patel depreciates his vehicles at 20% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase. No depreciation is provided in the
year of sale.
4 The vehicle sold had a net book value at 1 January 2014 of $2880.
5 A customer has been declared bankrupt and will not pay $750 owing. The amount was
included in the trade receivables at 31 December 2014.
6 In addition Patel has decided to create a provision for doubtful debts of 5%.
7 The rent payable is $16 000 per annum.
© UCLES 2015 9706/21/M/J/15

3
REQUIRED
(a) Prepare Patel’s income statement for the year ended 31 December 2014.
[15]

4
(b) Prepare Patel’s statement of financial position at 31 December 2014.
© UCLES 2015 9706/21/M/J/15

5
[9]
Patel wishes to expand his business and is undecided about taking out a five year loan or asking
the bank for an overdraft.
REQUIRED
(c) State one advantage and one disadvantage of each option.
Five year loan
Advantage
Disadvantage
Bank overdraft
Advantage
Disadvantage
[6]
[Total: 30]

6
2 Bradley, a sole trader, provided the following information for the year ended 31 March 2014.
$
Revenue 420 000
Opening inventory 40 000
The rate of mark up is 40%.
The rate of inventory turnover is 5 times per annum.
REQUIRED
(a) Explain what is meant by mark up.
[2]
(b) Prepare the trading section of the income statement for the year ended 31 March 2014.
© UCLES 2015 9706/21/M/J/15

7
Workings:
[9]
(c) State the formula for calculating margin.
[2]
At 31 March 2014, the net book value of the non-current assets was $550 000.
REQUIRED
(d) (i) Explain what the non-current asset turnover measures.
[4]

8
(ii) State the formula to calculate the non-current asset turnover ratio. Calculate the non-current
asset turnover ratio correct to two decimal places.
Ratio Formula Calculation
non-current asset turnover
[3]
(e) Explain why a provision for doubtful debts may be necessary.
[3]
Bradley provides for doubtful debts at the rate of 4%.
The provision for doubtful debts at 1 April 2013 was $1650.
Trade receivables at 31 March 2014 were $35 000.
REQUIRED
(f) Prepare Bradley’s provision for doubtful debts account for the year ended 31 March 2014.
[3]
© UCLES 2015 9706/21/M/J/15

9
(g) State how the provision for doubtful debts is shown in:
(i) income statement
[2]
(ii) statement of financial position
[2]
[Total: 30]

10
3 Bould Limited manufactures two products, Wye and Zed. The forecast data for the year ending
30 June 2016 is as follows.
Wye Zed
$ $
Revenue from Wye – 70 000 units at $12 840 000
Revenue from Zed – 90 000 units at $8 720 000
Materials (259 000) (180 000)
Labour (233 000) (372 000)
Overheads (190 000) (207 000)
Profit / (Loss) 158 000 (39 000)
Labour includes fixed costs 65 000 48 000

Overheads include fixed costs 36 000 45 000
REQUIRED
(a) Calculate the contribution per unit of Wye.
[4]
© UCLES 2015 9706/21/M/J/15

11
(b) Calculate the contribution per unit of Zed.
[4]
(c) Calculate the break-even point in units of Zed.
[2]
(d) Calculate the break-even point in revenue of Zed.
[2]

12
(e) Calculate the margin of safety in revenue for Zed.
[2]
The directors are concerned about the forecast loss of manufacturing Zed and are considering
two proposals.
Proposal 1
Increase the selling price of Zed by $1.20 per unit.
The sales volume is expected to fall by 5% as a result.
Proposal 2
Stop manufacturing Zed.
This will incur redundancy costs of $20 000.
There would be an increased additional budget facility for advertising Wye, which would increase
sales volume of Wye by 40%.
© UCLES 2015 9706/21/M/J/15

13
REQUIRED
(f) Calculate the revised forecast profit of Bould Limited for the year ended 30 June 2016 if
proposal 1 is adopted.
[5]
(g) Calculate the revised forecast profit if proposal 2 is adopted.
[5]

14
(h) Advise, with reasons, which proposal the directors should adopt.
Proposal
Evaluation
[6]
[Total: 30]
© UCLES 2015 9706/21/M/J/15

15
BLANK PAGE
© UCLES 2015 9706/21/M/J/15

16
BLANK PAGE
© UCLES 2015 9706/21/M/J/15

*1883922262*
ACCOUNTING 9706/22
1 hour 30 minutes

IB15 06_9706_22/4RP
2
1 Khalid owns a wholesale business selling electrical goods. He does not keep proper books of
account, but is able to provide the following information.

$
Motor vehicle at cost 38 400
Motor vehicle provision for depreciation 12 600
Fixtures and fittings at cost 41 940
Fixtures and fittings provision for depreciation 22 680
Inventory 33 500
Prepayment of two months’ property rental 3 750
General expenses accrued 410
Cash in hand 360
Summary of bank account for the year ended 31 December 2014

Dr Cr
$ $
Balance at 1 January 2014 4110 Payments to credit suppliers 134 750
Receipts from credit customers 200 270 Drawings 22 185
Cash sales banked 9 675 Property rental 20 625
Balance at 31 December 2014 11 295 General expenses 6 650
Purchase of motor vehicle 10 100
225 350 225 350
REQUIRED
(a) Calculate Khalid’s opening capital at 1 January 2014.
[5]
© UCLES 2015 9706/22/M/J/15

3
1 For the year ended 31 December 2014:

Credit sales $193 400
Cash sales $15 180
2 Trade payables at 31 December 2014 were $21 590.
3 All sales are made at 30% gross profit margin.
REQUIRED
(b) Calculate the following for the year ended 31 December 2014.
(i) Sales revenue
[1]
(ii) Purchases
[1]
(c) Calculate the value of closing inventory at 31 December 2014.
[3]

4
Before banking his receipts from cash sales, Khalid took $400 per month for his personal
drawings. The only other cash payments during the year were for motor expenses.
Cash in hand at 31 December 2014 was $460.
REQUIRED
(d) Prepare the cash account for the year ended 31 December 2014 to identify the cash
payment made for motor expenses.
[4]
1 Khalid allowed a total of $914 discount to credit customers.
2 Motor vehicles are depreciated at 25% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase, but none in the year of sale.
3 During the year, a motor vehicle that had cost $16 000 on 1 July 2012 was traded in for
$8200. The balance of the purchase price for the new vehicle was paid by cheque.
4 Fixtures and fittings are depreciated at 15% per annum using the reducing balance method.
There were no additions or sales of fixtures and fittings during the year.
5 There was no accrual for general expenses at 31 December 2014.
6 Prepaid rent at 31 December 2014 was $1875.
© UCLES 2015 9706/22/M/J/15

5
REQUIRED
(e) Prepare Khalid’s income statement for the year ended 31 December 2014.
[16]
[Total: 30]

6
2 Kim, a sole trader, provided the following statement.
Statement of financial position at 30 September 2014
$
Non-current assets
Equipment 80 000
352 000
Current assets
Inventory 105 000
448 000

Opening capital 600 000
Add profit for the year 80 000
680 000
592 000
Current liabilities
208 000
1 On 1 October 2014 Kim admitted Chan as a partner.
2 Goodwill was valued at $120 000 but will not remain in the books of the partnership.
3 The profit sharing ratio was agreed at Kim 60% and Chan 40%.
4 Chan agreed to pay a cheque of $160 000 to the partnership. In addition he introduced equipment
valued at $325 000 and inventory valued at $26 000.
© UCLES 2015 9706/22/M/J/15

7
REQUIRED
(a) Prepare the capital accounts of Kim and Chan at 1 October 2014.
[10]

8
(b) Prepare a statement of financial position for the partnership at 1 October 2014.
[8]
© UCLES 2015 9706/22/M/J/15

9
(c) State three advantages to Kim of forming a partnership.
[3]
Kim has provided for doubtful debts at a rate of 2%.
Chan would like to change the existing rate of the provision to 5%.
REQUIRED
(d) Explain why this change might be necessary.
[5]

10
(e) Calculate the difference in the provision for doubtful debts if the existing rate had changed to
5%.
[2]
(f) State how this change would affect the partnership’s income statement and statement of
financial position.
[2]
[Total: 30]
© UCLES 2015 9706/22/M/J/15

11
BLANK PAGE

12
3 Kapoor Limited is a company which has two production departments, machining and finishing,
and two service departments, maintenance and canteen. The following information is available.
The forecast overheads for the year ending 31 March 2015 were as follows.
$
Power 32 000
Machine depreciation 28 400
Supervision 28 000
Machining Finishing Maintenance Canteen

Number of employees 16 24 8 –
Net book value of machinery ($) 140 000 25 000 13 000 2 000
Kilowatt hours 6 000 3 000 2 000 1 000
Maintenance department hours 66% 34% – –
© UCLES 2015 9706/22/M/J/15

13
REQUIRED
(a) Apportion the forecast overheads to the four departments and re-apportion the service
departments’ costs to production departments using a suitable basis for each.
Basis Total Machining Finishing Maintenance Canteen

$ $ $ $ $
Power
Machine
depreciation
Supervision
Rent and rates
Buildings insurance
Light and heat
Total apportioned
overheads
Reapportionment
of canteen
Subtotal
Reapportionment
of maintenance
Total
[10]

14
The following information for the year is also provided.
Machining Finishing Maintenance Canteen

Budgeted machine hours 58 000 8 000 4 000 –
Budgeted direct labour hours 26 000 42 000 12 000 –
REQUIRED
(b) Calculate an appropriate overhead absorption rate for each production department to two
decimal places.
[4]
The actual results for the year ended 30 March 2015 were as follows.
Machining Finishing
Factory overheads $82 436 $56 980
REQUIRED
(c) Calculate the under absorption or over absorption of overheads for each production
department.
[4]
© UCLES 2015 9706/22/M/J/15

15
(d) State two reasons for the under absorption or over absorption of overheads, calculated in
part (c), for each department.
Machining reason 1
Machining reason 2
Finishing reason 1
Finishing reason 2
[4]
(e) Explain why estimated figures are used to calculate overhead absorption rates.
[3]

16
Kapoor Limited produces a single component. The directors have been asked to prepare a
quotation for a customer who requires 150 units of the component. Kapoor Limited requires 45%
gross profit on mark-up on this order.
Product information
Direct materials $9.40

Direct labour hours – machining 45 minutes at $8.40 per hour
Direct labour hours – finishing 20 minutes at $6.60 per hour
Machine hours – machining 30 minutes
Machine hours – finishing 10 minutes
REQUIRED
(f) Calculate the full invoice value of the order.
[5]
[Total: 30]
© UCLES 2015 9706/22/M/J/15

*2144302490*
ACCOUNTING 9706/23
1 hour 30 minutes

IB15 06_9706_23/4RP
2
1 Vikran, a sole trader, has extracted the following trial balance from his books of account at
30 June 2014.
Dr Cr
$ $
Bank 7 600
Capital 200 000
Carriage inwards 4 200
Factory supervision salaries 12 400
General factory expenses 8 100
Heat and light 5 400
Indirect factory wages 36 800
Insurance 12 000
Inventory at 1 July 2013 at cost
Work in progress 48 000
Office equipment at cost 90 000
Plant and machinery at cost 270 000
Provision for depreciation at 1 July 2013
Purchase of finished goods 2 100
Purchase of raw materials 162 000
Returns outwards (raw materials) 1 200
Revenue 768 500
1 129 600 1 129 600
1 Inventory at 30 June 2014 at cost:
$
2 Depreciation is to be provided on all non-current assets at 15% per annum using the reducing
balance method.
3 The following expenses are to be apportioned.
Factory Office
Rent and rates 85% 15%
Insurance 80% 20%
Heat and light 85% 15%
4 At 30 June 2014 insurance of $4000 had been paid in advance.
5 At 30 June 2014 heat and light of $600 had accrued but remained unpaid.
6 A bad debt of $1800 is to be written off at 30 June 2014.
7 The provision for doubtful debts is to be maintained at 3% of trade receivables.
© UCLES 2015 9706/23/M/J/15

3
REQUIRED
(a) Prepare Vikran’s manufacturing account for the year ended 30 June 2014.
[14]

4
(b) Prepare Vikran’s income statement for the year ended 30 June 2014.
[12]
© UCLES 2015 9706/23/M/J/15

5
(c) Explain why a business should depreciate its non-current assets.
[4]
[Total: 30]

6
2 Alberto is a retailer and has provided the following statement of financial position at 31 August 2014.
$
Assets
Current assets
Inventory 65 000
110 000

Owner’s capital 420 000
Current liabilities
40 000
The following additional information is also available for the year ended 31 August 2014.
$
Inventory at 1 September 2013 50 000
Purchases (all on credit) 280 000
Revenue (all on credit) 425 000
REQUIRED
(a) Complete the following table.
Inventory turnover (in days)
Trade receivables turnover

(in days)
Trade payables turnover

(in days)
Non-current asset turnover
Current ratio
[13]
© UCLES 2015 9706/23/M/J/15

7
Credit terms negotiated with both customers and suppliers are 30 days net. Last year Alberto’s
inventory turnover was 60 days.
REQUIRED
(b) Evaluate Alberto’s performance in respect of the following ratios.
(i) Inventory turnover
[3]
(ii) Trade receivables turnover
[3]
(iii) Trade payables turnover
[3]

8
Alberto is considering expanding his business by forming either a partnership or a private limited
company.
REQUIRED
(c) State two advantages and two disadvantages of each option.
Partnership
Advantages:
Disadvantages:
Private limited company
Advantages:
Disadvantages:
[8]
[Total: 30]
© UCLES 2015 9706/23/M/J/15

9
3 Colebrook Limited manufactures one product. The following information is available.
Direct material $3.20 per unit

Direct labour $2.40 per unit
Selling price $14.00 per unit
Budgeted fixed overhead $88 000 per month
Budgeted production 16 000 units per month
The following information is available for February and March 2015.
February March
Actual sales (units) 13 000 17 000
Actual production (units) 15 000 15 000
There was no inventory of finished units at 1 February 2015. The actual fixed overhead cost was
the same as the budgeted cost.
REQUIRED
(a) Calculate the contribution per unit.
[2]
Question 3(b) is on the next page.

10
(b) Prepare the income statement for each of the months February and March 2015 using marginal
costing.
[9]
© UCLES 2015 9706/23/M/J/15

11
Colebrook Limited is considering changing to absorption costing.
(c) Calculate the overhead absorption rate per unit produced.
[1]
(d) Prepare the income statement for each of the months February and March 2015 using
absorption costing.
[11]

12
(e) Prepare a statement reconciling the marginal costing profit with the absorption costing profit for
February only.
[3]
(f) Explain why there is a difference in the profit between the two methods.
[4]
[Total: 30]
© UCLES 2015 9706/23/M/J/15


ACCOUNTING 9706/21
1 hour 30 minutes

IB16 06_9706_21/3RP
2
1 Bayliss Limited is a retailer of ladies’ fashion material. The following trial balance has been
extracted from the books of account at 31 December 2015:
Dr Cr
$ $
5% debentures (2017) 80 000
Dividends paid 10 000
Interest paid 13 000
Inventory at 1 January 2015 98 000
Non-current assets at cost / valuation
Land and buildings 185 000
Buildings 23 000
Ordinary shares of $0.50 each fully paid 140 000
Purchases 480 000
Revenue 984 000
Share premium 3 000
1 504 000 1 504 000
1 Inventory at 31 December 2015 is valued at a cost of $105 000.
2 Land is included in the trial balance at a value of $135 000. It is to be revalued to $150 000 at
31 December 2015.
3 Depreciation for the year ended 31 December 2015 is to be provided as follows:
Buildings – 2% per annum using the straight-line method

Plant and machinery – 10% per annum using the reducing balance method.
All annual depreciation is to be charged to administrative expenses.
4 Trade receivables includes a debt of $9000 which is to be written off to administrative

expenses at 31 December 2015.
5 The directors wish to make provision for doubtful debts of 3% of trade receivables. The
adjustment should be charged to administrative expenses.
6 On 31 December 2015, Bayliss Limited made a bonus issue of shares on the basis of one
ordinary share for every twenty ordinary shares held. The company policy is to leave
reserves in their most flexible form. No entries have been made in the books of account in
respect of the bonus issue.
7 Debenture interest has been paid to 30 September 2015.
© UCLES 2016 9706/21/M/J/16

3
REQUIRED
(a) Prepare the income statement for Bayliss Limited for the year ended 31 December 2015.
[7]

4
(b) Prepare the statement of changes in equity for Bayliss Limited for the year ended 31 December 2015.
Bayliss Limited
Revaluation Retained
Share capital Share premium reserve General reserve earnings Total
$000 $000 $000 $000 $000 $000
Balance at
1 January 2015
[5]
© UCLES 2016 9706/21/M/J/16

5
(c) Prepare the statement of financial position for Bayliss Limited at 31 December 2015.
[6]

6
The 5% debentures are due for repayment in the next two years. The directors of Bayliss Limited
are considering the following two options to raise the necessary finance to repay the $80 000.
1 Issue 160 000 ordinary shares of $0.50 each.
2 Issue a further debenture of $80 000.
REQUIRED
(d) (i) Discuss the impact of each option on the future profits of Bayliss Limited.
[4]
(ii) Advise the directors which option they should choose. Give reasons for your decision.
© UCLES 2016 9706/21/M/J/16

7
[3]
The statement of financial position of a limited company may include capital reserves and also
revenue reserves.
REQUIRED
(e) Explain the difference between a capital reserve and a revenue reserve.
[4]
(f) State one example of a capital reserve.
[1]
[Total: 30]

8
2 The following information has been extracted from the financial statements of Thaw Limited at
31 December 2015.
$
Revenue 156 000
Purchases 88 000
Inventory at 31 December 2015 42 000
Operating expenses 48 000
Cash in hand 1 000
8% debenture (2019 – 2021) 6 000
1 Inventory at 1 January 2015 was valued at $34 000.
2 All sales and purchases were on credit.
REQUIRED
(a) Calculate the following ratios for Thaw Limited.
(i) Current ratio to two decimal places.
[1]
(ii) Liquid (acid test) ratio to two decimal places.
[1]
© UCLES 2016 9706/21/M/J/16

9
(iii) Trade receivables turnover (days)
[1]
(iv) Trade payables turnover (days)
[1]
(v) Inventory turnover (days)
[1]
(b) Discuss the ratios calculated in part (a) in respect of Thaw Limited’s liquidity and comment
on the overall position.
[4]

10
(c) Explain three limitations of ratio analysis.
[6]
[Total: 15]
© UCLES 2016 9706/21/M/J/16

11
3 Wang and Yuan, who share profits and losses in the ratio 2 : 1, decided to dissolve their
partnership. Their summarised statement of financial position at 30 September 2015 was as
follows:
$
Non-current assets
70 000
Current assets
Inventory 14 000
30 000

Capital accounts
Wang 40 000
Yuan 25 000
65 000
Current accounts
Wang (10 000)
Yuan 13 000
3 000
Current liabilities
Bank 6 000
32 000
1 Land and buildings were sold for $70 000.
2 Yuan took one vehicle at an agreed value of $3000 and the remaining vehicle was sold for
$3500.
3 Trade receivables realised $15 000.
4 Trade payables were paid after taking a discount of $1500.
5 The inventory was sold for $12 000.
6 The expenses of dissolution were $1700.

12
REQUIRED
(a) Prepare the partnership realisation account.
[5]
(b) Calculate the amount due to each partner when the bank account is closed on dissolution.
[7]
© UCLES 2016 9706/21/M/J/16

13
(c) State two reasons why a partner may have an overdrawn current account.
[2]
(d) State why partnerships maintain separate capital accounts for each partner.
[1]
[Total: 15]

14
4 Rahel manufactures a single product X and wishes to know the break-even point.
REQUIRED
(a) State what is meant by break-even point.
[1]
The following budgeted information is available for product X.
Selling price per unit $2.00

Contribution to sales ratio 62.5%
Fixed costs $50 000
Production and sales 100 000 units
REQUIRED
(b) Calculate the break-even point in units and $ revenue.
(i) in units
(ii) in revenue
[4]
© UCLES 2016 9706/21/M/J/16

15
(c) Prepare a break-even chart for product X.
[4]

16
(d) Calculate the margin of safety.
(i) in units
(ii) as a percentage
[4]
Rahel is considering opening another factory to produce two new products: Y and Z.
Y Z
$ per unit $ per unit
Direct material 2 4
Direct labour ($5 per hour) 10 5
Variable overhead 1.5 1.5
Selling price 23 18
Forecast demand for April is 4000 units of Y and 6000 units of Z.
REQUIRED
(e) Calculate the contribution per unit of each product Y and Z.
[2]
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17
During April, fixed costs are forecast to be $60 000.
REQUIRED
(f) Calculate the forecast profit for the new factory for the month of April.
[1]
During April, direct labour hours are expected to be limited to 10 000 hours.
REQUIRED
(g) Calculate the revised profit taking into account the limited direct labour hours.
[5]

18
Rahel has to meet the forecast demand in April as she has contracts with her customers. In order
to achieve this she has two alternatives.
1 Ask the workers to work overtime.
2 Buy in the products from another supplier.
REQUIRED
(h) Advise Rahel which option she should choose. Justify your answer.
[5]
(i) State one advantage and one disadvantage of marginal costing.
Advantage
Disadvantage
[4]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB16 06_9706_22/5RP
2
1 Jing is a sole trader. He does not maintain full accounting records. All sales and purchases are
on credit.
He provided the following information for the year ended 30 April 2015.
$
Cheques received from credit customers 96 300
Cheques paid to credit suppliers 73 540
Rent paid 5 500
Electricity paid 345
Other operating expenses 95
Irrecoverable debts written off 200
Purchases returns 2 480
Jing had the following assets and liabilities.
At 30 April 2014 At 30 April 2015

$ $
Equipment ? ?
Inventory 15 000 11 500
Rent prepaid 500 400
Electricity owing 35 40
All equipment was originally purchased for $2700 on 1 May 2013. Jing depreciates his equipment
using the reducing balance method at a rate of 10% per annum.
REQUIRED
(a) (i) Calculate the sales for the year ended 30 April 2015.
[2]
(ii) Calculate the purchases for the year ended 30 April 2015.
[2]
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3
(iii) Prepare Jing’s income statement for the year ended 30 April 2015.
Jing
Income Statement for the year ended 30 April 2015
[11]

4
After preparing the financial statements, Jing remembered the following:
He had paid his cleaner $60 cash, out of his own money, to clean the offices and his house. He
agreed that this should be split in the ratio 3 : 2 respectively.
REQUIRED
(b) Prepare the journal entry to record this transaction. A narrative is not required.
[2]
(c) State two types of entries, other than the correction of errors, which would usually be
recorded in the general journal.
[2]
Jing calculated the gross margin and the profit margin for his business. He discovered that the
gross margin had decreased for the year ended 30 April 2015. For the same period the profit
margin had increased.
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5
REQUIRED
(d) Assess the performance of the business for the year ended 30 April 2015. Suggest possible
reasons for the changes.
[8]
(e) State three benefits to a business of using ratios.
[3]
[Total: 30]

6
2 Colin, Darim and Emran are in partnership sharing profits and losses in the ratio 3 : 2 : 1. Their
statement of financial position at 30 November 2015 was as follows:
$
Non-current assets (at net book value)
Premises 135 000
Machinery 84 000
255 000
Current assets
Inventory 56 000
Bank 21 000
125 000

Capital accounts
Colin 120 000
Darim 80 000
Emran 40 000
240 000
Current accounts
Colin 56 000
Darim 16 000
Emran 36 000
108 000
Current liabilities
1 Darim retired on 1 December 2015. Colin and Emran continued in partnership sharing profits
and losses in the ratio 2 : 1.
2 Goodwill was valued at $48 000. It does not appear in the partnership’s financial statements.
3 Darim took over one of the partnership motor vehicles at a net book value of $8000.
4 The partners agreed to revalue some of the remaining assets as follows:
$
Premises 180 000
Inventory 52 000
5 Darim agreed to receive $50 000 as part of the amount owing to him on his retirement. The
balance owing to him was to remain in the partnership as a loan to be repaid in 2018.
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7
REQUIRED
(a) Prepare the revaluation account on Darim’s retirement on 1 December 2015.
Revaluation account
[5]
To help fund the payment to Darim on his retirement, Emran paid additional capital into the
partnership bank account. After this payment had been made the balance on Emran’s capital
account was $65 000.
REQUIRED
(b) Prepare a statement to show how much cash Emran paid into the partnership bank account.
[4]

8
(c) State three advantages to a sole trader of forming a partnership.
[3]
(d) State three reasons why partnerships maintain separate capital accounts and current
accounts for each partner.
[3]
[Total: 15]
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9
3 Miu is a sole trader and prepares her financial statements to 31 May each year. She depreciates
her motor vehicles using the reducing balance method at a rate of 20% per annum. Depreciation
is charged monthly.
REQUIRED
(a) State what is meant by depreciation of non-current assets.
[1]
(b) State three causes of depreciation of non-current assets.
[3]
Miu purchased a motor vehicle on 1 June 2013 for $152 000.
On 1 March 2015, a new motor vehicle was purchased at a cost of $190 000.The old motor
vehicle was part-exchanged at a value of $84 000.
The balance was settled by a bank loan repayable over 3 years.

10
REQUIRED
(c) (i) Prepare the motor vehicles at cost account for the year ended 31 May 2015.
Miu
Motor vehicles at cost account
[2]
(ii) Prepare the motor vehicle provision for depreciation account for the years ended
31 May 2014 and 31 May 2015.
Miu
Motor vehicles provision for depreciation account
[5]
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11
(iii) Calculate the profit or loss on disposal of the motor vehicle purchased on 1 June 2013.
[1]
Miu is considering the effect it would have on her financial statements if she sold motor vehicles
for cash rather than part-exchange them in the future.
REQUIRED
(d) Advise Miu of the effect on her financial statements if she had not part-exchanged the motor
vehicle but had sold it for $80 000 cash.
[3]
[Total: 15]

12
4 Bruna Limited is a manufacturing company. It operates three production departments and two
service departments. The costs are allocated to each department as follows:

Machining Assembly Finishing Stores Canteen
$ $ $ $ $
Indirect labour 253 000 290 000 340 100 52 000 78 000
Other indirect overhead costs 205 000 90 000 225 000 88 000 92 000
The service departments costs are allocated to the production departments as follows:
Stores in proportion to the number of stores requisitions

Canteen in proportion to number of employees.
Machining Assembly Finishing

Direct labour hours 15 000 60 000 40 000
Machine hours 45 000 30 000 25 000
Number of stores requisitions 6 300 4 500 7 200
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REQUIRED
(a) Calculate, to two decimal places, a suitable overhead absorption rate for each of the three
production departments.
[13]

14
Bruna Limited has been approached by a customer to quote for one of their products. This will
require the following:
Direct materials 20 kilos at $5 per kilo

Direct labour 10 hours at $9 per hour
Direct labour hours and machine hours required in each department will be:
Machining Assembly Finishing

Direct labour hours 5 3 2
Machine time 2 hours 30 minutes 20 minutes
It is the company’s practice to achieve a gross margin of 40% on all its products.
REQUIRED
(b) Calculate the total price to quote to the customer.
[7]
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15
The directors are considering changing from departmental overhead absorption rates to one
factory-wide rate.
REQUIRED
(c) Advise the directors whether or not they should make this change. Justify your answer.
[4]
(d) Explain how over absorption and under absorption of overheads can affect the profit of a
manufacturing business.
[6]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB16 06_9706_23/FP
2
1 Bayliss Limited is a retailer of ladies’ fashion material. The following trial balance has been
extracted from the books of account at 31 December 2015:
Dr Cr
$ $
5% debentures (2017) 80 000
Interest paid 13 000
Non-current assets at cost / valuation
Buildings 23 000
Ordinary shares of $0.50 each fully paid 140 000
Purchases 480 000
Revenue 984 000
Share premium 3 000
1 504 000 1 504 000
1 Inventory at 31 December 2015 is valued at a cost of $105 000.
2 Land is included in the trial balance at a value of $135 000. It is to be revalued to $150 000 at
31 December 2015.
3 Depreciation for the year ended 31 December 2015 is to be provided as follows:
Buildings – 2% per annum using the straight-line method

Plant and machinery – 10% per annum using the reducing balance method.
All annual depreciation is to be charged to administrative expenses.
4 Trade receivables includes a debt of $9000 which is to be written off to administrative

expenses at 31 December 2015.
5 The directors wish to make provision for doubtful debts of 3% of trade receivables. The
adjustment should be charged to administrative expenses.
6 On 31 December 2015, Bayliss Limited made a bonus issue of shares on the basis of one
ordinary share for every twenty ordinary shares held. The company policy is to leave
reserves in their most flexible form. No entries have been made in the books of account in
respect of the bonus issue.
7 Debenture interest has been paid to 30 September 2015.
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3
REQUIRED
(a) Prepare the income statement for Bayliss Limited for the year ended 31 December 2015.
[7]

4
(b) Prepare the statement of changes in equity for Bayliss Limited for the year ended 31 December 2015.
Bayliss Limited
Revaluation Retained
Share capital Share premium reserve General reserve earnings Total
$000 $000 $000 $000 $000 $000
Balance at
1 January 2015
[5]
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5
(c) Prepare the statement of financial position for Bayliss Limited at 31 December 2015.
[6]

6
The 5% debentures are due for repayment in the next two years. The directors of Bayliss Limited
are considering the following two options to raise the necessary finance to repay the $80 000.
1 Issue 160 000 ordinary shares of $0.50 each.
2 Issue a further debenture of $80 000.
REQUIRED
(d) (i) Discuss the impact of each option on the future profits of Bayliss Limited.
[4]
(ii) Advise the directors which option they should choose. Give reasons for your decision.
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7
[3]
The statement of financial position of a limited company may include capital reserves and also
revenue reserves.
REQUIRED
(e) Explain the difference between a capital reserve and a revenue reserve.
[4]
(f) State one example of a capital reserve.
[1]
[Total: 30]

8
2 The following information has been extracted from the financial statements of Thaw Limited at
31 December 2015.
$
Revenue 156 000
Purchases 88 000
Cash in hand 1 000
8% debenture (2019 – 2021) 6 000
1 Inventory at 1 January 2015 was valued at $34 000.
2 All sales and purchases were on credit.
REQUIRED
(a) Calculate the following ratios for Thaw Limited.
(i) Current ratio to two decimal places.
[1]
(ii) Liquid (acid test) ratio to two decimal places.
[1]
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9
(iii) Trade receivables turnover (days)
[1]
(iv) Trade payables turnover (days)
[1]
(v) Inventory turnover (days)
[1]
(b) Discuss the ratios calculated in part (a) in respect of Thaw Limited’s liquidity and comment
on the overall position.
[4]

10
(c) Explain three limitations of ratio analysis.
[6]
[Total: 15]
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11
3 Wang and Yuan, who share profits and losses in the ratio 2 : 1, decided to dissolve their
partnership. Their summarised statement of financial position at 30 September 2015 was as
follows:
$
Non-current assets
70 000
Current assets
Inventory 14 000
30 000

Capital accounts
Wang 40 000
Yuan 25 000
65 000
Current accounts
Wang (10 000)
Yuan 13 000
3 000
Current liabilities
Bank 6 000
32 000
1 Land and buildings were sold for $70 000.
2 Yuan took one vehicle at an agreed value of $3000 and the remaining vehicle was sold for
$3500.
4 Trade payables were paid after taking a discount of $1500.
5 The inventory was sold for $12 000.
6 The expenses of dissolution were $1700.

12
REQUIRED
[5]
(b) Calculate the amount due to each partner when the bank account is closed on dissolution.
[7]
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13
(c) State two reasons why a partner may have an overdrawn current account.
[2]
(d) State why partnerships maintain separate capital accounts for each partner.
[1]
[Total: 15]

14
4 Rahel manufactures a single product X and wishes to know the break-even point.
REQUIRED
(a) State what is meant by break-even point.
[1]
The following budgeted information is available for product X.
Selling price per unit $2.00

Contribution to sales ratio 62.5%
Fixed costs $50 000
Production and sales 100 000 units
REQUIRED
(b) Calculate the break-even point in units and $ revenue.
(i) in units
(ii) in revenue
[4]
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15
(c) Prepare a break-even chart for product X.
[4]

16
(d) Calculate the margin of safety.
(i) in units
(ii) as a percentage
[4]
Rahel is considering opening another factory to produce two new products: Y and Z.
Y Z
$ per unit $ per unit
Direct material 2 4
Direct labour ($5 per hour) 10 5
Variable overhead 1.5 1.5
Selling price 23 18
Forecast demand for April is 4000 units of Y and 6000 units of Z.
REQUIRED
(e) Calculate the contribution per unit of each product Y and Z.
[2]
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17
During April, fixed costs are forecast to be $60 000.
REQUIRED
(f) Calculate the forecast profit for the new factory for the month of April.
[1]
During April, direct labour hours are expected to be limited to 10 000 hours.
REQUIRED
(g) Calculate the revised profit taking into account the limited direct labour hours.
[5]

18
Rahel has to meet the forecast demand in April as she has contracts with her customers. In order
to achieve this she has two alternatives.
1 Ask the workers to work overtime.
2 Buy in the products from another supplier.
REQUIRED
(h) Advise Rahel which option she should choose. Justify your answer.
[5]
(i) State one advantage and one disadvantage of marginal costing.
Advantage
Disadvantage
[4]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB17 06_9706_21/2RP
2
1 The directors of AB Limited provide the following financial information:

Income Statement (extract) for the year ended 30 April 2016
$
Revenue 300 000
Purchases (80% on credit) 250 000
Expenses 27 000
All sales earned a uniform gross margin of 20%.
$
Current assets
Inventory 38 000
118 000
Equity
Ordinary share capital of $1 each 170 000
Share premium 5 000
200 000
Current liabilities
78 000
REQUIRED
(a) Prepare the income statement for AB Limited for the year ended 30 April 2016 in as much
detail as possible.
[4]
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3
(b) Suggest two reasons why the balance on a retained earnings account may be lower than the
profit for the year.
[2]
(c) Calculate the following ratios.
(i) Rate of inventory turnover (to two decimal places)
[2]
(ii) Liquid (acid test) ratio (to two decimal places)
[2]
(iii) Trade payables turnover (days)
[2]

4
The following information is available for XY Limited, a competitor of AB Limited.
Rate of inventory turnover 8.75 times

Liquid (acid test) ratio 0.85 : 1
Trade payables turnover (days) 42 days
REQUIRED
(d) Discuss the performance of AB Limited by comparing the ratios calculated in part (c) with
those of XY Limited.
Rate of inventory turnover
Liquid (acid test) ratio
Trade payables turnover (days)
[6]
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5
CD Limited has been asked by both AB Limited and XY Limited to become their supplier. The
directors of CD Limited only wish to supply to one of the two companies.
REQUIRED
(e) Advise the directors of CD Limited which company they should supply. Give reasons for your
answer.
[4]
Question 1(f) is on the next page.

6
The financial statements of AB Limited for the year ended 30 April 2017 showed a draft profit for
the year of $71 000. A review of the books of account revealed the following errors:
1 A sales invoice for $234 had been recorded as $324.
2 Returns outwards account had been overcast by $100.
3 Inventory of $1200 had been omitted from closing inventory.
REQUIRED
(f) Calculate the revised profit for the year ended 30 April 2017.
[4]
(g) Explain the difference between a capital reserve and a revenue reserve.
[4]
[Total: 30]
© UCLES 2017 9706/21/M/J/17

7

8
2 Amit and Binu are in partnership sharing profits and losses in the ratio 3 : 2 respectively. The
partnership statement of financial position at 30 June 2016 is as follows:
$ $
Non-current assets
Premises 40 000
Machinery 32 000
90 000
Current assets
Inventory 18 600
Capital accounts
Amit 30 000
Binu 20 000 50 000
Current accounts
Amit 33 200
Binu 18 400 51 600
101 600
Current liabilities
Bank overdraft 10 300 20 100
The partners agreed to dissolve the partnership on 30 June 2016. This resulted in the following:
2 Trade payables were settled in full for $9800.
4 The machinery was sold for $35 000.
5 Amit agreed to take over the premises at an agreed valuation of $30 000.
6 Binu agreed to take over one of the motor vehicles at an agreed valuation of $6500. The
remaining motor vehicle was sold for $12 000.
7 The costs of dissolution were $6300.
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9
REQUIRED
(a) Prepare the realisation account on the dissolution of the partnership.
Realisation account
[6]
(b) Prepare a statement to show how much Binu will receive when the partnership bank account
is closed.
[4]

10
(c) State two reasons why a partnership may be dissolved.
[2]
(d) Explain what would happen if the dissolution of the partnership resulted in a debit balance on
a partner’s capital account.
[3]
[Total 15]
© UCLES 2017 9706/21/M/J/17

11

12
3 Meena did not keep full accounting records. She was advised to keep her books of account using
the double entry system.
REQUIRED
(a) State three benefits a business gains from maintaining a system of double entry
book-keeping.
[3]
Meena now uses the double entry system of book-keeping. At the end of January the total of the
balances in the sales ledger was $34 524. However, the balance on the sales ledger control
account was $33 205.
On investigation she found the following errors:
1 The sales journal had been undercast by $1649.
2 A cheque received had been correctly entered in the cash book as $650 but was entered in
the sales ledger as $560.
3 An irrecoverable debt, $420, had been written off in the sales ledger but not entered in the
control account.
4 A credit note issued for $160 had been completely omitted from the books of account.
© UCLES 2017 9706/21/M/J/17

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REQUIRED
(b) Prepare a reconciliation between the sales ledger control account and the sales ledger
balances at 31 January.
Description Add ($) Less ($) Total ($)
Opening balance 33 205
Sales ledger balances
[6]

14
(c) State three reasons why there might be a credit balance on a customer’s account in the
sales ledger.
[3]
Meena is considering charging interest on the full account balances of her customers who do not
pay promptly.
REQUIRED
(d) Advise Meena whether or not she should take this course of action. Justify your answer.
[3]
[Total: 15]
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15
4 Ken produces components for mobile telephones. The following budgeted data is available for the
year ending 31 December 2018:
Per unit
$
Selling price 5.25
Direct labour 0.75
Direct expenses 0.25
Break-even point 16 000 units
REQUIRED
(a) Calculate the budgeted fixed costs for the year ending 31 December 2018.
[3]
The budgeted profit for the year ending 31 December 2018 is $75 000.
REQUIRED
(b) Calculate for the year ending 31 December 2018:
(i) budgeted number of units to be sold
[2]

16
(ii) budgeted contribution to sales (C / S) ratio (to two decimal places)
[2]
(c) State the meaning of C / S ratio.
[1]
(d) (i) State the name given to the difference between the budgeted total sales units and the
budgeted break-even sales units.
[1]
(ii) Explain the significance of this difference to a business.
[2]
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17
(e) Prepare the break-even chart for Ken based on the relevant data. Clearly identify the area of
profit, the area of loss and the break-even point.
[7]

18
(f) State three limitations of a break-even analysis.
[3]
Ken is considering increasing the selling price to $6.00 per unit from 1 January 2019. He expects
that all costs will remain unchanged.
REQUIRED
(g) Calculate the number of units Ken must sell each month so the budgeted total contribution is
the same as in 2018.
[5]
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19
(h) Advise Ken whether or not he should increase the selling price taking into account both
[4]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB17 06_9706_22/6RP
2
1 B Limited is a private limited company trading as a wholesaler of garden equipment. The draft
trial balance at 30 June 2016 has been extracted from the books of account and is shown below.
Debit Credit
$ $
Bank loan 26 400
Bank 14 040
Cash 650
Directors’ remuneration 53 200
Fixtures and fittings
Cost 18 110
Provision for depreciation at 1 July 2015 5 310
Land and buildings
Cost 135 000
Motor vehicles
Cost 41 600
Interest paid 5 920
Office costs 18 330
Property costs 21 940
Purchases 268 200
Revenue 563 800
Selling and distribution costs 36 120
Share capital (ordinary shares of $1 each) 60 000
780 970 780 970
1 The value of inventory at 30 June 2016 was $70 300 at cost.
2 Land and buildings at 30 June 2016 were as follows:
$
Land 70 000
Buildings 65 000
3 Depreciation is to be provided as follows:
Asset Annual Rate Method Charge to
Fixtures and fittings 15% Reducing balance Office costs
Buildings 2% Straight-line Property costs
Motor vehicles 25% Reducing balance Selling and distribution costs
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3
4 Wages and salaries are to be charged as follows:
Selling and distribution costs 60%

Office costs 40%
5 B Limited took out a 5% debenture (repayable between 2021 and 2025) for $50 000 on
30 June 2016 and repaid the bank loan in full. Neither of these transactions has yet been
recorded in the books of account.
6 A prepayment of $1240 is to be accounted for on property costs at 30 June 2016.
7 An accrual of $2680 is to be accounted for on selling and distribution costs at 30 June 2016.
8 The directors require a provision for doubtful debts to be created representing 2% of trade
receivables at 30 June 2016, to be charged to office costs.
REQUIRED
(a) Prepare the income statement for the year ended 30 June 2016. Use the space on the next
page for your workings.
B Limited
Income Statement for the year ended 30 June 2016
$ $
Revenue
Cost of sales
Opening inventory
Purchases
Closing inventory
Gross profit
Deduct: expenses
Directors’ remuneration
Office costs
Property costs
Selling and distribution costs
Profit from operations
Finance costs
Profit for the year

4
Use this space for your workings.
[17]
(b) Prepare an extract showing the current assets section of the statement of financial position at
30 June 2016.
B Limited
Extract from Statement of Financial Position at 30 June 2016
[5]
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5
(c) Explain why a company should provide for depreciation on its non-current assets.
[4]
(d) Explain two differences between ordinary shares and preference shares.
[4]
[Total: 30]

6
2 Wiggins has provided the following summary financial information for the year ended
30 April 2017:
$
Cash in hand 1 725
Inventory at 1 May 2016 ?
Inventory at 30 April 2017 152 000
Purchases 860 000
Revenue 1 042 500
1 40% of sales are on a cash basis. All remaining sales are on a credit basis.
2 All purchases are on credit.
3 The gross margin on all sales was 20%.
4 The trade payables turnover (days) for the year ended 30 April 2017 was 54.75 days (to two
decimal places).
REQUIRED
(a) State two limitations of using ratio analysis to analyse the performance of a business.
[2]
(b) Calculate the current ratio to two decimal places.
[4]
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7
(c) Calculate the liquid (acid test) ratio to two decimal places.
[1]
(d) Calculate the rate of inventory turnover (times).
[4]

8
Wiggins wishes to expand his business by taking a bank loan of $30 000 repayable over five
years.
REQUIRED
(e) Advise Wiggins whether or not he should take the loan. Justify your answer.
[4]
[Total: 15]
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9
3 Amit, Wang and Susi have been trading in partnership for several years and prepare their
financial statements annually to 31 March. They have never had a partnership agreement.
REQUIRED
(a) State four provisions which would apply in the absence of a partnership agreement.
[4]

10
The statement of financial position for the partnership at 31 March 2016 was as follows:
Amit, Wang and Susi

Statement of Financial Position at 31 March 2016
$
Assets
Non-current assets
Freehold premises 109 000
173 900
Current assets
Bank account 5 600
20 100

Capital accounts
Amit 40 000
Wang 40 000
Susi 40 000
120 000
Current accounts
Amit 27 600
Wang 18 500
Susi 22 200
68 300
Current liabilities
Other payables 600
5 700
On 1 April 2016 Amit retired from the partnership and the following was agreed:
1 Goodwill was valued at $42 000. A goodwill account is not to be maintained in the books of
account.
2 Assets were revalued at the following amounts:
$
Freehold premises 120 000
3 Amit received $15 000 from the partnership bank account. The remaining balance owed to
him was left as an interest-free loan to the partnership to be repaid by 31 March 2021.
4 Wang and Susi agreed to continue in partnership and to share profits and losses equally.
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11
REQUIRED
(b) Prepare the partners’ capital accounts to record the retirement of Amit from the partnership.
Amit, Wang and Susi
Capital accounts
[6]
Amit has recently advised the partners that he is having financial difficulties. He has asked Wang
and Susi for the payment of the balance on his loan account as soon as possible.
REQUIRED
(c) Advise Wang and Susi whether or not they should agree to Amit’s request. Justify your
answer.
[5]
[Total: 15]

12
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4 FPL Limited manufactures one type of product. Their sales staff receive 10% commission on the
selling price.
The following information was available for the quarter ended 30 September 2016:
$
Sales (58 000 units) 203 000
Variable production overheads 23 200
Fixed production overheads 20 450
Fixed administration overheads 32 250
Selling expenses 35 900
Selling expenses include the sales commission, but all other selling expenses are fixed.
REQUIRED
(a) Prepare a marginal cost income statement for the quarter ended 30 September 2016.
[4]

14
(b) Calculate the break-even point in units for the quarter.
[2]
The directors’ target profit is $20 000 per quarter. They were concerned that the profit for the
quarter ended 30 September 2016 was below the target profit.
The directors realised that action must be taken in order to increase the profit.
In order to improve the profits they are considering two proposals.
Proposal A
1 Retain the current selling price.
2 Reduce the number of employees in administrative staff, saving $48 000 per annum.
3 Source less expensive materials to reduce direct material cost by $0.10 per unit.
4 Reduce the sales commission by 2%.
Proposal B
1 Improve the product and increase the selling price by 10%. This will increase the direct
material cost by $0.15 per unit.
2 Spend $5000 per quarter on advertising to raise awareness of the improved product.
3 Reduce the numbers of administrative staff, saving $48 000 per annum.
4 Retain the sales commission at 10%.
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REQUIRED
(c) Calculate the number of units required to be sold per quarter to achieve a profit of $20 000
for:
(i) Proposal A
[4]
(ii) Proposal B
[6]

16
(d) Recommend to the directors which proposal they should adopt. Justify your answer by
discussing the benefits and drawbacks of each proposal.
Recommendation
Proposal A
Benefits
Drawbacks
Proposal B
Benefits
Drawbacks
[8]
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(e) State three advantages and three disadvantages of a system of budget preparation.
Advantages
Disadvantages
[6]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB17 06_9706_23/3RP
2
1 Ramadhin, Statham and Trueman formed a partnership on 1 January 2016.
The draft profit for the year ended 31 December 2016 before appropriation was $232 000, but did
not account for the following:
1 A non-current asset costing $20 000 was purchased on 1 July 2016. No depreciation has
been charged on this asset.
The partnership’s policy is to charge depreciation at 20% using the reducing balance method
on all assets.
A full year’s depreciation is charged in the year of purchase and none in the year of disposal.
2 Some inventory which had been valued at a cost of $15 000 had been damaged. The
mark-up on inventory is 100%. The damaged inventory could only be sold for 20% of the
normal selling price.
REQUIRED
(a) Calculate the adjusted profit for the year ended 31 December 2016 before appropriation.
[4]
On 1 January 2016 Ramadhin, Statham and Trueman had introduced capital of $600 000 in their
agreed profit and loss sharing ratio of 3 : 2 : 1 respectively.
The other terms of the partnership agreement were as follows:
1 Interest of 6% per annum is to be paid on the opening capital account balances.
2 Each partner is to take drawings of $10 000 per annum. Interest is to be charged on total
annual drawings at 4% per annum.
3 Trueman is to receive a salary of $1000 per month.
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3
REQUIRED
(b) Prepare the partnership appropriation account for the year ended 31 December 2016.
[6]

4
(c) Explain why partners may value goodwill and revalue the assets when one partner retires.
[3]
Trueman received an offer of employment which would provide him with a gross annual income
of $50 000. He decided to accept the offer and leave the partnership on 31 December 2016.
At that date goodwill was valued at $12 000.
It was also agreed that the partnership assets should be revalued at $7500 less than their
net book values.
Trueman agreed to leave 40% of the balance due to him as a loan to the partnership at an
interest rate of 10% per annum. The remainder was paid to him from the business bank account.
REQUIRED
(d) Prepare a statement showing the amount that Trueman received on leaving the partnership.
[8]
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5
(e) Assess whether or not Trueman was correct in his decision to leave the partnership. Justify
your answer by discussing the financial and non-financial factors involved.
[5]
Trueman asks Ramadhin and Statham for an early repayment of his loan to the partnership.
REQUIRED
(f) Advise the partners whether or not they should make an early repayment. Justify your
answer.
[4]
[Total: 30]

6
2 The following is an extract from the statement of financial position of WX Limited at

1 March 2016:
Equity $
Ordinary share capital ($0.50 each) 150 000
Share premium account 60 000
The following additional information is available:
1 On 30 April 2016, the non-current assets were revalued from their net book value of
$175 000 to $225 000.
2 On 30 June 2016, a bonus issue was made on the basis of three ordinary shares for every
ten held. Reserves were kept in the most distributable form.
3 On 30 September 2016, a rights issue was offered on the basis of one ordinary share for
every eight held. The ordinary shares were offered at a price of $0.80 per share and the
issue was fully subscribed.
4 On 31 December 2016, the company paid a dividend of $0.04 on all shares in issue at that
date.
5 Profit for the year ended 28 February 2017 was $50 500.
REQUIRED
(a) Prepare a statement of changes in equity for the year ended 28 February 2017 (A total
column is not required.)
WX Limited
Statement of Changes in Equity for the year ended 28 February 2017
Share Share Retained Revaluation

capital premium earnings reserve
$ $ $ $
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7
[11]
(b) State three advantages and one disadvantage to a limited company of making a bonus
issue of shares.
Advantages
Disadvantage
[4]
[Total: 15]

8
3 Stapleton provided the following information for the year ended 30 April 2016:
$
Gross profit 37 150
1 All goods were sold to achieve a 20% gross margin.
2 Cash sales were $18 575. All other sales were on a credit basis.
3 All purchases were on a credit basis.
4 Trade receivables at 30 April 2016 were $16 500.
5 Trade payables at 30 April 2016 were $9500.
6 Inventory turnover was 5 times per annum.
REQUIRED
(a) Calculate the trade receivables turnover (days). State the formula used.
Formula
Calculation
[4]
(b) Calculate closing inventory.
[4]
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9
(c) Calculate the trade payables turnover (days). State the formula used.
Formula
Calculation
[4]
(d) State three uses of ratio analysis to a trader.
[3]
[Total: 15]

10
4 Y Limited manufactures three products, Exe, Wye and Zed. The following budgeted information is
available for the month of July 2017:
Per unit Exe Wye Zed

Selling price $96.00 $128.00 $140.00
Direct material at $4 per kilo 7 kilos 9 kilos 15 kilos
Direct labour at $8 per hour 3 hours 4 hours 4 hours
Machine hours 1.00 2.50 5.00
Variable overhead $2.40 $3.20 $3.20
Fixed overhead $10.00 $25.00 $50.00
Maximum monthly demand 100 units 120 units 60 units
Fixed overheads are forecast to be $7000 per month.
Y Limited has enough resources and capacity to meet the maximum monthly demand.
REQUIRED
(a) Calculate the contribution per unit for each product.
[3]
(b) Prepare a statement to show the maximum contribution and maximum profit that Y Limited
can earn for the month of July 2017.
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11
[3]
(c) Calculate the total machine hours required to meet maximum demand for the month of
July 2017.
[1]

12
Due to a machine breakdown, only 500 machine hours will be available for July 2017 production.
REQUIRED
(d) Calculate the maximum contribution and the maximum profit for the month of July 2017,
taking into account the limited machine hours available.
[10]
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13
The directors of Y Limited have been told that they could hire a replacement machine for the
month of July 2017 at a cost of $2500.
REQUIRED
(e) Advise the directors whether or not they should hire the replacement machine. Justify your
answer by considering both advantages and disadvantages of hiring the replacement
machine.
[4]
(f) State three short-term decisions, other than limiting factor decisions, where marginal costing
would be useful.
[3]

14
The following information is available for another division of Y Limited. The division operates a
system of absorption costing with two production departments.
Department 1 Department 2
Budgeted overheads $560 000 $304 000

Actual overheads $533 000 $294 000
Budgeted labour hours 140 000 hrs 46 000 hrs
Actual labour hours 124 000 hrs 54 000 hrs
Budgeted machine hours 27 000 hrs 160 000 hrs
Actual machine hours 33 000 hrs 151 000 hrs
REQUIRED
(g) Calculate to two decimal places an appropriate overhead absorption rate for each
department.
[2]
(h) Calculate the over absorption or under absorption of overheads for each department.
[4]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB18 06_9706_21/6RP
2
1 Ashir, Bo and Chan are in partnership. The partnership agreement includes the following terms:
1 Profits and losses are shared in the ratio of the partners’ capital accounts.
2 Interest on capital is 6% per annum.
3 Interest on drawings is 5% calculated on each partner’s total annual drawings.
4 Partners’ loan interest is 12% per annum.
5 Chan receives a salary of $1000 per month.
The following information is available at 31 December 2016:
$
Capital accounts
Ashir 40 000
Bo 30 000
Chan 10 000
Current accounts
Ashir 12 300
Bo 8 200
Chan 2 600 debit
Drawings
Ashir 15 400
Bo 12 200
Chan 16 400
Cost 32 400
Provision for depreciation 21 400
Motor vehicles
Cost 80 000
Loan account  Ashir 10 000
Gross profit 171 620
Staff wages 32 500
1 Operating expenses include a payment of $600 for insurance covering the 12-month period
to 31 August 2017.
2 Staff wages owing at 31 December 2016 were $860.
Fixtures and fittings 10% per annum using the reducing balance method
Motor vehicles 20% per annum using the straight-line method
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3
REQUIRED
(a) Prepare the income statement for the partnership for the year ended 31 December 2016.
Start with the given gross profit of $171 620.
[5]

4
(b) Prepare the profit and loss appropriation account for the partnership for the year ended
31 December 2016.
[5]
(c) Prepare the partners’ current accounts for the year ended 31 December 2016 on the next
page. [7]
© UCLES 2018 9706/21/M/J/18

Current Accounts
© UCLES 2018
Ashir Bo Chan Ashir Bo Chan
Detail Detail
$ $ $ $ $ $
5
9706/21/M/J/18
[Turn over
6
On 1 January 2017, Chan decided that he wished to retire with immediate effect. The partners
agreed that as part of his settlement, he could keep one of the motor vehicles at the net book
value of $18 000.
At that date it was agreed that the total value of goodwill was $124 000.
REQUIRED
(d) Prepare a statement to calculate the bank settlement due to, or from, Chan on his retirement.
[4]
Following Chan’s retirement, Ashir and Bo are considering converting their business to a limited
company to continue the business.
REQUIRED
(e) State two advantages to a partnership of converting to a limited company.
[2]
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7
Ashir’s brother Bilal, a sole trader with three employees, has been running his business for four
years. Turnover has doubled over the past year and the business is gradually becoming very
profitable.
Bilal does not maintain a full set of accounting records, but his friend has recommended that he
should.
REQUIRED
(f) Advise Bilal whether or not he should maintain a full set of accounting records. Give reasons
for your answer.
[5]
(g) State two reasons for maintaining a sales ledger control account.
[2]
[Total: 30]

8
2 The following information has been extracted from the books of account of FA Limited at
1 January 2016.
$
Motor vehicles at cost 124 000
Motor vehicles provision for depreciation 54 250
1 All the company’s motor vehicles had been purchased on 1 January 2014.
2 On 1 July 2016, a new motor vehicle was purchased for $48 000. The cost was settled by a
cheque payment of $28 000, the balance by the part exchange of an old motor vehicle.
The vehicle that was part-exchanged had cost $36 000.
3 The company policy is to depreciate motor vehicles at 25% per annum using the reducing
balance method.
A full year’s depreciation is charged in the year of purchase, but none in the year of sale.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 31 December 2016. (Dates are not
required.)
Motor vehicles at cost
$ $
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9
Motor vehicles provision for depreciation
$ $
Disposal of non-current assets
$ $
Workings
[6]

10
(b) Analyse the effect on the profit for the year ended 31 December 2016 if FA Limited had
always used the straight-line method of depreciation at 20% per annum. Show your
workings.
[5]
(c) Explain two accounting concepts that apply to making the annual charge for depreciation.
[4]
[Total: 15]
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11
PLEASE TURN OVER

12
3 Anna has obtained the following data at 31 December 2016 in respect of Ravi, a possible new
customer.
$
Cash and cash equivalents 4 840 debit
Inventory 38 100
Other figures obtained are:
Sales for the year 331 750

Ravi has a mark-up of 25%.
REQUIRED
(a) Calculate the following ratios for Ravi’s business to two decimal places:
(i) Current ratio
[2]
(ii) Liquid (acid test) ratio
[2]
(iii) Rate of inventory turnover
[3]
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13
Anna has also obtained the following data in respect of Yuan, another possible customer.
Current ratio 3.82 : 1

Liquid (acid test) ratio 1.63 : 1
Rate of inventory turnover 6.69 times per year
Anna’s main concern when choosing the customer is that they should pay her promptly.
REQUIRED
(b) Advise Anna which customer she should choose. Justify your answer.
[5]
(c) State three limitations to a business of using ratio analysis.
[3]
[Total: 15]

14
4 Zinan is a manufacturer and makes a single product. He currently uses marginal costing.
The following budgeted information is available for two years.
Year 1 Year 2
$ $
Direct labour 38 500 45 500
Direct material 24 750 29 250
Factory costs 13 750 15 250
Units Units
Sales 10 000 11 000
Production 11 000 13 000
1 Of the factory costs, $5500 are fixed for each year and the remainder are variable.
2 Variable cost per unit is not expected to change.
3 Fixed selling costs are $3500 for Year 1. These are expected to increase by 2% for Year 2.
4 Variable selling costs are expected to be 5% of the sales revenue for each year.
5 The selling price is $18 per unit.
6 There was no opening inventory in Year 1.
REQUIRED
(a) Calculate the budgeted variable cost of production per unit.
[2]
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15
(b) Calculate the total budgeted contribution for each year.
[6]
(c) Calculate the budgeted production cost per unit for each year.
[2]

16
Zinan is considering using absorption costing.
REQUIRED
(d) State two limitations of absorption costing.
[2]
(e) Calculate the total budgeted profit for each of the two years using absorption costing.
[7]
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17
(f) Explain why profit calculated using absorption costing would be different to profit calculated
using marginal costing.
[3]

18
During actual production of a large order for 3000 units, Zinan discovers that the customer has
ceased trading. If he cannot find another customer for these units he will have to decrease
production for Year 1 and reduce staff.
To prevent this from happening, Zinan is proposing to attract new customers for the 3000 units
with a marketing campaign.
The following information is available in respect of only the 3000 units.
1 The budgeted selling price would be reduced by 7.5%.
2 Advertising costs would be $1000.
3 There would be additional direct labour costs of $0.15 per unit.
REQUIRED
(g) Prepare a statement to calculate the effect on profit for Year 1 if the proposal is accepted.
[3]
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19
(h) Advise Zinan whether or not he should go ahead with the marketing campaign. Justify your
[5]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB18 06_9706_22/3RP
2
1 Cherie and Harry are in partnership.
REQUIRED
(a) Explain three disadvantages of operating as a partnership rather than being in business as
a sole trader.
[6]
The following information was available for the partnership on 30 June 2017.
$
Capital accounts
Cherie 42 000
Harry 28 000
Current accounts balances at 1 July 2016
Cherie 1 470 credit
Harry 2 430 debit
Drawings
Cherie 18 300
Harry 16 820
Gross profit for the year 40 960
Inventory at 30 June 2017 25 540
Loan Account
Cherie 8 000
Non-current assets
Cost 64 000
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3
1 Operating expenses included a payment for rent, $3450, for three months ended
31 August 2017.
2 Non-current assets are to be depreciated at 20% per annum using the reducing balance
method.
3 Inventory at 30 June 2017 was overvalued by $380.
4 Cherie is to receive interest at 8% per annum on her loan to the partnership. No entries have
been made to record the interest for the year ended 30 June 2017. The balance of her loan
account has remained unchanged throughout the year.
REQUIRED
(b) Prepare the income statement for the year ended 30 June 2017. Start the statement with
gross profit for the year of $40 960.
[5]

4
1 Interest on drawings has been calculated as follows:

$
Cherie 310
Harry 240
2 The partners are to receive interest on their fixed capital account balances at 10% per
annum.
3 Residual profits and losses are to be shared in proportion to their capital account
balances.
REQUIRED
(c) Prepare the appropriation account for the year ended 30 June 2017.
[4]
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5
(d) Prepare the partners’ current accounts for the year ended 30 June 2017.
Current Accounts
Cherie Harry Cherie Harry
$ $ $ $
[6]
Cherie and Harry are concerned about some aspects of the business’s efficiency and provide the
following information.
Ratio Year ended Year ended Industry

30 June 2017 30 June 2016 Average
Non-current asset turnover 1.68 times 1.11 times 1.34 times
Trade payables turnover 28 days 33 days 31 days
REQUIRED
(e) Analyse the efficiency of the business using these ratios.
[4]

6
The partners are also concerned that the rate of inventory turnover has fallen below the industry
average. Cherie has suggested that this could be improved by reducing inventory levels. Harry
disagreed and suggested instead that an advertising campaign should be organised.
REQUIRED
(f) Advise which course of action the partners should take in order to improve the rate of
inventory turnover. Justify your advice by discussing both of the suggested options.
[5]
[Total: 30]
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7
2 M Limited has provided the following extract from the statement of financial position at
31 August 2016.
$
Equity
Capital and reserves
Ordinary shares of $0.25 each 200 000
Revaluation reserve 40 000
357 500
1 On 1 January 2017 a rights issue was made on the basis of two ordinary shares for every
five ordinary shares held at a price of $0.40 per share. The rights issue was fully subscribed.
2 On 30 June 2017 an interim dividend of $0.04 per share was paid on all shares in issue at
that date.
3 At 31 August 2017 non-current assets were re-valued downwards by $48 000.
4 Profit for the year ended 31 August 2017 was $22 500.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 31 August 2017. A total
column is not required.
[6]

8
(b) State two reasons why capital reserves may be used before revenue reserves to fund a
bonus issue of shares for a limited company.
[2]
(c) (i) State two benefits to a limited company of making a rights issue.
[2]
(ii) State one limitation to a limited company of making a rights issue.
[1]
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9
Directors of M Limited are considering obtaining a long-term bank loan to raise additional capital.
REQUIRED
(d) Explain two advantages to the company of this course of action.
[4]
[Total: 15]

10
3 Butler operates a small business.
He has provided the following information for non-current assets at 31 July 2016.
$
Plant and machinery
Cost 195 000
During the year ended 31 July 2017, the following transactions took place.
1 A machine was sold for $25 000. There was a loss on disposal of $3000. The machine had
been purchased on 28 May 2016.
2 A machine was purchased by cheque at a cost of $37 500. The following costs were also
incurred for the new machine:
$
Annual insurance 2825
Installation expenses 4500
Plant and machinery is depreciated using the reducing balance method at a rate of 20% per
annum.
A full year’s depreciation is charged in the year of purchase. No depreciation is charged in the
year of disposal.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 31 July 2017. Dates are not
required.
(i) Plant and machinery at cost
$ $
[3]
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11
(ii) Provision for depreciation on plant and machinery
$ $
[3]
REQUIRED
(b) Explain why a business may use reducing balance method of depreciation for plant and
machinery.
[3]
Butler also purchases loose tools for use in the business.
(c) Explain two accounting treatments for loose tools.
[4]

12
(d) Explain one fundamental accounting concept relating to depreciation.
[2]
[Total: 15]
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4 SP Limited owns a hotel and a leisure centre.

The business is split into three working divisions: Accommodation, Leisure and Conferences.
The business also has one service centre: Support.
Labour, food and materials are allocated direct to the relevant division. The remaining overheads
cannot be directly allocated.
The following budgeted information for the year ended 31 March 2018 is available:
$
Advertising 40 000
Equipment depreciation 60 000
Office costs 150 000
The following cost centre information is available.
Accommodation Leisure Conferences Support
Floor space (m2) 25 000 4 000 10 000 1 000
Equipment value ($) 10 000 45 000 5 000 –
Kilowatt hours 7 000 4 000 3 000 1 000
Budgeted guest days 12 000 3 000 5 000 –
Advertising and office costs are apportioned on the basis of budgeted guest days.
REQUIRED
(a) Apportion the budgeted overheads to the four divisions using a suitable basis for each.
Re-apportion the support costs to the three working divisions on the basis of guest days.
Total Accommodation Leisure Conferences Support

$ $ $ $ $
Labour cost 345 000 194 000 86 000 60 000 5 000
Food and
81 000 42 000 11 000 26 000 2 000
materials
Advertising 40 000
Equipment
60 000
depreciation
Office costs 150 000
Total apportioned
overheads
Reapportionment
of Support
Total
[8]

14
(b) Calculate an overhead absorption rate to two decimal places, for each of the three working
divisions based on budgeted guest days.
Accommodation Leisure Conferences

$ $ $
[3]
The actual results for the year ended 31 March 2018 were as follows:
Total cost ($) Guest days

Accommodation 522 000 13 200
Leisure 215 000 3 600
Conferences 196 000 5 800
REQUIRED
(c) Calculate the under-absorption or over-absorption of overheads for each division.
Accommodation Leisure Conferences

$ $ $
[6]
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15
The company’s policy is to charge customers a price to achieve a profit margin of 60%.
A business customer wishes to register five employees for a three day conference to include four
days’ accommodation, one day’s leisure and three days' conference facilities for each employee.
REQUIRED
(d) Prepare a statement to calculate the price to be quoted to the customer.
[4]
The directors have been informed that a competitor has quoted a price $600 more for the same
conference. They are considering revising their own pricing policy to increase accommodation
prices by 20%.
REQUIRED
(e) Advise the directors whether or not they should increase their accommodation prices. Give
reasons for your answer.
[5]

16
A company has recently employed a new assistant accountant with only limited knowledge of
budgetary control procedures.
REQUIRED
(f) State two benefits to a company of operating a system of budgetary control.
[2]
(g) State two limitations to a company of operating a system of budgetary control.
[2]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB18 06_9706_23/4RP
2
1 Carlos and Erika have been in partnership for several years and prepare their financial
statements to 31 July.
At 1 August 2016 the following information related to non-current assets was available.
$
Plant and machinery
Cost 65 000
Motor vehicles
Cost 18 000
During the year ended 31 July 2017 the following took place.
1 On 1 November 2016, the partnership purchased a new machine for $7500.
2 On 1 December 2016 a machine was sold for $6800. The machine had been purchased for
$10 000 on 1 May 2015.
3 On 1 February 2017 a new motor vehicle was purchased for $14 000.
4 The accounting policies in respect of depreciation are:
Plant and machinery is depreciated using the straight-line method at 10% per annum.
Motor vehicles are depreciated using the reducing balance method at 20% per annum.
A full year’s depreciation is charged in the year of purchase and none in the year of
disposal.
5 No adjustments have yet been made for depreciation or disposal of the machine.
The profit for the year ended 31 July 2017 before any adjustments was $37 490.
© UCLES 2018 9706/23/M/J/18

3
REQUIRED
(a) Calculate the revised profit before appropriation for the year ended 31 July 2017.
Workings:
[5]

4
The terms of the partnership agreement are as follows:
1 Annual partnership salaries: Carlos $10 000 and Erika $15 000.
2 Interest on capital: 3% per annum.
3 No interest is to be paid on drawings up to $20 000. Interest at a rate of 6% is to be

charged on any drawings in excess of $20 000.
4 Profits and losses are to be shared in the ratio of the capital invested.
The following information is also available at 31 July 2017.
$
Capital account:
Carlos 84 000
Erika 28 000
Drawings:
Carlos 15 000
Erika 25 000
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5
REQUIRED
(b) Prepare the partnership appropriation account for the year ended 31 July 2017.
Carlos and Erika

Appropriation account for the year ended 31 July 2017
[4]

6
On 31 July 2016 the balances on the partners’ current accounts were:
$
Carlos 1 300 credit
Erika 250 debit
REQUIRED
(c) Prepare the current accounts for the year ended 31 July 2017.
Carlos and Erika

Current accounts
Carlos Erika Carlos Erika

$ $ $ $
[5]
The following information is also available:
31 July 2017 31 July 2016

$ $
Credit sales 385 000 327 500
Credit purchases 172 000 153 000
Inventory 6 535 10 800
Trade receivables collection period 46 days 31 days

Trade payables payment period 36 days 39 days
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7
REQUIRED
(d) Calculate the following at 31 July 2017:
(i) Trade receivables
[2]
(ii) Trade payables
[2]
(e) Assess the working capital position of the partnership at 31 July 2017.
[4]

8
(f) Advise the partners of three ways in which they could improve the cash position of the
business.
[3]
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9
Carlos and Erika are considering converting the partnership into a limited company.
REQUIRED
(g) Advise the partners whether or not they should take this course of action. Justify your
answer.
[5]
[Total: 30]

10
2 Warren is a sole trader. He started trading on 1 February 2016.

During the year ended 31 January 2017 he did not keep detailed accounting records but he has
provided the following information:
$
Revenue 248 758
Carriage outwards 5 873
Goods taken for own use 2 246
Warren applies a 50% mark-up on cost.
REQUIRED
(a) Prepare the trading section of the income statement for the year ended 31 January 2017.
[6]
© UCLES 2018 9706/23/M/J/18

11
(b) Explain two advantages of maintaining control accounts.
[4]
Whilst preparing his accounts, Warren discovered the following:
1 Goods costing Warren $2400 had been sent to a customer on a sale or return basis on
29 January 2017. The goods had been invoiced with the usual mark-up, but the customer
had not yet decided to keep them.
2 Trade receivables were shown as $49 532, but irrecoverable debts of $572 had not been
written off and a provision for irrecoverable debts of 5% was required.
REQUIRED
(c) Explain how these transactions would affect the financial statements for the year ended
31 January 2017.
[5]
[Total: 15]

12
3 David, a sole trader, has prepared a trial balance at 31 December 2017 which did not balance.
He entered the difference in a suspense account.
REQUIRED
(a) State two other uses of a suspense account.
[2]
(b) State four types of error that will not be revealed by the trial balance.
4 [4]
On checking the financial records, David discovered the following errors.
1 The credit balance on the bank current account of $1650 had been entered in the trial
balance as a debit balance.
2 The total of the purchases returns journal of $960 had been debited to the returns inwards
account.
3 A prepayment of $450 for telephone charges at 1 January 2017 had not been brought down
as an opening balance.
4 The balance on sales ledger control account at 31 December 2017 of $13 625 had been
carried down as $13 652.
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13
REQUIRED
(c) Prepare the suspense account at 31 December 2017 clearly showing the opening balance
on the account.
Suspense account
$ $
[6]
REQUIRED
(d) State three benefits to a business of preparing annual financial statements.
[3]
[Total: 15]

14
4 DP Limited is a large manufacturing and retailing company. The following information is available.
Current selling price per unit $3.60

Current weekly sales 2 000 units
Contribution margin 45%
REQUIRED
(a) Calculate the total contribution that the company would earn over the four-week period.
[2]
The directors are planning to hold a four week price promotion on its most popular product.
The directors plan to reduce the selling price of the product by 20% over the whole four weeks of
the promotion. They forecast that additional sales of the product will be 150% of the current
sales.
The company will incur additional fixed costs of $6000 to run the promotion. The directors
forecast that unit variable costs will remain as they currently are.
REQUIRED
(b) Calculate the total forecast units to be sold if the directors proceed with the promotion.
[2]
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15
(c) Calculate the additional profit or loss if the company proceeds with the promotion.
[7]
(d) Calculate the percentage by which current unit sales must increase for the promotion to
break even.
[4]

16
(e) Advise the directors whether or not they should proceed with the promotion. Justify your
[5]
(f) Explain the purpose of costvolumeprofit analysis.
[2]
(g) State four assumptions of costvolumeprofit analysis.
[4]
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17
The directors provide the following information for the manufacturing part of the business:
Budgeted labour hours 26 400 hours

Budgeted machine hours 10 500 hours
Actual labour hours 22 300 hours
Actual machine hours 11 400 hours
Budgeted overheads $445 000
Actual overheads $420 000
REQUIRED
(h) (i) Calculate an appropriate overhead absorption rate for the business.
[2]
(ii) Explain one limitation of absorption costing.
[2]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB19 06_9706_21/6RP
2
1 Ahmed and Raji are in partnership as retailers but have not maintained full accounting records.
They have been advised to use a double entry system of book-keeping.
REQUIRED
(a) State three advantages to business owners of using the double entry system of
book-keeping.
[3]
The following information is available for the partnership:
1 Assets and liabilities

30 April 2019 1 May 2018
$ $
Equipment at net book value 17 600 20 500
Motor vehicles at net book value
(Cost $25 000 at 1 May 2018) ? 16 500
Wages owing 2 300 1 500
Rent paid in advance 1 600 950
Cash and bank balances 6 470 credit 5 430 debit
2 The summary of the partnership bank receipts and payments for the year ended 30 April 2019
was as follows.
$
Receipts
From credit customers 57 900
Payments
To credit suppliers 25 800
New motor vehicle 6 800
Partners’ drawings 16 700
Wages 10 700
Rent 7 500
All purchases and sales were made on credit.
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3
3 The partners wish to create a provision for doubtful debts of 5% of trade receivables.
4 Depreciation on the motor vehicles is charged at 20% using the straight-line method.
Depreciation is charged on a monthly basis.
5 On 1 November 2018 a motor vehicle which had cost $7000 on 1 May 2016 was
part-exchanged for a new motor vehicle. The amount of the part-exchange was $3300. The
balance of the purchase cost of the new vehicle, $6800, was paid by cheque.
6 There were no additions or disposals of equipment during the year.
REQUIRED
(b) Calculate:
(i) the profit or loss on the disposal of the motor vehicle
[3]
(ii) the total depreciation charge for motor vehicles for the year ended 30 April 2019.
[4]

4
(c) Prepare the income statement for the partnership for the year ended 30 April 2019.
[9]
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5
(d) Explain why a business may create a provision for doubtful debts.
[4]

6
When the partners started the business they each invested $25 000 and agreed to share profits
and losses equally.
The partners are concerned that the business has low profit and a high bank overdraft. Ahmed’s
brother is prepared to invest $25 000 into the business.
He has suggested two options to Ahmed and Raji.
Option 1: To loan this amount to the partnership and receive an annual interest of 10%.
Option 2: To invest the full amount and become an equal partner. Through his business
contacts he feels that he will be able to improve the total revenue.
REQUIRED
(e) Advise the partners which option, if either, they should accept. Justify your answer.
[7]
[Total: 30]
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7
PLEASE TURN OVER

8
2 Lawrence provided the following information at 30 November 2018.
$
Purchases ledger control account balance 16 970
Sales ledger control account balance 42 350
These did not agree with the list of balances taken from the purchases ledger and sales ledger
respectively. The following items were discovered:
1 A discount received of $280 had been omitted from the books.
2 A credit note for a sales returns of $230 had been treated as a sales invoice and entered in
the sales journal.
3 An irrecoverable debt of $190 had been written off in the sales ledger. No entry had been
made in the control account.
4 A contra entry for $1070 had been debited twice in the purchases ledger control account.
5 A payment of $120 to a credit supplier had not been recorded.
6 Discount allowed of $70 had been posted to the debit side of both the sales ledger control
account and the purchases ledger control account.
7 Lawrence owes Kalim $380 and Kalim owes Lawrence $1590. They have agreed to set off
the balance, on Lawrence’s account in Kalim’s sales ledger.
8 A customer’s dishonoured cheque had been entered in the cash book as $1560 instead of
$1650.
REQUIRED
(a) (i) Prepare the corrected purchases ledger control account at 30 November 2018.
$ $
Balance b/d 16 970
[4]
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9
(ii) Prepare the corrected sales ledger control account at 30 November 2018.
$ $
Balance b/d 42 350
[5]
(b) Explain what is meant by the term ‘error of commission’.
[2]

10
(c) Explain the effect on a business of not updating:
(i) customers’ accounts in the sales ledger
[2]
(ii) suppliers’ accounts in the purchases ledger.
[2]
[Total: 15]
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11
PLEASE TURN OVER

12
3 K Limited prepares annual accounts to 30 September. For the year ended 30 September 2018,
the directors have calculated profit from operations of $44 500. On 31 January 2018 they
redeemed a 6% debenture of $100 000 together with accrued interest to that date.
REQUIRED
(a) Calculate the profit for the year ended 30 September 2018.
[2]
The directors have provided the following extract from the statement of financial position at
1 October 2017.
Equity $
1 215 000
1 On 31 December 2017, a rights issue of ordinary shares was made at a premium of

$0.15 per share on the basis of 2 ordinary shares for every 5 held on that date. The issue
was fully subscribed.
2 On 31 March 2018, a bonus issue was made on the basis of 3 ordinary shares for every
5 held on that date. Reserves were maintained in the most flexible form.
3 On 30 June 2018, an interim dividend of $0.05 per share was paid on all shares in issue on
that date.
4 On 30 September 2018, buildings were revalued at $1 200 000. The original cost of the
buildings was $1 000 000 and had been depreciated by $150 000.
© UCLES 2019 9706/21/M/J/19

13
REQUIRED
Ordinary Share Revaluation Retained

shares premium reserve earnings
$ $ $ $
At 1 October 2017 500 000 175 000 – 540 000
Workings:
[11]
(c) State one difference between a capital reserve and a revenue reserve.
[2]
[Total: 15]

14
4 Ravi manufactures two products, Exe and Wye. Each product has allocated fixed costs. The
following chart shows budgeted information for Exe.
90
Sales
revenue
80
70
Total costs
60
50
$000
40
30
Variable
costs
20
10
0 10 20 30 40 50 60
Units (in thousands)
© UCLES 2019 9706/21/M/J/19

15
REQUIRED
(a) Identify the following values in dollars from the chart:
(i) Break-even point
[1]
(ii) Allocated fixed costs
[1]
(iii) Margin of safety
[1]
(iv) Profit
[1]

16
The following budgeted information is available for Wye:
Sales (units) 105 000

$
Sales revenue 315 000
Direct labour 0.5 hours × $4 per hour 210 000
Direct materials 0.25 kilos × $2 per kilo 52 500
Allocated fixed costs 34 500
Ravi is concerned that the budgeted profit for Wye is not very high. He believes the following
changes could increase the profit but will have no effect on sales volume.
1 Increase the selling price per unit by 5%.
2 Use skilled labour which will increase the cost per hour by 5%.
3 Use better quality material which will increase the cost per kilo by 2%.
4 Increase the advertising cost by $6000.
5 Offer the sales team a bonus of 2% of the sales revenue earned from all sales above 80 000
units.
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17
REQUIRED
(b) Calculate, for product Wye only, the effect of these changes on the budgeted total profit for
105 000 units.
[10]

18
(c) Calculate, for product Wye only, the effect of these changes on the budgeted break-even
point in dollars.
[5]
(d) Calculate, for product Wye only, the effect of these changes on the budgeted margin of
safety in units.
[2]
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19
(e) Recommend whether or not Ravi should proceed with these changes. Justify your answer.
[5]
(f) State four advantages to a business of planning for the future.
[4]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB19 06_9706_22/5RP
2
1 Lee, a sole trader, provided the following information from his books of account on 30 April 2019.
$
Capital 50 000
Drawings 24 060
Inventory at 1 May 2018 12 500
3% Loan 20 000
Loan interest 50
Motor vehicles
Cost 32 000
Office equipment
Cost 4 600
Other operating costs 61 990
Provision for doubtful debts at 1 May 2018 2 850
Purchases 97 370
Revenue 165 000
1 An invoice from a supplier dated 28 April 2019 for goods costing $940 had not been recorded
in the books of account. These goods were unsold at the year-end.
2 Inventory was counted at 30 April 2019 and was valued at cost, $21 340.
3 Revenue included goods sold in April 2019 to a credit customer for $3200 on a sale or return
basis. These goods were invoiced with a mark-up of 60% and were returned by customer on
5 May 2019.
4 During the year, Lee took goods with a cost of $250 for his own use.
5 The 3% loan was taken out on 1 August 2018 and is repayable in 5 annual instalments
starting on 1 August 2019.
6 A debt of $690 was considered to be irrecoverable and was to be written off.
7 The provision for doubtful debts was to be maintained at 5% of the trade receivables.
8 A computer for office use bought on credit on 1 July 2018 costing $1200 had been debited to
the purchases account.
Motor vehicles 25% per annum using the reducing balance method
Office equipment 10% per annum using the straight-line method
A full year’s depreciation is charged in the year of purchase.
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3
REQUIRED
(a) Prepare Lee’s income statement for the year ended 30 April 2019. Use the space on the next

4
Workings:
[13]
(b) Prepare the following as they would appear in Lee’s statement of financial position at
30 April 2019.
(i) Current assets
[4]
(ii) Current liabilities
[4]
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5
(c) State two benefits and two drawbacks of operating as a sole trader.
Benefit 1
Benefit 2
Drawback 1
Drawback 2
[4]

6
Lee’s friend Marvin has offered to contribute $50 000 to repay Lee’s business loan and to provide
additional working capital.
Marvin has suggested two options.
Option 1: Form a limited company
Lee would issue 125 000 ordinary shares of $1 each. Marvin would subscribe for
50 000 of these shares. Lee and Marvin will become directors of the company and
will be paid an annual salary. They plan to declare dividends of 6% per annum.
Option 2: Form a partnership
Marvin would introduce capital of $50 000 on which he would receive annual
interest of 6%. He would require a 30% share of the future profits for the year.
REQUIRED
(d) Advise Lee which option he should choose. Justify your answer.
[5]
[Total: 30]
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2 Sofia has provided the following information relating to her trade receivables at
31 December 2018:
Analysis of trade receivables
0-60 days 61-90 days Over 90 days
Percentage of total trade receivables 68% 20% 12%
1 At 31 December 2018 total trade receivables were $54 500.
2 Dixie, who had been declared bankrupt, owed $1500. This debt was 110 days old at
31 December 2018 and was to be written off.
3 Sofia’s policy is to make a provision for doubtful debts as follows:
5% for debts aged between 61 and 90 days old

7.5% for debts aged over 90 days old.
The balance on the provision for doubtful debts at 1 January 2018 was $1100.
REQUIRED
(a) State the journal entry to write off an irrecoverable debt.
[2]
(b) Calculate the amount of provision for doubtful debts at 31 December 2018.
[4]

8
(c) Prepare the provision for doubtful debts account for the year ended 31 December 2018. Dates
are required.
[2]
(d) Explain one accounting concept which is applied when making a provision for doubtful debts.
[2]
Sofia is considering changing the basis of the provision for doubtful debts to a general provision
of 2.5% on all trade receivables.
She has calculated her profit for the year ended 31 December 2018 as $4300 after writing off
Dixie’s debt but before making any adjustment for the provision for doubtful debts.
REQUIRED
(e) Describe how this change will affect Sofia’s profit. Support your answer with relevant
calculations.
[5]
[Total: 15]
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9
3 Financial statements provide information to enable users to evaluate the financial performance of
a business.
(a) State three reasons why it might be difficult to compare financial ratios between businesses
in the same industry.
[3]

10
X Limited is a wholesaler of sports goods. The directors of the company have provided the
following information for the year ended 30 April 2019.
$
Revenue 742 630
Cost of sales (459 991)
1 For the year ended 30 April 2019 the rate of inventory turnover was 7.5 times. The value of
inventory at 1 May 2018 was $57 682.
2 At 30 April 2019 the trade receivables turnover was 35 days and the trade payables turnover
was 32 days.
3 All sales are made on credit. Credit purchases amounted to 80% of the value of cost of
sales.
REQUIRED
(b) Calculate at 30 April 2019:
(i) closing inventory
[3]
(ii) trade receivables
[1]
(iii) trade payables.
[2]
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11
X Limited has an operating expenses to revenue ratio of 30%. Distribution costs are twice as
much as administrative expenses. Finance costs are 5% of the profit for the year.
REQUIRED
(c) Prepare the income statement for X Limited for the year ended 30 April 2019.
[3]

12
On 1 October 2018 X Limited paid a dividend of $25 000 on the basis of $0.08 per ordinary share
of $1 each.
On 1 February 2019 X Limited made a rights issue of 1 ordinary share for every 5 held at a
premium of $0.50. This was the first time that X Limited had issued new shares. The rights issue
REQUIRED
(d) Calculate the proceeds received by X Limited from the rights issue.
[3]
[Total: 15]
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4 Jessie is a manufacturer and uses a single raw material to make her product. The following table
shows inventory transactions for the month of March 2019.
Per kilo
Date Kilos
$
March 1 Opening balance 1500 1.90
3 Receipts 3500 1.92
10 Receipts 2000 1.95
17 Receipts 1500 2.00
Jessie uses the First In First Out (FIFO) method to value her inventory. The following issues to
production took place.
Date Kilos
March 5 3000
23 4500
REQUIRED
(a) Calculate the following in dollars:
(i) the value of issues to production on 5 March
[2]
(ii) the value of issues to production on 23 March
[3]
(iii) the value of closing inventory at 31 March.
[1]

14
(b) State two advantages to a business of using the FIFO method of inventory valuation.
[2]
The business has two production cost centres: machining and assembly, and one service cost
centre: stores.
The following budgeted information is available for the year ending 31 December 2019.
Budgeted overheads $ Basis of apportionment
Depreciation 9 760 Non-current asset at cost
Heat and light 13 850 Kilowatt hours
Machinery maintenance 6 500 Machine hours
The following budgeted information is also available.

Service
Production cost centres
cost centre
Machining Assembly Stores
Kilowatt hours 4 200 2 100 700
Non-current assets at cost ($) 91 000 28 000 21 000
Stores requisitions 375 125
REQUIRED
(c) Complete the following table to show the apportionment of budgeted overhead costs for the
year ending 31 December 2019.
Service cost
Production cost centres
Total centre
$ Machining Assembly Stores
$ $ $
Depreciation
Heat and light
Machinery maintenance
Total overheads apportioned
Re-apportionment of stores
Total overheads cost
[6]
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15
(d) Calculate, to two decimal places, an overhead absorption rate for each production cost
centre, using a suitable basis.
[4]
Question 4 (e) is on the next page.

16
On 1 April 2019 a customer asked Jessie to quote for an order of 200 units of her product. Each
unit requires the following:
Direct labour 2.5 hours at $4 per hour

Direct material 3 kilos
Overheads Machining department
1.5 machine hours
0.8 direct labour hours
Assembly department
1.0 machine hour
Jessie marks up all orders by 25%.
REQUIRED
(e) Prepare a statement to show the total selling price that Jessie will quote to the customer.
[7]
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17
The same customer offers to pay Jessie the quoted price less a 10% discount. Jessie’s factory
has spare capacity.
REQUIRED
(f) Advise Jessie whether or not she should accept the offer. Justify your answer.
[5]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB19 06_9706_23/6RP
2
1 D Limited is a retailer of sports equipment. The following balances have been extracted from the
books of account at 31 December 2018.
Debit Credit
$000 $000
8% Debentures (2021–23) 250
10% Bank loan 60
Bank overdraft 11
Carriage inwards 8
Dividends paid 35
Land and buildings at 1 January 2018
Cost 2 100
Provision for depreciation 360
Fixtures and fittings at 1 January 2018
Cost 840
Motor vehicles at 1 January 2018
Cost 202
Interest paid 29
Inventory at 1 January 2018 620
Property costs 239
Purchases 2 502
Returns outwards 12
Revenue 5 120
Share capital – ordinary shares of $0.50 each 1 200
Share premium 60
Trade payables 385
1 Revenue included goods that had been sold to a customer on a sale or return basis on
28 December 2018. The selling price of the goods was $40 000 and they were sold at a
mark-up of 25%. The directors were unsure whether or not the goods would be returned.
2 Inventory on D Limited’s premises at 31 December 2018 had been counted and valued at a
cost of $585 000.
3 Included in distribution costs is $24 000 in respect of delivery van licenses for the year ended
31 March 2019.
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3
4 The breakdown of land and buildings cost at 1 January 2018 was:
$
Land 1 200 000
Buildings 900 000
2 100 000
The buildings were revalued on 2 January 2018 at $1 050 000. This has not yet been
recorded in the books of account.
5 At 31 December 2018, administration wages and salaries accrued totalled $15 000.
6 The directors wish to create a provision for doubtful debts of 3%. This is to be included in
administrative expenses.
Asset Annual rate Method Charge to

Fixtures and fittings 15% Reducing balance Administrative expenses
Buildings 2% Straight-line Property costs
Motor vehicles 25% Reducing balance 75% Distribution costs
25% Administrative expenses
8 A full year’s interest has been paid on debentures and bank loan.

4
REQUIRED
(a) Prepare the income statement for the year ended 31 December 2018. Use the space on the
next page for your workings.
D Limited
$000
Revenue
Cost of sales
Gross profit
Administrative expenses
Distribution costs
Property costs
Finance costs
Profit for the year
© UCLES 2019 9706/23/M/J/19

5
Workings
Revenue
Cost of sales
Distribution costs
Property costs
Depreciation
[13]

6
(b) Prepare an extract showing the current assets section only of the statement of financial
position at 31 December 2018.
D Limited
Extract from the statement of financial position at 31 December 2018
Current assets
[3]
(c) Prepare a statement for the directors to show the total value of equity at 31 December 2018.
[5]
© UCLES 2019 9706/23/M/J/19

7
The directors wish to raise additional finance for expansion. They are considering two options.
1 Issue 5% preference shares of $1 each to raise $300 000.
2 Obtain an 8% bank loan to raise $300 000.
REQUIRED
(d) Advise the directors which option they should choose. Justify your answer.
[5]
(e) Explain two differences between a bonus issue of shares and a rights issue of shares.
[4]
[Total: 30]

8
2 John, Kathy and Liz have been in partnership sharing profits and losses in the ratio 4 : 3 : 3. They
have agreed to dissolve the partnership.
REQUIRED
(a) State three reasons why a partnership may be dissolved.
[3]
At the time of the dissolution the partnership’s statement of financial position was as follows:
Statement of financial position at 31 March 2018

$ $
Assets
Furniture and equipment 15 600
45 000
Current assets
Inventory 14 920
26 460
Total assets 71 460

Capital accounts
John 28 000
Kathy 21 000
Liz 19 000
68 000
Current accounts
John (2 200)
Kathy 1 400
Liz (1 800)
(2 600)
Current liabilities
© UCLES 2019 9706/23/M/J/19

9
1 At dissolution John took over the furniture and equipment at an agreed valuation of $9500
and the inventory at a valuation of $11 000.
2 Liz took over a motor vehicle at an agreed valuation of $16 600; the other motor vehicle was
sold for $8450.
3 The balance of one credit customer who owed $740 was written off as irrecoverable. The
remaining trade receivables settled their accounts in full less a cash discount of 5%.
4 Cost of dissolution, $2350, was paid from the bank account.
REQUIRED
(b) Prepare the partnership realisation account.
[7]

10
(c) Calculate the amount to be paid to, or to be received from, John on dissolution.
[5]
[Total: 15]
© UCLES 2019 9706/23/M/J/19

11
PLEASE TURN OVER

12
3 Cheng, a sole trader, maintains control accounts.
REQUIRED
(a) Explain two benefits to a business of maintaining control accounts.
[4]
At 31 December 2018, Cheng’s bookkeeper prepared a purchases ledger control account and a
sales ledger control account. However, the balances of the control accounts did not agree with
the total of the individual balances recorded in the relevant ledgers. The details were as follows:
$
Purchases ledger
Total of ledger accounts 18 496
Control account balance 18 981
Sales ledger
Total of ledger accounts 11 117
Control account balance 12 385
Cheng’s bookkeeper has discovered the following:
1 Cash sales of $480 had been recorded in the sales ledger control account.
2 A credit note for $228 had been recorded as $282 in both the purchases returns journal and
the supplier’s account.
3 The account of a customer with a balance of $485 had been set off against his account in the
purchases ledger. No record of this transaction had been made in the purchases ledger
control account.
4 Interest of $67 charged by a trade supplier on an overdue account had not been recorded in
the books of account.
5 A dishonoured cheque of $394 had been correctly recorded in the cash book but had been
posted to the credit side of the customer’s account.
© UCLES 2019 9706/23/M/J/19

13
REQUIRED
(b) Prepare a corrected:
(i) Purchases ledger control account
$ $
Balance b/d 18 981
[4]
(ii) Sales ledger control account
$ $
Balance b/d 12 385
[2]

14
(c) Calculate amended totals for the:
(i) purchases ledger accounts
[3]
(ii) sales ledger accounts.
[2]
[Total: 15]
© UCLES 2019 9706/23/M/J/19

15
4 Ethan owns a factory which produces hand-painted pots. The factory employees receive
piecework payments.
REQUIRED
(a) State what is meant by ‘piecework payments’.
[1]
(b) Explain what is meant by ‘production overheads’.
[2]

16
The following budgeted information is available for the year ending 30 June 2020.
1 Sales ($12 per unit)
$
1 July – 30 Sept 2019 171 000
1 Oct – 31 Dec 2019 171 000
1 Jan – 31 Mar 2020 186 000
1 Apr – 30 June 2020 192 000
2 Costs for the year

$
Advertising 24 000
Direct material C 48 000
Direct material D 90 000
3 The salesperson receives a basic salary plus commission payment.
Basic salary $51 000 per annum

Commission 3.5% of sales revenue
REQUIRED
(c) Calculate for the year ending 30 June 2020:
(i) the total budgeted fixed selling expenses
[1]
(ii) the total budgeted variable selling expenses
[1]
© UCLES 2019 9706/23/M/J/19

17
(iii) the total budgeted contribution
[1]
(iv) the total budgeted profit.
[1]

18
Ethan has received an order, directly from a customer, for an additional 15 000 pots at a selling
price of $8 per pot. The order is to be delivered in November 2019.
The following information is relevant to this order.
1 The existing labour force can produce a maximum of 70 000 pots each year.
2 Additional temporary labour can be hired at $5.25 per unit.
3 The current supplier can only guarantee the material prices for a maximum of 70 000 pots. To
purchase extra material C to produce any units in excess of 70 000 the cost will increase by
5% and the cost of material D will increase by 2%.
4 There is sufficient space in the factory to produce the order.
© UCLES 2019 9706/23/M/J/19

19
REQUIRED
(d) Calculate the additional profit or loss made on this order.
[13]

20
(e) Advise Ethan whether or not he should accept the order. Justify your answer taking into
account both financial and non-financial factors.
[5]
© UCLES 2019 9706/23/M/J/19

21
(f) State two benefits and three limitations to a business of using cost–volume–profit analysis.
Benefit 1
Benefit 2
Limitation 1
Limitation 2
Limitation 3
[5]
[Total: 30]
© UCLES 2019 9706/23/M/J/19

22
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© UCLES 2019 9706/23/M/J/19

23
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© UCLES 2019 9706/23/M/J/19

24
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© UCLES 2019 9706/23/M/J/19

* 2 9 5 4 9 4 1 6 1 4 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 181955/5
2
1 Hamza and Noor are in partnership. They own a service business.
The following information has been extracted from the partnership’s books of account for the year
$
Equipment at 1 January 2019
Cost 11 000
Loan account (Hamza) 10 000
Motor vehicle at 1 January 2019
Cost 20 000
Revenue 45 400
Wages of assistant 15 540
1 Administrative expenses include $1800 insurance for the three months ended
29 February 2020.
2 The assistant works a 5-day week and is paid a weekly wage of $350. At 31 December 2019
three days’ wages were due but unpaid.
3 Hamza’s loan was provided on 1 April 2019. He is entitled to interest of 8% per annum. Loan
interest has not yet been paid to Hamza.
4 The depreciation policy is:
Equipment 15% per annum straight-line method
Motor vehicle 20% per annum reducing balance method
A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
5 An item of equipment was sold for $480 on 3 August 2019. This equipment had been
purchased on 1 January 2017 for $2000.
© UCLES 2020 9706/21/M/J/20

3
REQUIRED
(a) State how profits and losses are shared in a partnership where there is no agreement.
...................................................................................................................................................
............................................................................................................................................. [1]
(b) Explain two reasons why you would recommend partners to have a written agreement, other
than stating a ratio for sharing profits and losses.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]

4
(c) Prepare the income statement for the year ended 31 December 2019.
Hamza and Noor

Income Statement for the year ended 31 December 2019
...................................................................................................................................................
...................................................................................................................................................
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© UCLES 2020 9706/21/M/J/20

5
Workings:
[11]

6
Hamza and Noor have an agreement about sharing profits and losses. Their agreement is as
follows.
1 Noor is to be given a salary of $11 000.
2 Partners are allowed to have drawings of $14 000 per annum. Interest of 10% is charged on
any drawings in excess of this amount.
3 Remaining profits and losses are to be shared in the ratio Hamza : Noor, 3 : 2.
The following balances were available.
$
Current account balances at 1 January 2019
Hamza 1 290 Debit
Noor 4 350 Credit
Drawings for the year ended 31 December 2019
Hamza 16 900
Noor 13 200
REQUIRED
(d) Prepare the appropriation account for the year ended 31 December 2019.
Hamza and Noor

...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2020 9706/21/M/J/20

7
(e) Calculate the balance of Hamza’s current account at 31 December 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
Hamza and Noor have been considering expanding their business which will require additional
finance of $90 000. In order to finance the expansion they are considering two options.
Option 1: admit a new partner

Option 2: apply for a bank loan
REQUIRED
(f) Advise which option the partners should choose. Justify your advice.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [5]
[Total: 30]

8
2 Ayesha has provided the following extracts from her business’s financial statements.
Extract from the Income Statement for the year ended 31 December 2019
$ $
Revenue 145 500
Purchases 120 120
131 560
Closing inventory 14 560
Cost of sales 117 000
Gross profit 28 500
Extract from the Statement of Financial Position at 31 December 2019

$
Current assets
Inventory 14 560
28 100
Current liabilities
18 400
All purchases are on credit. Two-thirds of all sales are on a credit basis.
REQUIRED
(a) Calculate the following ratios. State the formula used.
(i) Trade payables turnover (in days)
Formula .............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Calculation ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
© UCLES 2020 9706/21/M/J/20

9
(ii) Trade receivables turnover (in days)
Formula .............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Calculation ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
(iii) Current ratio (to two decimal places)
Formula .............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Calculation ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[6]

10
Ayesha is concerned about her business’s liquidity. She has provided the following ratios based
on the year ended 31 December 2018.
Trade payables turnover 34 days

Current ratio 1.90 : 1
(b) Analyse the trend in Ayesha’s business’s liquidity.
...................................................................................................................................................
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............................................................................................................................................. [7]
© UCLES 2020 9706/21/M/J/20

11
(c) State two factors that should be considered when choosing businesses with which to
compare a business.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

12
3 Jason is responsible for preparing his business’s accounting records. He has discovered some
errors in this year’s accounts.
REQUIRED
(a) State two types of error which do not affect the agreement of the totals of a trial balance.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
When Jason prepared a trial balance on 30 September 2019 the totals did not agree. The total
of debit entries was greater than the total of credit entries by $1140. A suspense account was
opened for the difference. Subsequently the following errors were found.
1 The total of the sales returns journal was undercast by $90.
2 The owner had withdrawn inventory valued at cost, $870. The only entry made was to debit
the drawings account.
3 The total of the discount received column in the cash book, $180, had been debited to the
discounts allowed account.
There were no other errors.
REQUIRED
(b) Prepare entries in the general journal to correct these errors. Narratives are not required.
General Journal
Dr Cr
$ $
1
[5]
© UCLES 2020 9706/21/M/J/20

13
(c) Prepare the suspense account.
Suspense Account
$ $
[4]
The business’s draft profit for the year ended 30 September 2019 was $68 440 before taking
account of the errors.
REQUIRED
(d) Calculate the corrected profit for the year ended 30 September 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [4]
[Total: 15]

14
BLANK PAGE
© UCLES 2020 9706/21/M/J/20

15
4 G Limited manufactures cakes for celebrations. The company uses absorption costing.
REQUIRED
(a) Explain three benefits to a business of using absorption costing.
1 ................................................................................................................................................
...................................................................................................................................................
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2 ................................................................................................................................................
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3 ................................................................................................................................................
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...................................................................................................................................................
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[6]

16
There are two production departments: baking and decoration.

There are two service departments: stores and maintenance.
Some overheads have already been allocated. The following forecast information is available for the
year ending 31 December 2020.
Budgeted overheads to be apportioned
$
Machinery depreciation 33 600
Power 45 500
Lighting and heating 18 000
Baking Decoration Stores Maintenance

department department department department
Floor space (m2) 4 100 2 300 600 200
Kilowatt hours 22 000 9 000 1 000 3 000
Machinery (net book value) ($) 33 000 10 000 4 000 9 000
Issues from stores 64% 24% 12%
Budgeted maintenance hours 2 500 1 800
Budgeted machine hours 86 400 37 600
Budgeted labour hours 26 300 51 000
© UCLES 2020 9706/21/M/J/20

17
REQUIRED
(b) Complete the table to show the apportionment of overheads and the reapportionment of the
service department overheads using suitable bases.
Total Baking Decoration Stores Maintenance

$ $ $ $ $
Budgeted overheads
57 620 38 530 14 150 2 800 2 140
already allocated
Power 45 500
Total overheads 154 720

Reapportionment of
first service department
overheads
Subtotal
Reapportionment
of second service
department overheads
Total overheads
[7]

18
(c) Calculate the overhead absorption rate, to two decimal places, for each production
department using an appropriate basis.
Baking department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Decoration department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(d) State two possible reasons why overheads may be under absorbed.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
D Limited, a competitor of G Limited, makes a single product. The factory has the capacity to
make 850 units per month. Overtime working is not available at this factory.
The following information is available for each unit of production and is based on operating at full
capacity.
$
Selling price 49
Direct labour 16
Direct materials 9
Fixed costs 12
In April 2020 the factory was planned to operate at 80% capacity.
The directors of D Limited have received an offer from Wendy to supply 280 units at $45 per unit.
Wendy stated that the offer would depend on the entire order of 280 units being supplied.
© UCLES 2020 9706/21/M/J/20
19
REQUIRED
(e) Calculate the profit for the month of April if the offer from Wendy is accepted.
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [6]
(f) Advise the directors whether or not they should accept the offer from Wendy. Justify your
answer.
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............................................................................................................................................. [5]
[Total: 30]
© UCLES 2020 9706/21/M/J/20

20
BLANK PAGE
© UCLES 2020 9706/21/M/J/20

* 7 3 3 4 1 6 3 4 6 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 187922/4
2
1 Tariq owns a retail business but does not maintain full accounting records. All goods are purchased
on credit, but all sales are on a cash basis.
Tariq provided the following information for the year ended 30 September 2019.
$
Trade payables
1 October 2018 4 980
30 September 2019 7 220
Payments to trade payables 70 300
REQUIRED
(a) Calculate credit purchases for the year ended 30 September 2019.
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [4]
Assets and other liabilities
30 September 1 October
2019 2018
$ $
Furniture and equipment at valuation 28 300 26 800
Other receivables: rent prepaid – 990
Cash at bank 1 960 3 360
Cash in hand 410 820
Bank loan 15 000 12 000
Other payables: rent accrued 1 040
© UCLES 2020 9706/22/M/J/20

3
Summary of information taken from bank statements

$
Receipts
Cash takings banked 112 400
Additional bank loan 3 000
Payments
Rent of premises 14 930
New furniture 5 200
Accountant’s fees 640
Loan interest 580
Drawings 25 150
Tariq took goods for personal use valued at cost $390 during the year.
REQUIRED
(b) Calculate the depreciation of furniture and equipment for the year ended
30 September 2019.
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [3]

4
Tariq took some cash from the cash box as drawings during the year. However, no record was
made of the amounts withdrawn. The following information is also available about cash.
$
Cash sales 133 200
Wages of assistant 18 800
REQUIRED
(c) Calculate Tariq’s cash drawings for the year ended 30 September 2019.
...................................................................................................................................................
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............................................................................................................................................. [5]
© UCLES 2020 9706/22/M/J/20

5
(d) Prepare the income statement for the year ended 30 September 2019.
Tariq
...................................................................................................................................................
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............................................................................................................................................. [9]
Workings:

6
(e) Explain the accounting concepts of:
(i) business entity
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
[2]
(ii) substance over form.
...........................................................................................................................................
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[2]
© UCLES 2020 9706/22/M/J/20

7
Tariq has become concerned about his business’s liquidity. He is considering two options.
Option 1: reduce the inventory levels

Option 2: delay payments to suppliers
REQUIRED
(f) Advise Tariq which of these actions he should take. Justify your advice.
...................................................................................................................................................
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............................................................................................................................................. [5]
[Total: 30]

8
2 Q Limited is a small wholesale business. It uses the reducing balance method of depreciation to
depreciate delivery vehicles.
REQUIRED
(a) Explain one advantage and one disadvantage to a business of using the reducing balance
method of depreciation.
Advantage
...................................................................................................................................................
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Disadvantage
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[4]
Delivery vehicle A was purchased on 1 January 2018 for $36 000.

Delivery vehicle B was purchased on 1 April 2018 for $40 000.
Depreciation of 20% per annum has been provided annually using the reducing balance method.
A full year’s depreciation is charged in the year of acquisition and none in the year of disposal.
The business’s financial year end is 31 December.
© UCLES 2020 9706/22/M/J/20

9
REQUIRED
(b) Calculate the balance of the delivery vehicles provision for depreciation account at
31 December 2019.
...................................................................................................................................................
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............................................................................................................................................. [4]
On 1 February 2020 delivery vehicle C was purchased at a cost of $38 000. Delivery vehicle B
was sold in part-exchange for delivery vehicle C. A cheque for $30 000 was paid on that date in full
settlement of the amount remaining after part-exchange.
REQUIRED
(c) Prepare the delivery vehicles cost account.
Delivery vehicles cost account
$ $
[5]

10
Delivery vehicles are depreciated because they are subject to wear and tear.
REQUIRED
(d) State two reasons, other than wear and tear, for depreciating non-current assets.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]
© UCLES 2020 9706/22/M/J/20

11
PLEASE TURN OVER

12
3 Xu and Zoe have been in partnership for a number of years. They decided to dissolve their
partnership on 1 October 2019.
REQUIRED
(a) State three reasons why a partnership might be dissolved.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
The partners did not have a formal agreement on sharing of profits and losses.
At the date of the dissolution the partnership’s statement of financial position was as follows.
Statement of financial position at 1 October 2019
Assets $ $
Motor vehicle 19 400
31 300
Current assets
Inventory 7 480
18 680
Total assets 49 980

Capital accounts
Xu 18 000
Zoe 22 000
40 000
Current accounts
Xu (2 480)
Zoe 430
(2 050)
Total capital and current accounts 37 950
Loan account: Xu 4 300
Current liabilities
7 730
© UCLES 2020 9706/22/M/J/20
13
1 Xu took the motor vehicle at an agreed value of $15 100.
2 The account of a credit customer, $800, had to be written off as irrecoverable. The accounts
of remaining trade receivables were settled in full less a 5% cash discount.
3 Other assets were sold for cash.
$
Furniture and equipment 7300
Inventory 6530
4 The accounts of trade payables were settled in full less a 5% cash discount.
5 The costs of dissolution, $620,were paid by cheque.
REQUIRED
(b) Prepare the realisation account.
Realisation account
$ $
[7]
14
(c) Calculate the amount due to, or from, Xu as a result of the dissolution.
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............................................................................................................................................. [5]
[Total: 15]
© UCLES 2020 9706/22/M/J/20

15
PLEASE TURN OVER

16
4 DL Limited will soon be introducing a system of budgetary control. The directors are aware that
this should provide a number of advantages. However, they are not sure how budgetary control
will affect the company’s departmental managers.
REQUIRED
(a) Explain three ways in which the introduction of a system of budgetary control will affect the
departmental managers of a business.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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3 ................................................................................................................................................
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[6]
DL Limited manufactures a single product at one of its factories. The following information is
available about one unit of production.
Selling price $69

Direct materials 2 kg at $3.30 per kg
Direct labour 5.2 hours at $8.30 per hour
Other variable costs $2.24
The factory’s fixed costs are $374 000 per annum.

The factory has the capacity to make 28 000 units per annum in normal working conditions.
© UCLES 2020 9706/22/M/J/20

17
REQUIRED
(b) Calculate the contribution per unit.
...................................................................................................................................................
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............................................................................................................................................. [3]
The annual target profit for this factory is $50 000. During the year ended 31 December 2019
24 500 units were made and sold and the target profit was not achieved.
REQUIRED
(c) Calculate by how much the target profit was not achieved for the year ended
31 December 2019.
...................................................................................................................................................
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............................................................................................................................................. [3]

18
The directors are considering two options to increase demand for the product above the current
level of 24 500 units. The current factory capacity of 28 000 units could increase by a maximum of
20% by the use of overtime. Overtime will be paid at 1.25 times the basic rate.
Option A
1 Reduce the selling price of the product by $3 per unit.
2 Demand will increase by 40% on 2019 levels.
3 Suppliers of materials will provide an additional discount of 5%.
4 Fixed costs will not be affected.
Option B
1 Borrow $20 000 at an interest rate of 8% per annum to finance improvements to machinery.
2 This machinery will be depreciated at 20% per annum.
3 The cost of material will be reduced to $3 per kg.
4 An advertising campaign will be launched at a cost of $5000 per month.
5 The factory will operate at full capacity without the need for overtime working.
6 The selling price per unit will remain unchanged.
© UCLES 2020 9706/22/M/J/20

19
REQUIRED
(d) Calculate the annual profit if the directors choose:
(i) Option A
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..................................................................................................................................... [6]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [5]

20
(e) Advise the directors which option they should choose, taking account of financial and
non-financial factors. Justify your choice.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2020 9706/22/M/J/20

* 0 6 0 3 5 4 4 8 6 5 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 187923/4
2
1 The directors of K Limited are preparing the financial statements for the year ended 31 October 2019.
1 Expense payments made during the year ended 31 October 2019.
$
Directors’ fees 41 200
Finance costs 800
Staff wages and salaries 140 790
2 Distribution costs include a payment of $7200 for a six-month advertising campaign which will
end on 31 March 2020.
3 Directors’ fees are allocated between distribution costs and administrative expenses in the
ratio 1 : 4.
4 Staff wages and salaries are allocated between distribution costs and administrative expenses
in the ratio 3 : 2.
5 Non-current assets
At 1 November 2018 Depreciation policy Allocation
Provision for
Cost depreciation
$ $
20% per annum
100% to distribution
Motor vehicles 160 000 32 600 using reducing
costs
balance method
80% to
15% per annum administrative
Furniture and
45 000 5 500 using straight-line expenses
equipment
method 20% to distribution
costs
6 In 2017 the company had issued 8% debentures (2025) for $20 000. Half of these were repaid
on 1 August 2019. Debenture interest was paid up to 30 April 2019.
© UCLES 2020 9706/23/M/J/20

3
REQUIRED
(a) Complete the income statement for the year ended 31 October 2019. Use the space on the
K Limited
Income statement for the year ended 31 October 2019
Revenue 542 370
Gross profit 283 130
Distribution costs
Finance costs
Profit for the year

4
Workings:
Distribution costs
Finance costs
[11]
© UCLES 2020 9706/23/M/J/20

5
At 1 November 2018 the equity section of the company’s statement of financial position was as
follows.
$
On 30 June 2019 the company paid a dividend of $0.10 per ordinary share.
At 31 October 2019 the company made a bonus issue of two ordinary shares for every three
ordinary shares held. Reserves were maintained in their most flexible form.
REQUIRED
(b) Prepare the statement of changes in equity for the year ended 31 October 2019.
K Limited
Statement of changes in equity for the year ended 31 October 2019
Share Share Retained
capital premium earnings Total
$ $ $ $
Workings:
[7]
6
K Limited was formed several years ago by the partners in a business.
REQUIRED
(c) State three advantages to the shareholders of trading as a limited company.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[3]
© UCLES 2020 9706/23/M/J/20

7
The directors of a rival company, Q plc, are concerned about their company’s performance. The
following information about Q plc is available.
Year ended 31 October Industry

averages for
2017 2018 2019 2019
Non-current asset turnover 7 times 6 times 5 times 4 times
Return on capital employed (%) 23 20 16 18
REQUIRED
(d) Assess the performance of Q plc based on these ratios.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

8
Q plc’s liabilities include 8% debentures of $50 000.
A director has suggested repaying the debentures to improve the company’s return on capital
employed.
REQUIRED
(e) Advise the director whether or not the company should go ahead with this suggestion. Justify
your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2020 9706/23/M/J/20

9
2 Daniel, a retailer, receives rent from a tenant.
The balance on the rent receivable account on 1 January 2019 was $700. This represented rent
received in advance at the beginning of the year.
During the year ended 31 December 2019 Daniel received total rent of $4800 covering the
12-month period beginning 1 March 2019.
REQUIRED
(a) Prepare the rent receivable account for the year ended 31 December 2019.
Rent receivable account
$ $
[4]
(b) State in which section of the income statement for the year ended 31 December 2019 Daniel’s
rent receivable should appear.
............................................................................................................................................. [1]
(c) State in which section of the statement of financial position at 31 December 2019 the balance
of the rent receivable account should appear.
............................................................................................................................................. [1]

10
Daniel had created a provision for doubtful debts of $672 on 31 December 2018. At this date trade
receivables appeared on the statement on financial position with a net value of $16 128.
At 31 December 2019 Daniel decided to maintain the provision for doubtful debts at the same rate
as in the previous year. Total trade receivables at 31 December 2019 were $15 300 before making
any adjustment for provision for doubtful debts.
REQUIRED
(d) Calculate the increase or decrease in the provision for doubtful debts at 31 December 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
(e) State two accounting concepts which are applied when creating a provision for doubtful
debts.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
(f) State two factors that a business could consider when setting a rate for provision for doubtful
debts.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]
© UCLES 2020 9706/23/M/J/20

11
3 The following balances appear in Reena’s purchases ledger control account at 29 February 2020.
$
Total of amounts due to credit suppliers 27 450
Total of a credit supplier’s account which had been overpaid 290
The bookkeeper extracted the following information from the books of prime entry for March 2020.
$
Purchases journal 32 480
Purchases returns journal 1 430
Cash book: cash purchases 7 290
Cash book: payments to credit suppliers 26 980
Cash book: totals of discounts columns
Debit column in cash book 1 780
Credit column in cash book 1 060
General journal
Contra entries sales ledger to purchases ledger 810
Interest charged by credit suppliers on overdue accounts 470
At 31 March 2020 there were no overpaid suppliers’ accounts.
REQUIRED
(a) Prepare the purchases ledger control account for March 2020.
$ $
[7]

12
(b) State three reasons why a business may prepare a purchases ledger control account.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[3]
The bookkeeper also prepared a sales ledger control account for March 2020. However, the
balance of the control account did not agree with the total of balances of accounts in the sales
ledger.
The following errors were discovered which accounted for the difference.
1 The total of the sales returns journal had been overcast by $160.
2 The balance of a sales ledger account had been undercast by $150.
3 An entry in the sales journal for Susan Baker, $370, had been posted as a debit entry in the
sales ledger account of Sarah Barker.
4 The bank statement for 31 March 2020 recorded the return of a cheque for $420 received
from a credit customer. This transaction had not yet been recorded in the books of account.
5 An entry in the general journal to write off the balance of the account of J Limited, $230, as
irrecoverable had been posted to the debit side of the customer’s account.
© UCLES 2020 9706/23/M/J/20

13
REQUIRED
(c) Complete the following table to reconcile the sales ledger control account balance with the
total of the sales ledger balances.
Error 1 has been completed for you as an example.
sales ledger control account total of sales ledger

balance balances
$ $
Incorrect figures 14 850 15 320
Error 1 160 –
Error 2
Error 3
Error 4
Error 5
Corrected figures
[5]
[Total: 15]

14
4 Y Limited is a large manufacturing company with factories at several locations. The company uses
a marginal costing system.
REQUIRED
(a) State three benefits to a business of break-even analysis.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[3]
At one factory a single product is manufactured which sells for $75 per unit. The budgeted costs of
manufacture for one unit are as follows:
$
Direct materials 2 kg at $12.50 per kg 25
Direct labour 3.5 hrs at $10 per labour hour 35
Fixed costs are budgeted to be $66 000 per month. It is possible to produce 7500 units in normal
working conditions. Currently 5800 units are made and sold each month.
© UCLES 2020 9706/23/M/J/20

15
REQUIRED
(b) Calculate the monthly break-even point:
(i) in units
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) in sales revenue
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
(c) Calculate the forecast profit per month based on 5800 units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(d) Define the term ‘margin of safety’.
...................................................................................................................................................
............................................................................................................................................. [1]

16
The directors of Y Limited believe they can increase demand for their product by making some
changes to the design. This would result in the following.
1 A $7 increase in the selling price per unit
2 A 10% increase in direct materials usage
3 A 20% increase per kg in direct materials cost
4 A forecast 40% increase in demand.
Overtime working is available if required. This will be paid at a 25% premium.
Additional machinery will be required at a cost of $24 000. The company’s policy is to depreciate
machinery over a 5-year period.
REQUIRED
(e) Prepare a marginal cost statement showing the monthly profit based on these changes.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
........................................................................................................................................... [10]
© UCLES 2020 9706/23/M/J/20

17
At a different factory the company manufactures two products: Product A and Product B.
The following budgeted information is available.
Product A Product B
Monthly demand 300 units 200 units
Selling price per unit ($) 20 25
Direct materials per unit ($) 5 14
Direct labour hours per unit 0.75 0.5
Each product uses the same direct labour, but requires different direct materials. Direct labour is
paid at $12 per hour.
The production manager is aware that only 285 hours of direct labour will be available in
August 2020.
REQUIRED
(f) Prepare the optimum production plan.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]

18
The marketing director does not think that the optimum production plan should be implemented.
REQUIRED
(g) Advise the directors whether or not the company should implement the optimum production
plan. Justify your answer referring to both financial and non-financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2020 9706/23/M/J/20

19
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© UCLES 2020 9706/23/M/J/20

20
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© UCLES 2020 9706/23/M/J/20

* 9 1 1 8 5 1 5 0 1 9 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (DH) 201941/3
2
1 Suyin owns a small retail business. She has not maintained full accounting records.
REQUIRED
(a) State two reasons why the owner of a small business may decide not to maintain full
accounting records.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
Suyin has been informed that the accounting concepts of matching and prudence must be followed
when preparing financial statements.
REQUIRED
(b) Explain how these accounting concepts are applied when a business prepares financial
statements.
Matching
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Prudence
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
© UCLES 2021 9706/21/M/J/21

3
Suyin has provided the following information.
1 On 1 August 2019 the business’s assets and liabilities included:
$
Fittings and equipment at valuation 18 500
Inventory 11 440
Other payables: shop rent 510
Other receivables: insurance 290
2 Summary of bank statements for the year ended 31 July 2020.
$
Receipts
Proceeds from the sale of equipment (net book value $490) 550
Payments
Drawings 24 070
Shop rent 3 580
Insurance 2 950
Trade payables (after deducting 2.5% cash discounts) 46 800
3 Cash account for the year ended 31 July 2020.
$ $
Balance b/d 420 Bank 79 480
Cash sales 96 000 Wages 15 430
Purchases 1 320
Balance c/d 190
96 420 96 420
Balance b/d 190
4 During the year ended 31 July 2020
Goods had been returned to suppliers, $1280.

All sales were made on a cash basis.
5 At 31 July 2020
Suppliers were owed $4560.

Inventory was valued at $18720.
Fittings and equipment was valued at $15 860.

4
REQUIRED
(c) Calculate total purchases for the year ended 31 July 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
(d) Prepare the income statement for the year ended 31 July 2020.
Workings:
© UCLES 2021 9706/21/M/J/21

5
Suyin
Income statement for the year ended 31 July 2020
$ $
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................

[10]

6
Suyin has the opportunity to move her business to a busier location. The following information is
available.
1 The rent of the new shop premises will be three times the current annual charge.
2 Annual sales could be increased by 10% on the figure for the year ended 31 July 2020.
3 She intends to achieve a gross margin of 60%.
4 She will need to apply for a bank loan of $16 000 at 8% per annum interest to cover the costs
of changing location. The loan will be repayable over a two-year period.
5 Discounts received will no longer be available.
6 All other expenses will remain unchanged and there will be no sources of additional income.
REQUIRED
(e) Calculate how much profit per annum will be made if Suyin moves her business to the new
location.
$
Revised gross profit
Revised profit for the year

[4]
© UCLES 2021 9706/21/M/J/21

7
(f) Advise Suyin whether or not she should change her business’s location. Justify your answer
considering both financial and non-financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]

8
2 Karis and Lara are in partnership.
(a) State two reasons why partners may each have a separate capital account and current
account.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
Karis and Lara share profits and losses in the ratio 3:2 respectively.
They decided to admit Megan as a partner on 1 February 2021.
On that date the statement of financial position was as follows.
Assets $ $
59 700
Current assets
Total assets 78 110

Capital accounts
Karis 35 700
Lara 24 500
60 200
Current accounts
Karis 3 110
Lara (540)
2 570
Current liabilities
15 340
© UCLES 2021 9706/21/M/J/21

9
The partners agreed the following on Megan’s admission.
1 Current accounts would no longer be used.
2 Karis took over a motor vehicle for private use with a net book value of $18 400 at an agreed
value of $15 000.
3 Goodwill was valued at $48 000. No goodwill account was to be maintained in the partnership’s
books of account.
4 Profits and losses are to be shared in the ratio Karis : Lara : Megan 7 : 5 : 3 respectively.
5 Megan introduced a motor vehicle valued at $23 000 as part of her capital contribution.
After making the adjustments, it was agreed that Megan should pay sufficient cash into the
business bank account to make her total capital equal to that of Lara.
REQUIRED
(b) Prepare, on the next page, the capital accounts of the partners to record the admission of
Megan as a partner.

Capital accounts
Karis Lara Megan Karis Lara Megan
© UCLES 2021
$ $ $ $ $ $
10
9706/21/M/J/21
[8]
11
In the new partnership agreement Lara is to receive a salary of $12 000 per annum.
Megan is hoping to achieve a 25% return on her capital employed (ROCE).
REQUIRED
(c) Calculate the minimum profit the partnership must make in order for Megan to achieve this
ROCE.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(d) State two possible disadvantages to existing partners of admitting a new partner.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

12
3 C Limited’s statement of financial position at 31 December 2020 is shown with comparative figures
at 31 December 2019.
At 31 December
2020 2019
$000 $000
Assets
Current assets
Inventory 61 47
Trade and other receivables 29 38
92 116

Equity
Ordinary shares 1800 1200
Share premium - 220
Revaluation reserve 300 -
8% Debentures (2025) 160 250
Current liabilities
1 The company’s issued capital consists of ordinary shares of $0.25 each.
2 On 1 January 2020 the directors revalued the property upwards by $300 000.
3 There were no purchases or disposals of non-current assets during the year.
4 On 1 July 2020 the directors made a bonus issue of ordinary shares.
5 There were no other changes in share capital during the year.
REQUIRED
(a) Explain two reasons for making a bonus issue of shares.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
© UCLES 2021 9706/21/M/J/21
13
(b) Calculate the number of bonus shares issued on 1 July 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(c) Prepare the journal entry recording the bonus issue on 1 July 2020. A narrative is required.
Journal
Dr Cr
$000 $000
[4]
(d) Identify three factors that directors of a company should consider when deciding on the
amount of a proposed dividend.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
[3]
The directors of C Limited wish to propose a dividend of $0.01 per share on all shares in issue at
31 December 2020.
REQUIRED
(e) Calculate the amount of the proposed dividend.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
[Total: 15]
14
4 P Limited is a manufacturing business.
REQUIRED
(a) Define the following terms:
(i) Direct costs
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Stepped costs
...........................................................................................................................................
..................................................................................................................................... [2]
(b) State the formula for finding the margin of safety in units.
...................................................................................................................................................
............................................................................................................................................. [1]
(c) Explain the term ‘limiting factor’ when using marginal costing.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
© UCLES 2021 9706/21/M/J/21

15
P Limited manufactures a single product. The factory has the capacity to make 40 000 units per
month. All production is sold.
The following budgeted information is available for December 2021.
Sales 30 000 units at $48 per unit

Direct materials per unit 4.5 m at $4 per metre
Direct labour per unit 3 hours at $8.50 per labour hour
Fixed costs $112 000
The company has a target profit of $40 000 per month.
REQUIRED
(d) Calculate the number of units to be sold for the company to achieve its target profit for
December 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

16
(e) Prepare a budgeted marginal cost statement for December 2021.
Budgeted marginal cost statement for December 2021
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
The directors have been told that demand for their product is likely to fall in future months. They
are considering two proposals: Proposal A and Proposal B.
Proposal A
Produce a superior version of the product.
Sales 27 000 units per month at $57 per unit.

Direct materials The same quantity of material per unit as currently used,
but the price per metre would increase by 7.5%.
Direct labour The rate would increase to $9.25 per hour and each unit
would take 3.4 hours to make.
Additional fixed Extra machinery costing $75 000 will be required.
costs Machinery is depreciated at 20% per annum using the
straight-line method.
A loan would be required to finance the full cost of the

machinery. Interest rates are currently 8% per annum.
© UCLES 2021 9706/21/M/J/21

17
REQUIRED
(f) Calculate the monthly profit to be made from proposal A.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [9]
Proposal B
The directors are also considering a proposal to produce a simpler version of the product with a
selling price of $37 per unit. This proposal would require 76 000 labour hours per month. They
estimate that 38 000 units per month could be sold.
This will produce a monthly profit of $49 500.

18
REQUIRED
(g) Advise the directors which proposal they should choose. Justify your choice by considering
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2021 9706/21/M/J/21

19
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© UCLES 2021 9706/21/M/J/21

20
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© UCLES 2021 9706/21/M/J/21

* 3 6 3 1 2 6 5 2 3 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (DH) 201942/3
2
1 N Limited is a trading business. Sales are made on the credit basis only.
The following information was available at 31 December 2020.
Debit Credit
$000 $000
8% Debentures (2025) 250
Cost of sales 466
Debenture interest 8
Dividends paid 80
Inventory at 31 December 2020 33
Issued capital:
Ordinary shares of $0.25 each at 31 December 2020 500
Non-current assets
Cost 1140
Provision for depreciation at 1 January 2020 140
Retained earnings at 1 January 2020 129
Revenue 923
Share premium at 31 December 2020 70
Trade payables 42
2054 2054
The following information is also available at 31 December 2020.
1 Administrative expenses included insurance of $16 000 for four months ended
31 January 2021.
2 Depreciation should be provided on non-current assets at 25% per annum using the reducing
balance method. Depreciation charges should be allocated 20% to distribution costs and 80%
to administrative expenses.
3 The account of a credit customer, $3000, should be written off to administrative expenses as
an irrecoverable debt.
4 Debenture interest was outstanding for the second half of the year. The directors had issued
additional debentures of $50 000 on 1 October 2020.
© UCLES 2021 9706/22/M/J/21

3
REQUIRED
(a) Prepare the company’s income statement for the year ended 31 December 2020.
N Limited
$000
Workings:
Distribution costs
Finance costs
[10]

4
On 1 July 2020 the directors had decided to make a rights issue of two ordinary shares for every
three shares held at a price of $0.30 per share. The rights issue was fully subscribed.
REQUIRED
(b) Explain two reasons why a company may make a rights issue of shares rather than an issue
of debentures.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(c) Calculate the amount raised by the rights issue.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2021 9706/22/M/J/21

5
(d) Prepare a statement of changes in equity for the year ended 31 December 2020.
N Limited
Statement of changes in equity
for the year ended 31 December 2020
Ordinary share Share Retained Total

$000 $000 $000 $000
Balance at
1 January 2020
[5]
The directors are concerned about the company’s credit control and wish to improve the company’s
liquidity position. They are considering a proposal to offer a 5% cash discount to customers for
settlement within 30 days on all invoices of more than $2000.
REQUIRED
(e) Identify two ratios which can be used to assess the liquidity of a business.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]

6
(f) Advise the directors whether or not they should go ahead with this proposal. Justify your
answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2021 9706/22/M/J/21

7
2 Zak owns a wholesale business. He makes sales on credit.
REQUIRED
(a) Explain why it may be important for a business to maintain a provision for doubtful debts.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
Zak has prepared an aged schedule of trade receivables at 31 December 2020.
Amount Estimated
Period outstanding
$ irrecoverable debts
Less than 1 month 34 200 1%
Between 1 month and 3 months 6 680 5%
Between 4 and 6 months 2 130 10%
In addition, two accounts had been outstanding for over 6 months.
$
P Limited 340
Q Limited 510
Zak’s policy is to write off as irrecoverable any amounts outstanding for more than 6 months.
Zak updates the provision for doubtful debts at each financial year end based on the estimated
percentage of irrecoverable debts.
REQUIRED
(b) Prepare a journal entry to write off the irrecoverable debts. A narrative is not required.
Journal
Dr Cr
$ $
[2]

8
(c) State two ways in which the risk of irrecoverable debts may be reduced.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
At 1 January 2020 the business had a provision for doubtful debts of $980.
REQUIRED
(d) Calculate the adjustment required to the provision for doubtful debts at 31 December 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(e) Prepare the provision for doubtful debts account for the year ended 31 December 2020.
Provision for doubtful debts account
$ $
[3]
© UCLES 2021 9706/22/M/J/21

9
(f) State two factors that should be taken into account when setting a provision for doubtful
debts.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

10
3 Jason prepared the following statement of financial position which contained errors.
$ $
Non-current assets
Cost 65 000
34 000
Current assets
Inventory 17 390
Other payables 700
Bank overdraft 490
33 380
67 380
Capital
Profit for the year 11 270
Drawings (18 450)
49 770
Bank loan (repayable March 2021) 4 900
Current liabilities
Other receivables 490
12 330
67 000
In addition to some items being recorded in the incorrect sections of the statement of financial
position, the following errors have also been discovered.
1 Closing inventory had been overvalued by $510.
2 The balance of the rent receivable account, debit $220, had been included in other payables
in the statement of financial position.
3 Depreciation at 20% per annum had been charged using the straight-line method instead of
the reducing balance method at 20% per annum.
4 The balance of the drawings account had been understated by $580.
© UCLES 2021 9706/22/M/J/21

11
REQUIRED
(a) Calculate the revised profit for the year ended 31 December 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]

12
(b) Prepare the corrected statement of financial position at 31 December 2020.
Corrected statement of financial position at 31 December 2020

$ $
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................

[7]
© UCLES 2021 9706/22/M/J/21

13
(c) Identify three types of error which do not affect the balancing of the trial balance.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
[3]
[Total: 15]

14
4 T Limited manufactures goods at two factories: Factory A and Factory B.
Factory A
Factory A has two production departments, Assembly and Finishing; and two service departments,
Administration and Canteen.
Absorption costing is used at this factory.
Budgeted overheads for February 2021 have already been apportioned.
The basis for reapportioning the service department overheads is as follows:

Assembly Finishing Administration Canteen
Canteen 50% 40% 10% -
Administration 75% 25% - -
REQUIRED
(a) Prepare a statement showing the reapportionment of service department overheads for
February 2021.

Assembly Finishing Administration Canteen
$ $ $ $
Overheads 83 500 70 100 28 300 15 400
Reapportionment of
canteen
Subtotal
Reapportionment of
administration
Total overheads
[4]
© UCLES 2021 9706/22/M/J/21

15
Assembly Finishing
Direct labour hours per month 1700 1400
Machine hours per month 2800 900
Direct labour rate per hour $8.40 $8.20
REQUIRED
(b) Calculate the overhead absorption rate for each production department to two decimal
places.
Assembly department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Finishing department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]

16
The company received an order from a customer. The following details are available:
Direct materials $1880

Direct labour:
Assembly department 11.5 hours
Finishing department 6.1 hours
Machine hours:
Finishing department 2.4 hours
The company’s policy is to achieve a profit of 40% on selling price.
REQUIRED
(c) Prepare a statement to show the total selling price that T Limited will quote to the customer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2021 9706/22/M/J/21

17
(d) State two possible causes of under absorption of overheads.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(e) State what is meant by
(i) allocation of overheads
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) apportionment of overheads
...........................................................................................................................................
..................................................................................................................................... [1]

18
Factory B
T Limited manufactures a single product in Factory B.
Marginal costing is used at this factory.
The following information is available for December 2020 when production was 9000 units which
included 1000 units produced using overtime.
$
Other variable costs 22 500
Fixed costs 65 000
Total costs 233 500
Direct labour overtime is paid at 1.25 times the normal rate.
All production was sold at $30 per unit.
The directors have been considering changing the supplier of materials. The following information
is available.
1 An overseas supplier is prepared to become the company’s sole supplier of materials at $5.50
per unit including delivery costs.
2 The supplier can only provide sufficient materials for the company to make 7600 units per
month.
3 The directors do not expect any other costs or the unit selling price to change. All production
will be sold.
© UCLES 2021 9706/22/M/J/21

19
REQUIRED
(f) Calculate the maximum profit per month that can be made if materials were obtained from the
overseas supplier and production limited to 7600 units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

20
(g) Advise the directors whether or not they should change the supplier. Justify your advice by
considering both financial and non-financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2021 9706/22/M/J/21

* 9 6 1 5 0 1 5 0 3 5 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (DH) 201943/2
2
1 Adam owns a retail business. He is aware that he must follow certain accounting concepts when
preparing his business’s financial statements.
REQUIRED
(a) Explain how each of the following concepts is applied when preparing a business’s financial
statements.
(i) Consistency
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Realisation
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(iii) Materiality
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
© UCLES 2021 9706/23/M/J/21

3
Adam has completed the trading section of the income statement. However, some errors had
been made.
$ $
Revenue 186 500
Less returns outwards (3 180)
183 320
Purchases 93 710
Less returns inwards (2 940)
Add carriage inwards 730
106 330
Less closing inventory (12 670)
Gross profit 89 660
1 No record had been made of goods taken for own use by Adam, $580.
2 Closing inventory included 14 damaged items which cost $30 each. Six of these items cannot
be sold and are to be regarded as waste. The remaining items could be sold for $35 each but
will incur total repairs cost of $56.

4
REQUIRED
(b) Calculate a revised figure for gross profit for the year ended 31 December 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2021 9706/23/M/J/21

5
The following balances were extracted from the books of account of Adam’s business on
31 December 2020.
$
Discounts 1 580 credit
Furniture and equipment
cost 18 220
provision for depreciation (at 1 January 2020) 5 370
Marketing expenses 4 850
Motor vehicle
cost 16 800
Office expenses 2 950
Premises
cost 160 000
Provision for doubtful debts (at 1 January 2020) 530
Repairs and maintenance 1 970
1 Repairs and maintenance included a payment of $380 for installation of new equipment on
1 January 2020.
2 The provision for doubtful debts should be maintained at 5% of trade receivables.
3 Rent receivable of $1800 for the three months ended 28 February 2021 had not been received.
4 A payment of $2000 for a five-month advertising campaign which began on 1 November 2020
was outstanding.
5 Depreciation should be provided on non-current assets as follows:

Furniture and equipment at 20% per annum using the reducing balance method
Premises at 2% per annum using the straight-line method
No depreciation is charged on non-current assets in the year of sale.
6 No record had been made of the sale of the only motor vehicle on 1 December 2020 for
$1350.

6
REQUIRED
(c) Prepare the income statement for the year ended 31 December 2020. Start the statement
with your gross profit figure in part (b).

$ $
........................................................................................... ..................... .....................
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........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
........................................................................................... ..................... .....................
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........................................................................................... ..................... .....................

[10]
© UCLES 2021 9706/23/M/J/21

7
Adam would like to improve his business’s profitability. He has been considering the following
proposals.
Proposal 1: Reducing inventory levels

Proposal 2: Increasing mark-up by 5% on the current level
REQUIRED
(d) Advise Adam which proposal he should choose. Justify your answer by considering both
proposals.
...................................................................................................................................................
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[7]
[Total: 30]

8
2 Hamid prepares control accounts to check the accuracy of his business’s purchases and sales
ledgers.
REQUIRED
(a) Explain two benefits to a business of using control accounts other than checking the
arithmetical accuracy of ledger accounts.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
On 31 January 2021 Hamid provided the following information:
1 The balance of the sales ledger control account on 1 January 2021 was $17 820.
2 Totals for January 2021 from books of prime entry
$
Cash book
Discount allowed 430
General journal
Contra entries with purchases ledger 890
Sales journal 18 440
Sales returns journal 310
3 On 31 January 2021 a credit customer had overpaid his account by $170.
© UCLES 2021 9706/23/M/J/21

9
REQUIRED
(b) Prepare the sales ledger control account for January 2021.
$ $
[6]
On 31 January 2021 the total of balances in the purchases ledger was $12 860, but the balance of
the purchases ledger control account on this date was $12 980.
The following errors were discovered.
1 The total of the discounts received column of $110 had not been posted from the cash book.
2 The total of the purchases returns journal had been overstated by $250.
3 Interest of $130 charged by a supplier because of an overdue balance had been debited to
the supplier’s account.

10
REQUIRED
(c) Prepare statements to show corrected totals for:
(i) the purchases ledger balances
Correction of purchases ledger balances
Details $
Incorrect total 12 860
[2]
(ii) the purchases ledger control account balance
Correction of purchases ledger control account balance
Details $
Incorrect balance 12 980
[3]
[Total: 15]
© UCLES 2021 9706/23/M/J/21

11
3 Cherry, Winston and Yupar were in partnership sharing profits and losses in the ratio 3 : 5 : 2. The
partners decided to dissolve their partnership on 1 December 2020. On this date the partnership’s
statement of financial position was as follows.
Assets $ $
Premises 97 000
119 000
Current assets
Inventory 17 400
Capital accounts
Cherry 18 300
Winston 54 900
Yupar 26 700
99 900
Current accounts
Cherry (5 740)
Winston 2 290
Yupar 820
(2 630)
Non-current liability
Loan from Yupar 18 000
Current liabilities
21 130
1 Winston took over the equipment at a valuation of $7200.
2 Premises and furniture were sold for $61 100 and a cheque for this amount was received.
3 Inventory was sold at a loss of $5200. A cheque was received for the amount.
4 Trade payables were settled in full by cheque after deducting a 5% cash discount.
5 The expenses of dissolution were paid by cheque, $2140.
6 The amounts owed by, or to, the partners were settled by cheque.

12
REQUIRED
(a) Prepare the realisation account to show the profit or loss made on the dissolution of the
partnership.
Realisation account
$ $
[7]
(b) Prepare, on the next page, the capital accounts of the partners recording the dissolution and
final settlement of the amounts owed to, or by, each partner.
© UCLES 2021 9706/23/M/J/21

Capital accounts
Cherry Winston Yupar Cherry Winston Yupar
© UCLES 2021
$ $ $ $ $ $
13
[5]
9706/23/M/J/21
[Turn over
14
The partners had decided to dissolve their partnership because of disagreements on important
decisions.
REQUIRED
(c) State three other reasons why a partnership might be dissolved.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 15]
© UCLES 2021 9706/23/M/J/21

15
4 T Limited manufactures a single product. The following budgeted information is available.
Per unit
$
Direct labour 14.50
Other variable costs 2.30
Fixed costs 8.00
Each unit is sold for $36. Budgeted monthly production and sales are 1200 units.
REQUIRED
(a) Calculate the monthly break-even point in units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(b) Calculate the margin of safety:
(i) in units
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) in revenue
...........................................................................................................................................
..................................................................................................................................... [1]
(c) Identify three assumptions made when using break-even analysis.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
16
In January 2021 the company made and sold 1120 units.
REQUIRED
(d) (i) Calculate the contribution to sales ratio.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Calculate the profit made in January 2021.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
In March 2021 a machine fault meant that only 75% of budgeted output could be produced. The
directors considered two options.
Option A
1 Reduce normal output by 25%; as a result, materials cost would be affected because trade
discount of 20% on bulk orders would not be available. All other costs would remain the
same.
2 Buy in units from a competitor at $27.20 per unit. The competitor can supply a maximum of
250 units and will charge $125 for delivering this quantity.
Option B
1 Hire a replacement machine at a cost of $1600 for the month.
2 The replacement machine could make an additional 200 units per month.
3 All other costs would remain the same.
© UCLES 2021 9706/23/M/J/21

17
REQUIRED
(e) Calculate the profit for March 2021 for:
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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..................................................................................................................................... [7]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
..................................................................................................................................... [3]

18
(f) Advise the directors which option they should choose. Justify your advice by considering
both options.
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [5]
© UCLES 2021 9706/23/M/J/21

19
Recently a system of budgetary control has been introduced by T Limited. However, there have
been concerns that the system has not worked well.
REQUIRED
(g) State three limitations of budgetary control.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 30]
© UCLES 2021 9706/23/M/J/21

20
BLANK PAGE
© UCLES 2021 9706/23/M/J/21

* 4 6 0 3 4 3 2 7 3 3 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (CJ) 303853/3
2
1 Khin is a retailer.
The following balances have been extracted from his books of account at 31 January 2022.
$
Advertising 4 900
Furniture and equipment at cost 18 900
Furniture and equipment provision for depreciation at 1 February 2021 7 300
Inventory at 1 February 2021 12 310
Irrecoverable debts 670
Loss on disposal of delivery vehicle 1 350
Premises at cost 360 000
Premises provision for depreciation at 1 February 2021 21 600
Provision for doubtful debts at 1 February 2021 840
Purchases 118 220
Revenue 197 300
The following information is also available at 31 January 2022.
1 Closing inventory was valued at $13 480.
2 No record had been made of goods taken for own use by Khin, $910.
3 An irrecoverable debt of $380 is to be written off.
5 Advertising includes a payment of $3250 for a campaign which will last from 1 December 2021
to 30 April 2022.
6 Rent receivable is $500 per month.
7 Wages, $1440, are outstanding.
8 Khin sold his business’s only delivery vehicle in January 2022 resulting in the loss of $1350
shown in the balances at 31 January 2022.
9 The business’s depreciation policy is as follows:
i Premises to be depreciated by 2% per annum using the straight-line method.

ii Furniture and equipment to be depreciated by 15% using the reducing balance method.
© UCLES 2022 9706/21/M/J/22

3
REQUIRED
(a) Prepare the income statement for the year ended 31 January 2022. Use the space provided
on page 4 for your workings.
Khin
Income statement for the year ended 31 January 2022
...................................................................................................................................................
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...................................................................................................................................................

4
Workings:
[15]
There was no opening balance on the rent receivable account at 1 February 2021.
REQUIRED
(b) Prepare the rent receivable account for the year ended 31 January 2022.

$ $
[2]
© UCLES 2022 9706/21/M/J/22

5
(c) Prepare a journal entry to record the adjustment to the provision for doubtful debts account at
31 January 2022. A narrative is not required.
Journal
Dr Cr
$ $
[2]
Khin intends to purchase a new delivery vehicle. He is not sure whether the delivery vehicle should
be depreciated using the straight-line method or reducing balance method of depreciation.
REQUIRED
(d) Explain the reason for recording depreciation in a business’s income statement.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(e) State one benefit of using each of the following methods of depreciation.
(i) Straight-line
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Reducing balance
...........................................................................................................................................
..................................................................................................................................... [1]

6
Khin is concerned about a decline in the business’s profitability. He is considering two options.
Option 1: decrease the amount spent on advertising whilst also reducing the selling price by a
small amount.
Option 2: purchase goods from cheaper suppliers.
REQUIRED
(f) Advise Khin which option he should choose. Justify your advice by discussing both options.
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2022 9706/21/M/J/22

7
2 Yasmin is a sole trader. She has prepared a trial balance. Some errors are not revealed by a trial
balance.
REQUIRED
(a) Describe each of the following errors. Examples are not required.
(i) Error of commission
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Error of original entry
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(iii) Error of principle
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
When Yasmin prepared a trial balance for her business at the year-end, 31 December 2021, the
totals did not agree. The difference was entered in a suspense account.
1 Goods for own use, $430, had been debited to the drawings account but no other entry had
been made.
2 Returns inwards of $740 had been credited to the returns outwards account.
3 An irrecoverable debt of $260 had been correctly recorded in the journal and in the account of
the customer, but had been posted to the wrong side of the irrecoverable debts account.

8
REQUIRED
(b) Prepare the suspense account clearly identifying the original difference in the trial balance
totals.
Suspense account
$ $
[5]
The business’s draft profit before correcting the errors was $28 750 for the year ended
31 December 2021.
REQUIRED
(c) Complete the following table to calculate the corrected profit for the year ended
31 December 2021.
$
Draft profit 28 750
Error 1
Error 2
Error 3
Corrected profit
[4]
[Total: 15]
© UCLES 2022 9706/21/M/J/22

9
PLEASE TURN OVER

10
3 Maria and Rio have been in partnership for a number of years. They are considering admitting a
new partner.
REQUIRED
(a) State three disadvantages to the existing partners when a new partner is admitted.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
The partnership year end is 31 December. For the period 1 January to 30 September 2021, Maria
and Rio did not have a partnership agreement.
The following information is available for the year ended 31 December 2021.
The balances on the partners’ accounts on 1 January 2021 were:
$
Capital accounts
Maria 52 000
Rio 38 000
Loan account: Rio 6 000
On 1 October 2021 they admitted Sarah as a partner. Sarah introduced capital of $45 000 from
her personal savings. The partners agreed to make no adjustments for goodwill or the revaluation
of the partnership assets.
From 1 October 2021 a formal partnership agreement was prepared as follows:
1 Rio to be given interest on his loan at 8% per annum.
2 Interest to be given at 6% per annum on fixed capitals.
3 Rio to be given a partnership salary of $15 000 per annum.
4 Profits to be shared in the ratio Maria : Rio : Sarah, 2 : 1 : 2 respectively.
© UCLES 2022 9706/21/M/J/22

11
During the year ended 31 December 2021, the partnership made a profit of $82 500 before taking
into account interest on Rio’s loan. It was assumed that the profit before interest on Rio’s loan had
accrued evenly throughout the year.
REQUIRED
Maria, Rio and Sarah

Maria and Rio Maria, Rio and Sarah

1 Jan–30 Sept 1 Oct–31 Dec
$ $
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [7]

12
Before Sarah had been admitted as a partner, she had been earning a salary of $18 000 per
annum. She had also received interest of 8% per annum on her personal savings.
REQUIRED
(c) Compare Sarah’s income as a partner with the total income she would have otherwise received
in the three months ended 31 December 2021. Support your answer with calculations.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 15]
© UCLES 2022 9706/21/M/J/22

13
PLEASE TURN OVER

14
4 N Limited manufactures a single product at one of its factories. The company uses marginal
costing.
REQUIRED
(a) State two benefits of using break-even analysis.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(b) Define the term ‘fixed costs’.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
The following details are available for one month’s production:
Fixed costs $70 000

Break-even point 8 000 units
Margin of safety $80 000
REQUIRED
(c) Calculate the variable cost per unit.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2022 9706/21/M/J/22

15
The directors have decided to increase output by 20%. All the output can be sold.
New machinery will be purchased at a cost of $72 000. The new machinery will have a useful life
of 5 years. The directors also plan the following:
1 Variable costs will remain unchanged.
2 Selling prices will be reduced by 5% to ensure that all production can be sold.
3 The cost of the new machinery will be financed by the issue of 10% debentures.
REQUIRED
(d) (i) Calculate the monthly revenue based on this plan.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Prepare a budgeted marginal costing statement for one month based on this plan for
total production.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [6]

16
At another factory the company manufactures two products: X and Y. Both products use the same
material.
The following information is available for one month’s output.
X Y
$ $
Selling price per unit 32 44
Direct material per unit 10 14
Direct labour per unit 12 19
Output 5000 units 4000 units
This factory’s fixed costs are $58 000 per month.
In April 2022 the supplier of direct materials informed the company that it would only be able to
supply 75% of the normal monthly requirement in June 2022.
REQUIRED
(e) Prepare a budgeted production plan for June 2022 to show the maximum profit available.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2022 9706/21/M/J/22

17
A director has suggested an alternative plan that the factory should produce extra units in
May 2022 to make up for the shortfall of either Product X or Product Y in June 2022. Any additional
production will require overtime to be worked.
1 All material requirements can be met in May 2022 but the material has to be converted into
finished product immediately as purchased.
2 Overtime is paid at 1.5 times the normal rate.
3 The extra units will be stored at a cost of $4000.
REQUIRED
(f) Calculate the profit or loss to be made on the extra units if this plan is implemented in
May 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

18
(g) Advise the directors whether they should use the original budgeted production plan in (e)
or whether they should increase production in May 2022 as suggested by the director in his
alternative plan. Justify your advice.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2022 9706/21/M/J/22

19
BLANK PAGE
© UCLES 2022 9706/21/M/J/22

20
BLANK PAGE
© UCLES 2022 9706/21/M/J/22

* 5 5 5 5 6 5 4 0 4 9 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (CE) 303891/4
2
1 Karen and Lee are in partnership sharing profits and losses in the ratio 2 : 3 respectively.
The following balances were available at 28 February 2022.
Trial balance at 28 February 2022
Debit Credit
$ $
Bank interest charges 180
Capital accounts
Karen 40 000
Lee 50 000
Current accounts, 1 March 2021
Karen 1 220
Lee 1 880
Drawings
Karen 17 500
Lee 19 900
Insurance 7 740
Inventory, 1 March 2021 8 250
Loan from Lee 10 000
Non-current assets
At cost 160 000
Provision for depreciation, 1 March 2021 56 000
Provision for doubtful debts, 1 March 2021 260
Purchases 151 440
Returns 2 200 3 930
Revenue 229 250
Suspense account 820
411 020 411 020
1 On 28 February 2022, inventory had been valued at cost, $21 220. This figure included some
damaged items which had cost $1320 and had a sales value of $2480. The damaged items
could be repaired at a cost of $1300.
2 In January 2022, an error had been made recording returns inwards, $410. This amount had
been credited to the returns outwards account.
3 Insurance includes $1410 paid for the three months ended 30 April 2022.
4 The loan from Lee had been arranged on 1 November 2021. It was agreed that Lee should
be entitled to interest at 6% per annum on the loan. No entries have been made for interest
on the loan.
5 The provision for doubtful debts should be increased to $310.
6 Non-current assets are to be depreciated by 20% per annum using the reducing balance
method.
© UCLES 2022 9706/22/M/J/22

3
REQUIRED
(a) Prepare the income statement for the year ended 28 February 2022. Use the space provided
on the next page for your workings.
Karen and Lee

Income statement for the year ended 28 February 2022
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................

4
Workings:
[9]
(b) Prepare Lee’s current account for the year ended 28 February 2022.
Lee
Current Account
$ $
[4]
© UCLES 2022 9706/22/M/J/22

5
The partners have been considering making a more detailed partnership agreement to include the
following terms.
1 Interest to be charged on all drawings at 10%.
2 Karen to receive a salary of $8400 per annum.
3 Profits and losses would continue to be shared in the ratio Karen : Lee, 2 : 3 respectively.
REQUIRED
(c) Calculate the increase or decrease in Lee’s current account balance at 28 February 2022
assuming the new agreement had been in use from 1 March 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]

6
Karen and Lee had also considered operating as a limited company.
REQUIRED
(d) Explain one advantage of operating as a partnership rather than a limited company.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(e) Explain two advantages of operating as a limited company rather than a partnership.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
© UCLES 2022 9706/22/M/J/22

7
The partners are concerned about the business’s liquidity position.
Karen believes the problem arises because the business holds too much inventory. She suggests
that credit purchases should be reduced for the next three months to ensure inventory levels are
lowered.
REQUIRED
(f) Advise Lee whether or not he should accept Karen’s suggestion. Justify your advice.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]

8
2 V Limited owns various non-current assets. Non-current assets depreciate due to a number of
factors including wear and tear.
REQUIRED
(a) State two reasons, other than wear and tear, why non-current assets depreciate.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
Businesses must apply the consistency concept when accounting for depreciation.
REQUIRED
(b) Describe the consistency concept.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
The company’s financial year ends on 31 December.
1 Property was purchased on 1 January 2019 at a cost of $850 000. Property is depreciated at
5% per annum on cost.
2 On 1 January 2021 the directors decided to revalue the property at $1 200 000.
REQUIRED
(c) Prepare the journal entry to record the revaluation of the property. A narrative is not required.
Journal
Dr Cr
$ $
[3]
© UCLES 2022 9706/22/M/J/22

9
1 Furniture and equipment was purchased on 1 January 2019 at a cost of $140 000.
2 Furniture and equipment is depreciated at 10% per annum using the reducing balance
method.
3 On 1 September 2021, the directors sold furniture and equipment which had cost $21 000 on
1 January 2019.
4 A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
REQUIRED
(d) Calculate the charge for depreciation of furniture and equipment for the year ended
31 December 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

10
1 Motor vehicles were purchased on 1 January 2020 at a cost of $84 000.
2 Motor vehicles are depreciated at 20% per annum using the reducing balance method.
3 On 1 November 2021, a new motor vehicle was purchased at a cost of $44 000. A cheque
for $17 000 was paid for the vehicle and the balance was covered by the part-exchange of a
vehicle which had cost $40 000 on 1 January 2020.
4 A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
REQUIRED
(e) Prepare the motor vehicle disposal account for the year ended 31 December 2021.
Motor vehicle disposal account
$ $
[4]
[Total: 15]
© UCLES 2022 9706/22/M/J/22

11
BLANK PAGE

12
3 N Limited is a trading company. The statement of financial position at 31 December 2021 is as

follows.
$000
Assets
Non-current assets at net book value 1520
Current assets
Inventory 35
Total assets 1585

Equity
Share capital 900
Share premium 180
Total equity 1282
Liabilities
8% Debentures (2026) 250
Current liabilities
Trade payables 42
Bank overdraft 11
53
Total liabilities 303
Total equity and liabilities 1585
1 Purchases for the year were $600 000 of which 80% were on credit.
2 Credit sales were 30% of all sales.
3 The company had a gross profit margin of 40%. The company’s gross profit for the year
ended 31 December 2021 was $420 000.
4 The company’s profit for the year was $182 000.
5 No interest was charged on the bank overdraft.
© UCLES 2022 9706/22/M/J/22

13
REQUIRED
(a) Calculate the following ratios for the year ended 31 December 2021 stating the formula used.
(i) Trade payables turnover (days)
Formula Calculation
[3]
Formula Calculation
[3]
(iii) Return on capital employed (to two decimal places)
Formula Calculation
[3]

14
(iv) Non-current asset turnover (to two decimal places)
Formula Calculation
[2]
(b) Explain the importance of this non-current asset turnover to the directors of N Limited.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(c) Explain one reason why shareholders will be interested in the financial statements of a
company.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
[Total: 15]
© UCLES 2022 9706/22/M/J/22

15
4 F Limited is a manufacturing company which uses absorption costing at one of its factories. This
factory has two production departments and two service departments.
Budgeted costs have already been allocated and apportioned.
REQUIRED
(a) Explain the meaning of each of the following terms:
(i) Allocation
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Apportionment
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(b) State one benefit of using absorption costing.
...................................................................................................................................................
............................................................................................................................................. [1]
(c) State one limitation of using absorption costing.
...................................................................................................................................................
............................................................................................................................................. [1]

16
The budgeted costs for April 2022 before reapportionment of the service departments’ overheads
are as follows.

Assembly Finishing Stores Maintenance
$ $ $ $
Total overhead
275 000 103 200 19 200 26 700
costs
The service department overheads are apportioned to the production departments on the following
basis.

Maintenance 60% 30% 10% –
Stores 75% 25% – –
REQUIRED
(d) Calculate the total overheads for each production department by reapportioning the service
department overheads.

$ $ $ $
Total overhead
275 000 103 200 19 200 26 700
costs
Subtotal
Total
[3]
© UCLES 2022 9706/22/M/J/22

17
The following additional monthly budgeted information is available about the production
departments.
Labour hours Machine hours

Assembly department 950 1 430
Finishing department 840 380
REQUIRED
(e) Calculate the overhead absorption rate for each department to two decimal places.
(i) Assembly department
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Finishing department
...........................................................................................................................................
..................................................................................................................................... [2]
In April 2022, production was less than the forecast figure. The Assembly department’s actual
overheads were $285 400, actual labour hours were 820 and actual machine hours were 1310.
REQUIRED
(f) Calculate the under-absorption or over-absorption of overheads for April 2022 for the
Assembly department.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

18
At another factory the company manufactures two products. This factory uses marginal costing. The
following details are available.
Product X Product Z
$ $
Direct materials per unit 6 9
Direct labour per unit 9 9
Fixed costs per unit 5 6
Selling price per unit 24 30
Normal production per month (units) 8000 4000
The company has a major customer who usually orders 5000 units of Product X each month. This
order is included in the normal production of 8000 units per month.
In May 2022 the customer has asked for 9000 units of Product X.
If it is not possible to supply this quantity, the customer has informed the directors that they will place
their entire order and all future orders with another company.
Option A
1 Stop manufacture of Product Z and devote all labour hours to the production of Product X.
2 The company will be able to complete all the normal orders for Product X and the increased order
from the customer.
3 The workforce for Product Z will require some retraining, costing $3000.
Option B
1 Maintain normal production levels.
2 Refuse the customer’s order.
3 Reduce the selling price of Product X by 5% in order to enable all normal production of this unit to
be sold.
© UCLES 2022 9706/22/M/J/22

19
REQUIRED
(g) Calculate the profit to be made in May 2022 for each of the options.
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [4]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]

20
(h) Advise the directors which option they should choose. Justify your answer by discussing both
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2022 9706/22/M/J/22

* 2 1 0 9 5 8 9 6 8 1 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RW) 303854/3
2
1 K Limited’s financial year ended on 31 December 2021. The company’s income statement for the
year ended on that date has already been prepared. The following information was available at
the year‑end.
$
8% Debentures (2022) 120 000
Inventory 49 400
Non‑current assets at cost 960 000
Non‑current assets provision for depreciation 170 000
Ordinary share capital: shares of $0.25 each at 31 December 2021 480 000
Retained earnings at 1 January 2021 133 000
Share premium at 31 December 2021 90 000
On 1 July 2021, the directors had made a rights issue of one ordinary share for every two ordinary
shares in issue. The rights issue was made at $0.35 per share and was fully subscribed.
REQUIRED
(a) Calculate the profit from operations for the year ended 31 December 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(b) Calculate the amount raised by the rights issue on 1 July 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2022 9706/23/M/J/22

3
(c) Prepare a statement of changes in equity for the year ended 31 December 2021.
K Limited
Share capital Share Retained Total

premium earnings
$ $ $ $
[7]

4
(d) Prepare the statement of financial position at 31 December 2021.
K Limited
$
.......................................................................................................................... .....................
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.......................................................................................................................... .....................
.......................................................................................................................... .....................
.......................................................................................................................... .....................
[7]
© UCLES 2022 9706/23/M/J/22
5
(e) Explain the meaning of each of the following terms.
(i) Revenue reserve
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Capital reserve
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]

6
The directors of K Limited will require additional finance in 2022 to cover the cost of opening a
new branch of the business.
They are considering two options.
Option 1: Make a further rights issue of shares.

Option 2: Make an issue of 8% debentures.
REQUIRED
(f) Advise the directors which option they should choose. Justify your answer by discussing both
options.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2022 9706/23/M/J/22

7
2 Rakesh prepared his business’s end of year financial statements on 30 September 2021.
REQUIRED
(a) Define the following accounting concepts. Give one example of each.
(i) Matching
Definition ...........................................................................................................................
...........................................................................................................................................
Example ............................................................................................................................
...........................................................................................................................................
[2]
(ii) Going concern
Definition ...........................................................................................................................
...........................................................................................................................................
Example ............................................................................................................................
...........................................................................................................................................
[2]
(iii) Materiality
Definition ...........................................................................................................................
...........................................................................................................................................
Example ............................................................................................................................
...........................................................................................................................................
[2]

8
On 30 September 2021, Rakesh decided to write off an irrecoverable debt of $730 from the
account of JD Supplies.
REQUIRED
(b) Prepare the journal entry in Rakesh’s books of account to record the write off of the
irrecoverable debt. A narrative is not required.
Journal
Dr Cr
$ $
[2]
Rakesh receives rent from a tenant. The following details are available for the year ended
30 September 2021.
1 At 1 October 2020, the tenant owed rent $1200.
2 During the year ended 30 September 2021, the tenant paid rent of $9000 by bank transfer.
3 At 30 September 2021, rent of $1125 had been received in advance.
REQUIRED
(c) Prepare the rent receivable account in Rakesh’s books of account.
$ $
[4]
© UCLES 2022 9706/23/M/J/22
9
The business owns equipment which cost $24 000 when it was purchased on 1 October 2018.
The policy is to provide depreciation at 20% per annum using the reducing balance method.
REQUIRED
(d) Prepare the provision for depreciation of equipment account for the year ended
30 September 2021.
Provision for depreciation of equipment account
$ $
[3]
[Total: 15]

10
3 Nibras purchases and sells goods for cash and on credit. Control accounts are used to check the
accuracy of the business’s purchases and sales ledgers.
The following information is available for January 2022.
1 Purchases ledger account balances at 1 January 2022 were:
$
Amounts owed to suppliers 23 490
Amount overpaid to one supplier 320
2 Totals from the books of prime entry were as follows:
$
Cash book
Cash purchases 18 540
Purchases journal 212 480
Returns outwards journal 3 770
General journal
Contras to sales ledger 810
3 There were no overpaid accounts in the purchases ledger at the end of the month.
REQUIRED
(a) Prepare the purchases ledger control account for January 2022.
$ $
[5]
© UCLES 2022 9706/23/M/J/22
11
On 31 January 2022 the following information was available concerning trade receivables.
$
Balance of the sales ledger control account 25 310
Total of balances in the sales ledger 23 980
The following errors were discovered. When corrected, the total of balances in the sales ledger
agreed with the balance of the sales ledger control account.
1 An irrecoverable debt of $540 had been recorded as $450 in both the general ledger and the
customer’s sales ledger account.
2 The total of the returns inwards journal, $1390, had been omitted from the sales ledger control
account.
3 The balance of a customer’s account had been understated by $120.
4 A credit note, $90, issued to a credit customer had been recorded correctly in the sales return
journal but posted to the debit side of the customer’s account.
REQUIRED
(b) (i) Calculate the correct balance of the sales ledger control account.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
(ii) Calculate the correct total of balances in the sales ledger.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [4]

12
Control accounts do not reveal every type of error.
REQUIRED
(c) State three types of error which are not revealed by a control account.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
[3]
[Total: 15]
© UCLES 2022 9706/23/M/J/22

13
4 G Limited manufactures products at two factories. The company uses marginal costing.
REQUIRED
(a) State four assumptions used in break‑even analysis.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
4 ................................................................................................................................................
...................................................................................................................................................
[4]
(b) State the formula for calculating the margin of safety in units and sales value.
(i) Units
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Sales value
...........................................................................................................................................
..................................................................................................................................... [1]

14
At one factory a single product is made. The following budgeted details are available.
Direct materials per unit 3 kg at $5 per kg

Direct labour per unit 2 hours at $9.50 per hour
Sales 8 000 units per month
REQUIRED
(c) Calculate the monthly margin of safety in units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2022 9706/23/M/J/22

15
The directors are concerned that there could be a fall in demand for this product. They plan to
make some changes to reduce the product’s break‑even point and encourage sales.
1 Use a different grade of material. The list price of this material is 10% less per kilogram than
the existing material.
2 Each unit will require 5% more kilograms of this material.
3 The supplier of materials has agreed to give a 20% trade discount.
4 Make alterations to machinery to improve efficiency at a cost of $24 000. Machinery is

depreciated at 25% per annum.
5 Introduce a sales commission of $0.50 per unit.
6 Reduce the selling price by 1.5% per unit.
REQUIRED
(d) Calculate the decrease in the monthly break‑even point in units if these changes are made.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [8]

16
At the other factory monthly production and sales are normally 14 000 units of a different product.
This product has a variable cost of $65 per unit and a contribution of $17 per unit. The budgeted
factory fixed costs are $128 000 per month.
A major customer normally purchases 5500 units per month. However, the company has been
informed that no units will be required by this customer in August 2022.
Option A
1 Reduce production in August 2022 by 4000 units.
2 Run an advertising campaign at a cost of $2 200 to increase demand so that all production is
sold.
Option B
1 Continue with normal production in August.
2 Store 5500 units in a warehouse at a cost of $6000.
3 At the end of August an overseas customer will purchase all the units in the warehouse at a
special price of $70 per unit. Transport costs of $1.80 per unit will be incurred on these units.
REQUIRED
(e) Calculate the profit for August 2022 for:
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [4]
© UCLES 2022 9706/23/M/J/22

17
(f) Advise the directors which option they should choose. Justify your answer by discussing both
financial and non‑financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2022 9706/23/M/J/22

18
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© UCLES 2022 9706/23/M/J/22

19
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© UCLES 2022 9706/23/M/J/22

20
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Permission to reproduce items where third‑party owned material protected by copyright is included has been sought and cleared where possible. Every
To avoid the issue of disclosure of answer‑related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
© UCLES 2022 9706/23/M/J/22

* 3 5 6 0 1 0 7 9 3 7 *
ACCOUNTING 9706/21
Paper 2 Fundamentals of Accounting May/June 2023
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (RW) 311558/3
2
1 Mima is the owner of a wholesale business, Mima Supplies.
During the year ended 31 December 2022 the business owned the following delivery vehicles.
Date of purchase Cost

$
Vehicle A 1 January 2019 28 000
Vehicle B 1 January 2020 30 000
Vehicle C 1 July 2022 32 000
Delivery vehicles are depreciated at 25% per annum using the straight‑line method on a
month‑by‑month basis. No depreciation is provided in the year of sale.
Vehicle A was sold for $5200 on 30 June 2022.
REQUIRED
(a) Calculate the profit or loss on the disposal of Vehicle A.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(b) Calculate the total depreciation charge on delivery vehicles for the year ended
31 December 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2023 9706/21/M/J/23

3
Mima has also supplied the following information for the year ended 31 December 2022.
1
$
Advertising 6 580
Allowance for irrecoverable debts at 1 January 2022 1 390
Furniture and equipment at 1 January 2022
Cost 36 800
Insurance 7 380
Interest receivable 1 200
Rent of warehouse 33 480
Revenue 726 310
Vehicle running costs 8 580
Wages 63 480
2 Advertising includes the cost of a six‑month campaign, $4200, which began on

1 September 2022.
3 The value of inventory at 31 December 2022 was understated by $4940 when calculating the
cost of sales of $483 900.
4 Six months’ interest at 10% per annum was received on a bank deposit of $24 000. The deposit
was made on 1 March 2022. The next receipt of interest took place on 28 February 2023.
5 The allowance for irrecoverable debts is to be maintained at 5% of trade receivables. At

31 December 2022, trade receivables totalled $31 300.
6 Depreciation is to be provided on furniture and equipment at 15% per annum using the
reducing balance method of depreciation.
7 Wages, $1620, were accrued at 31 December 2022.

4
REQUIRED
(c) Prepare the statement of profit or loss for the year ended 31 December 2022. Use the space
provided on the next page to show your workings.
Mima Supplies
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
© UCLES 2023 9706/21/M/J/23

5
Workings:
[13]
(d) Explain the importance of making an allowance for irrecoverable debts in a business’s
financial statements.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
Mima would like to assess her business’s liquidity position at 31 December 2022.
REQUIRED
(e) Identify two ratios which could be used to assess a business’s liquidity position.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]

6
Mima has noticed that her business’s rate of inventory turnover has decreased since last year.
She is considering two options to increase the rate of inventory turnover.
Option A: reduce inventory levels.
Option B: reduce selling prices by 2% and increase the annual advertising budget by 5%.
REQUIRED
(f) Advise Mima which option she should choose. Justify your choice by considering both
options.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/21/M/J/23

7
2 Param uses control accounts to verify the accuracy of his business’s sales and purchases ledgers.
He provided the following information for the month ended 30 April 2023 relating to trade
receivables.
$
Sales ledger balances, 1 April 2023
Debit 14 890
Credit 610
Contra entries with the purchases ledger 1 850
Credit sales 153 480
Credit customers’ cheques returned 880
Interest charged on overdue accounts 540
Irrecoverable debts written off 1 830
Receipts from credit customers 148 200
There were no credit balances in the sales ledger on 30 April 2023.
REQUIRED
(a) Prepare the sales ledger control account for April 2023. Dates are not required.
$ $
[6]
8
(b) Identify the books of prime entry for each of the following:
(i) discounts allowed
..................................................................................................................................... [1]
(ii) irrecoverable debts written off.
..................................................................................................................................... [1]
(c) State three benefits of maintaining control accounts.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
© UCLES 2023 9706/21/M/J/23

9
The balance of the sales ledger control account at 30 April 2023 did not agree with the total of the
individual customer account balances at this date.
The following errors were discovered, some of which affected the sales ledger control account
and some of which affected the customer account balances.
1 Returns inwards of $720 had been credited to the account of Rafiq Stores instead of Raif
Stores.
2 A sales invoice for $820 had been omitted from the books of account.
3 The balance of a credit customer’s account, $430, had been brought down as $340.
4 The total of the returns inwards journal had been understated by $470.
5 Interest of $40 charged on an overdue account had been correctly entered in the journal but
had been credited to the customer’s account.
REQUIRED
(d) Calculate the revised sales ledger control account balance at 30 April 2023.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
[Total: 15]

10
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© UCLES 2023 9706/21/M/J/23

11
3 The following extract from J Limited’s statement of financial position at 1 January 2022 is available.
$
Equity
Issued capital: ordinary shares of $0.25 each 600 000
Non‑current liabilities
7% Debentures (2028) 200 000
REQUIRED
(a) State two features of revenue reserves which do not apply to capital reserves.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
The directors wished to raise additional finance. On 1 April 2022 the company made a rights issue
of 2 ordinary shares for every 3 shares held at a price of $0.35 per share. The issue was fully
subscribed.
REQUIRED
(b) Calculate the amount raised by the rights issue of shares.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

12
The directors had considered making an issue of debentures rather than a rights issue.
(c) Identify two reasons why the directors of J Limited might prefer to raise additional finance
through a rights issue rather than by issuing debentures.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
The directors paid an interim dividend of $0.12 per share on 1 July 2022.
REQUIRED
(d) Calculate the total amount of the interim dividend.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
The company made a profit of $535 000 for the year ended 31 December 2022.
REQUIRED
(e) Prepare the statement of changes in equity for the year ended 31 December 2022.
J Limited
Statement of changes in equity at 31 December 2022
Share capital Share Retained Total

premium earnings
$ $ $ $
[6]
[Total: 15]
© UCLES 2023 9706/21/M/J/23
13
4 D Limited has two production departments and two service departments at one of its factories
where absorption costing is used. Some forecast factory overheads have already been allocated
and apportioned as follows:

Cutting Assembly Maintenance Canteen
$ $ $ $
Factory overheads 223 480 217 980 45 270 36 260
The following forecast factory overheads are still to be apportioned.

$
Power 40 200
Canteen department overheads should be reapportioned on the basis of the number of employees.
Maintenance department overheads should be reapportioned on the basis of the number of
machines in production departments.
The following data is available.

Machinery at carrying value $90 000 $66 000 $18 000 $6 000
Number of machines 43 27
Kilowatt hours 1 800 1 500 100 200
Budgeted direct labour hours 23 000 62 500

14
REQUIRED
(a) Complete the following table to show the apportionment of factory overheads and the
reapportionment of service department overheads.

$ $ $ $
Factory overheads 223 480 217 980 45 270 36 260
Depreciation of machinery
Power
Total overheads
Reapportionment
Subtotal
Reapportionment
Total overheads
[5]
(b) Calculate, to two decimal places, an overhead absorption rate for each production
department, using a suitable basis.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
© UCLES 2023 9706/21/M/J/23

15
Cutting department Assembly department

Direct labour rate per hour $10.90 $8.20
Machine hours per unit 8 6
Labour hours per unit 3 4
Direct materials cost $6.95 per unit.
Selling prices are set to achieve a profit margin of 25%.
A customer has placed an order for 40 units.
REQUIRED
(c) Calculate the selling price to be quoted for this order of 40 units.
...................................................................................................................................................
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............................................................................................................................................. [5]

16
(d) State two causes of under absorption of overheads.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
At the other factory a single product, Product Exe, is currently being made. Marginal costing is
used at this factory.

Contribution per unit $13
Direct labour 2.5 hours per unit at $10 per hour
Fixed costs $96 000 per annum
Factory capacity 28 000 labour hours per year
Current production level 80% of factory capacity
All units produced are sold.
REQUIRED
(e) Calculate the profit made each year from Product Exe.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2023 9706/21/M/J/23

17
The directors plan to make a new product, Product Wye, at this factory at the request of an
important customer. The following details are available.
1 The factory will be able to operate at full capacity.
2 All units produced will be sold.
3 Product Wye will have a selling price of $64 per unit and a contribution of $8 per unit.
4 Product Wye will require direct labour at $10 per hour for 1.5 hours per unit.
5 The customer requires 10 000 units of Product Wye each year. The customer will only accept
this quantity each year.
6 In order to complete the customer’s order, production of Product Exe will be reduced.
7 Some new machinery will be required costing $36 000. Machinery is depreciated by 20% per
annum.
8 A loan of $20 000 at 5% per annum interest will be required to finance the purchase of the
new machinery.

18
REQUIRED
(f) Calculate the total profit from both products which will be made in the first year if this plan is
put into operation.
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...................................................................................................................................................
............................................................................................................................................. [5]
© UCLES 2023 9706/21/M/J/23

19
(g) Advise the directors whether this plan should be put into operation. Justify your answer by
considering both financial and non‑financial factors.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/21/M/J/23

20
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© UCLES 2023 9706/21/M/J/23

* 8 5 5 4 0 5 4 7 6 6 *
ACCOUNTING 9706/22
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (CE) 311673/3
2
1 J Limited’s financial year ended on 30 September 2022. The following balances were available on
this date.
$
8% Debentures (2025) 100 000
Finance costs 4 000
Inventory at 1 October 2021 54 000
Issued share capital: shares of $0.50 each at 420 000
1 October 2021
Non-current assets at 1 October 2021
Cost 1 300 000
Purchases 460 000
Retained earnings at 1 October 2021 125 000
Revenue 869 000
Share premium at 1 October 2021 210 000
1 Inventory at 30 September 2022 was valued at $57 000.
2 The balance of the account of a credit customer, $3000, should be written off as irrecoverable
and charged to administrative expenses.
3 The directors have agreed to create an allowance for irrecoverable debts of 5% of trade
receivables. The allowance should be charged to administrative expenses.
4 Debenture interest for the second half of the year is outstanding.
5 Non-current assets should be depreciated at 20% per annum using the straight-line method.
Depreciation should be allocated as follows:
Administrative expenses 60%

Distribution costs 40%
© UCLES 2023 9706/22/M/J/23

3
REQUIRED
(a) Prepare the statement of profit or loss for the year ended 30 September 2022. Use the space
provided to show your workings.
J Limited
Statement of profit or loss for the year ended 30 September 2022
..........................................................................................................................................................
..........................................................................................................................................................
..........................................................................................................................................................
..........................................................................................................................................................
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..........................................................................................................................................................
..........................................................................................................................................................
..........................................................................................................................................................
..........................................................................................................................................................
Workings:
Distribution costs
[11]

4
The directors found that the following transaction had not been recorded in the books of account:
On 30 September 2022 the directors had made a bonus issue of 2 ordinary shares for every
3 shares held. The directors had decided to maintain reserves in their most flexible form.
REQUIRED
(b) Calculate the balance of retained earnings at 30 September 2022 following the bonus issue.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
(c) State one reason why the directors of a company might decide to make a bonus issue.
...................................................................................................................................................
............................................................................................................................................. [1]
(d) Explain one reason why trade payables and potential lenders might approve of a company
making a bonus issue.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
© UCLES 2023 9706/22/M/J/23

5
(e) Identify three points the directors should consider when deciding whether to pay a dividend.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]

6
The directors of J Limited wish to improve the company’s liquidity. They will choose one of the
following options.
Option 1: allow trade receivables a cash discount of 5% for payment within 20 days.
Option 2: make all purchases on credit from a different supplier who is prepared to offer a trade
discount.
REQUIRED
(f) Advise the directors which option they should choose. Justify your choice by discussing both
options.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/22/M/J/23

7
2 Rudra prepares bank reconciliation statements for his business at the end of each month.
REQUIRED
(a) State three reasons why it is important to a business to prepare bank reconciliation statements
at regular intervals.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
On 31 March 2022 the balance shown in the business’s cash book (bank columns) was
$3060 overdrawn. This did not agree with the balance shown on the business’s bank statement on
this date. The difference in the two balances was accounted for by the following:
1 Rudra had omitted to record a direct debit for water charges of $442.
2 There were unpresented cheques: TK Stores $482, RH Supplies $1043.
3 Bank charges, $85, appeared on the bank statement but had not yet been recorded in the
cash book.
4 Rudra had debited the cash book with cash takings, $893, but this had not yet been recorded
by the bank.
5 A cheque payment to Peter, $320, had been correctly recorded in the bank statement, but
had been entered in the cash book as $230.
6 The bank statement included an entry for a dishonoured cheque for $582 received by Rudra
from Jamia. No entries had been made in the cash book to record the dishonoured cheque.
7 An error had been made in the cash book. Interest received, $225, had been correctly
recorded in the bank statement, but had been credited in the cash book.

8
REQUIRED
(b) Prepare the cash book to show the updated balance at 31 March 2022. Dates are not
required.
Cash book (bank columns)
$ $
[6]
(c) Prepare a bank reconciliation statement to show the bank statement balance at 31 March 2022.
Rudra
Bank reconciliation statement at 31 March 2022
$ $
Balance as per updated cash book
[4]
© UCLES 2023 9706/22/M/J/23

9
(d) Define each of the following terms:
(i) unpresented cheque
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) dishonoured cheque.
...........................................................................................................................................
..................................................................................................................................... [1]
[Total: 15]

10
3 Khaled opened his business on 1 January 2021 with a capital of $41 000. He did not maintain a
full set of accounting records.
Khaled wishes to know his profit or loss for the year ended 31 December 2021. He has provided
the following information.
1 Assets and liabilities at 31 December 2021
$
Bank loan 8 500
Inventory 18 450
Non-current assets (carrying value) 27 500
2 Non-current assets include a motor vehicle. This vehicle had been privately owned by Khaled
but during 2021 it was transferred to the business at a valuation of $9000.
3 During 2021 Khaled’s drawings were $14 870.
REQUIRED
(a) Calculate the business’s profit or loss for the year ended 31 December 2021.
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2023 9706/22/M/J/23

11
During 2022 Khaled kept more detailed records but could not provide a figure for revenue. The
following information is available at 31 December 2022.
$
Purchases 148 300
Khaled’s policy is to mark-up all goods by 50%.
REQUIRED
(b) Calculate revenue for the year ended 31 December 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(c) State two advantages to a business of maintaining a full set of accounting records.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(d) State two disadvantages to a business of maintaining a full set of accounting records.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

12
4 K Limited is a manufacturing company which has two production departments and one service
department at one of its factories. At this factory absorption costing is used.
REQUIRED
(a) Define each of the following terms:
(i) cost centre
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) allocation of overheads
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) apportionment of overheads.
...........................................................................................................................................
..................................................................................................................................... [1]
The following budgeted information is available for the year ended 31 August 2022.
Production departments
Cutting Finishing Service department
$ $ $
Factory overheads 273 820 189 240 31 350
The service department’s overheads are reapportioned on the basis of the number of employees
in each production department.
Cutting department Finishing department

Number of employees 125 84
© UCLES 2023 9706/22/M/J/23

13
REQUIRED
(b) Reapportion the service department’s overheads to the production departments.
Cutting department Finishing department Service department

$ $ $
Factory overheads 273 820 189 240 31 350
Reapportionment
Total overheads
[2]
The following forecast information is available for the year ended 31 August 2022.
Cutting Finishing
department department
Direct labour hours per annum 9 400 7 420
Machine hours per annum 17 900 3 840
REQUIRED
(c) Calculate an appropriate overhead absorption rate, correct to two decimal places, for each
production department:
(i) Cutting department
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Finishing department.
...........................................................................................................................................
..................................................................................................................................... [1]

14
The actual results for the year ended 31 August 2022 were as follows:
Cutting Finishing
department department
(d) Calculate the under-absorption or over-absorption of factory overheads for each production
department for the year ended 31 August 2022.
(i) Cutting department
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
(ii) Finishing department
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
© UCLES 2023 9706/22/M/J/23

15
At a second factory marginal costing is used.
A single product, Product X, is manufactured. However, demand for this product has fallen recently
due to increased competition.
The following information is available for Product X.
Per unit $
Direct materials 22
Direct labour 18
Contribution 20
Normal capacity is 14 000 units per month. The factory is currently operating at 75% of normal
capacity. All the units produced are sold. Fixed costs per month are $56 000.
(e) Calculate the profit for one month.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [1]
The directors are considering two options to increase profits.
Option A:
1 Reduce the selling price per unit by 5%.
2 Run a six-month advertising campaign at a cost of $1100 per month.
3 Monthly sales are forecast to increase by 25% on current levels.
Option B
1 Discontinue manufacture of Product X.
2 Produce a different product, Product Y, with a selling price of $58 per unit.
3 It is forecast that demand will be such that the factory can operate at 110% normal capacity.
4 Direct material cost will increase by 10% per unit.
5 Direct labour costs will remain unchanged. However, workers will be paid an overtime
premium of 50% for all work over normal capacity.
6 Machinery will need some alterations which will cost $54 000. Non-current assets are
depreciated by 25% per annum.
7 The company will need to borrow $30 000 to finance the cost of the machinery alterations.
Interest at 6% per annum will be charged on this loan.
16
REQUIRED
(f) Calculate the profit to be made on each option in the first month of production.
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [6]
© UCLES 2023 9706/22/M/J/23

17
(g) Advise the directors which option they should choose. Justify your answer by considering
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/22/M/J/23

18
BLANK PAGE
© UCLES 2023 9706/22/M/J/23

19
BLANK PAGE
© UCLES 2023 9706/22/M/J/23

20
BLANK PAGE
© UCLES 2023 9706/22/M/J/23

* 4 9 4 7 2 1 0 0 8 4 *
ACCOUNTING 9706/23
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (RW) 311555/4
2
1 Hamza owns a retail business with a financial year end of 31 December.
On 31 December 2022 inventory was valued at $15 330. However, this figure included 30 damaged
items which had a cost price of $32 each. Of the damaged items, 23 will be scrapped with no
value. The remaining 7 items will require repairs costing a total of $126 before being sold at the
normal price of $48 each.
REQUIRED
(a) Explain, with reference to an accounting concept, how damaged inventory should be valued.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(b) Calculate the corrected valuation of inventory at 31 December 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2023 9706/23/M/J/23

3
The following information has been extracted from the books of account at 31 December 2022.
Dr Cr
$ $
Discounts 840 620
Furniture and equipment
Cost 36 000
Insurance 4 320
Purchases 182 770
Rent payable 17 000
Returns 5 460 4 810
Revenue 299 490
Wages 37 330
At 31 December 2022:
1 No record had been made of goods taken by the owner for his own use, cost $550.
2 The balance of $760 on a credit customer’s account is to be written off as irrecoverable.
3 An allowance for irrecoverable debts of 5% is to be created based on the amount outstanding

from credit customers.
4 Rent of $5100 is paid at the end of every three months. Rent for the three months ending
31 January 2023 is accrued.
5 The policy is to depreciate furniture and equipment by 20% per annum using the straight‑line
method on a month‑by‑month basis. However, the furniture and equipment account includes
equipment purchased during the year that cost $6500 and on which depreciation of $650 has
not yet been charged.

4
REQUIRED
(c) Prepare the statement of profit or loss for the year ended 31 December 2022. Use the space
provided on page 5 for your workings.
Hamza
$ $
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
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................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
................................................................................................... ................... ...................
© UCLES 2023 9706/23/M/J/23

5
Workings:
[15]
(d) State the double entry required to record goods withdrawn by an owner for personal use.
Debit: ........................................................................................................................................
Credit: .......................................................................................................................................
[2]

6
Hamza is concerned that the performance of the business has declined in recent months. He is
considering two options to increase the gross profit of the business.
Option A: Purchase goods from a different supplier who is prepared to offer a large trade discount.
Hamza would need to order in bulk, but less frequently than now.
Option B: Increase selling prices and increase monthly expenditure on advertising.
REQUIRED
(e) Advise Hamza which option he should choose. Justify your answer by considering both
financial and non‑financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/23/M/J/23

7
2 Veda owns a retail business. Her accountant advised her to prepare a trial balance.
REQUIRED
(a) State two benefits of preparing a trial balance.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
On 31 March 2023 Veda prepared a trial balance but the totals did not agree. The debit column
totalled $84 050 and the credit column totalled $83 350. The difference was posted to a suspense
account.
The following errors were identified and corrected after which the trial balance totals agreed.
1 A payment of $740 to Opal Stores was recorded in the account of Opal Wholesale.
2 Sales returns of $340 from Kali had been correctly recorded in the sales returns journal, but
$430 had been posted to the debit side of Kali’s account.
3 The discount columns in the cash book had not been posted to the general ledger. Discounts
allowed totalled $530 and discounts received totalled $370.
4 A cheque for $560 received from W Limited had been dishonoured. The dishonoured cheque
was entered correctly in the cash book but had been posted as $650 to the customer’s
account.

8
REQUIRED
(b) Prepare journal entries to correct each of the errors. Dates and narratives are not required.
Journal
Dr Cr
Account
$ $
[7]
(c) Prepare the suspense account at 31 March 2023. Dates are not required.
Suspense account
$ $
[4]
(d) Define the term ‘error of principle’.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
[Total: 15]
© UCLES 2023 9706/23/M/J/23
9
3 On 1 January 2022 the directors of J Limited made a bonus issue of two ordinary shares for every
three ordinary shares held. The following is an extract from the company’s statement of financial
position immediately after the bonus issue.
Equity $
Ordinary shares of $0.50 each 1 000 000
Total equity 1 120 000
The directors financed the issue 60% from the share premium account and the remainder from
retained earnings.
REQUIRED
(a) Prepare an extract from the statement of financial position immediately before the bonus
issue, showing the equity section.
Equity $
Ordinary shares of $0.50 each
Share premium
Retained earnings
Total equity
Workings:
[5]

10
J Limited’s financial year ends on 31 March. On 31 March 2021 the directors paid an annual
ordinary share dividend of 20%. However, on 31 March 2022 the directors decided that the annual
ordinary share dividend would amount to $0.05 per share.
Hassan is a shareholder in the company. He owned 7200 shares before the bonus issue on
1 January 2022.
REQUIRED
(b) Calculate the change in the amount of dividend received by Hassan, comparing the dividend
at 31 March 2022 with the dividend at 31 March 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
(c) State two differences between capital reserves and revenue reserves.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(d) State three reasons why the directors of a company might reduce the total dividends payable.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 15]
© UCLES 2023 9706/23/M/J/23

11
4 V Limited is a manufacturing company which uses marginal costing.
REQUIRED
(a) Define:
marginal cost
...................................................................................................................................................
...................................................................................................................................................
contribution
...................................................................................................................................................
...................................................................................................................................................
break‑even point.
...................................................................................................................................................
...................................................................................................................................................
[3]
The following information is available for a single type of product made at one of the company’s
factories.
Per unit $
Selling price 52
Direct materials 16
Direct labour 18
Fixed costs per month are $36 900. Maximum output per month is 2500 units. The factory operates
at full capacity.
REQUIRED
(b) Calculate the break‑even point:
(i) in units
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) in sales value.
...........................................................................................................................................
..................................................................................................................................... [1]
12
The directors plan to increase factory capacity to meet increased demand. The following details
are available.
1 Factory capacity will be increased by 15%.
2 Additional machinery will be required at a cost of $72 000.
3 Machinery is depreciated at 20% per annum on cost.
4 The directors will apply for a bank loan of $60 000 at 8% per annum interest to finance the
cost of the additional machinery.
5 Direct materials will cost less per unit as a result of buying in greater bulk. Suppliers currently
give a 20% trade discount but will give a 25% trade discount in future.
6 Direct labour costs and selling price will remain unchanged.
REQUIRED
(c) Calculate the increase in the monthly margin of safety in units, assuming all production is
sold.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2023 9706/23/M/J/23

13
V Limited produces a different single type of product at another factory.
The following details are available:

Contribution per unit $8
Factory capacity per month 18 000 units
Currently the factory is operating at 85% capacity. All products are sold to regular customers.
The directors are considering accepting an order from a new customer. The following details are
available:
1 The order is for 4200 units per month.
2 The customer is considering making a regular order for this quantity.
3 The customer wishes the product to be packaged differently. This will add $0.50 per unit to
variable costs and will require investment in new machinery, adding $1000 per month to fixed
costs.
4 The customer has offered to pay $24 per unit.
Option A: Reject the order from the new customer.
Option B: Accept the order from the new customer, operate the factory at full capacity and reduce
the number of units supplied to regular customers.

14
REQUIRED
(d) Calculate the profit per month to be made under each option.
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [5]
© UCLES 2023 9706/23/M/J/23

15
(e) Advise the directors which option they should choose. Justify your answer by considering
both financial and non‑financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [7]

16
(f) Explain two advantages to a business of using absorption costing.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
[Total: 30]
© UCLES 2023 9706/23/M/J/23

* 0 2 1 4 4 3 8 3 6 4 *
ACCOUNTING 9706/21
Paper 2 Structured Questions October/November 2011
1 hour 30 minutes

Total
DC (CB (NB)) 33649/3

2
1 Iqbal runs a small trading business which has been in operation for several years. Iqbal pays all
sales receipts into the business bank account. The following is a summary of the bank account for
the year ended 31 March 2011.
Bank account summary for the year ended 31 March 2011
$ $
Balance b/d 4 650 Trade payables 37 000
Trade receivables 85 000 Motor expenses 4 100
Cash sales 24 000 Rent 6 000
Capital 36 000 Rates 2 200
Loan 14 000 Wages 43 000
1 Discounts received from suppliers during the year ended 31 March 2011 were $500.
2 Iqbal allowed his customers discounts of $1400 during the year ended 31 March 2011.
3 Iqbal had taken goods at a cost price of $2400 for his personal use.
4 The loan was received on 1 October 2010 and interest is payable at 10% per annum.
5 The loan is due to be repaid in five years’ time.
6 Iqbal has decided to create a provision for doubtful debts of 3% of the trade receivables
outstanding at 31 March 2011.
7 Included in the wages figure in the bank account summary are Iqbal’s drawings of
$25 000.
The remaining assets and liabilities of Iqbal were:
1 April 2010 31 March 2011

$ $
Inventory at cost 8 000 9 200
Fixtures and fittings (Net Book Value) 36 000 68 000
Delivery van (Net Book Value) 10 000 7 500
Motor expenses owing 300 –
Rent prepaid 400 600
Rates owing 200 –
Rates prepaid – 300
© UCLES 2011 9706/21/O/N/11

3
REQUIRED For
Examiner’s
(a) Prepare the income statement (trading and profit and loss account) for Iqbal for the year Use
ended 31 March 2011.
..........................................................................................................................................
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© UCLES 2011 9706/21/O/N/11 [Turn over
4
For
.......................................................................................................................................... Examiner’s
Use
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................................................................................................................................. [18]
© UCLES 2011 9706/21/O/N/11
5
(b) Prepare the statement of financial position (balance sheet) for Iqbal at 31 March 2011. For
Examiner’s
.......................................................................................................................................... Use
..........................................................................................................................................
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................................................................................................................................. [12]
[Total 30]

6
2 Klix Limited’s book-keeper prepared the following details about the firm’s outstanding trade For
receivables at 31 December 2010. Examiner’s
Use
Age of debt Trade Receivables

$
Up to 30 days 16 800
31 to 60 days 12 600
61 to 90 days 7 100
Over 90 days 1 300
The following rates are applied for the estimation of doubtful debts.
Age of debt %
Up to 30 days 1
31 to 60 days 2
61 to 90 days 3
Over 90 days 10
A provision for doubtful debts account is maintained. This had a balance of $800 on
1 January 2010.
The bad debts written off for the year ended 31 December 2009 amounted to $1420.
Debbie, a customer who owed the company $700, has recently been declared bankrupt.
This amount had been included in the details above as ‘outstanding for 61 to 90 days’. It has
been decided to write off the debt immediately.
On 2 October 2010, Harvey, a credit customer, ceased trading and Klix Limited received
payment of $0.25 in the dollar in final settlement of the debt of $600. The remainder had
been written off as a bad debt.
Other bad debts written off during the year ended 31 December 2010 totalled $350. These
had been taken into account when drawing up the list of trade receivables above.
REQUIRED
(a) Calculate the amount which should be provided as a provision for doubtful debts at
31 December 2010. Show your workings.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
................................................................................................................................... [6]
© UCLES 2011 9706/21/O/N/11

7
(b) Prepare the following ledger accounts for the year ended 31 December 2010, showing For
the closing entry to the final accounts at the end of the year. Examiner’s
Use
(i) Provision for doubtful debts account
..................................................................................................................................
..................................................................................................................................
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........................................................................................................................... [3]
(ii) Bad debts account
..................................................................................................................................
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........................................................................................................................... [5]
(iii) Harvey account
..................................................................................................................................
..................................................................................................................................
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..................................................................................................................................
........................................................................................................................... [3]

8
(c) Prepare an extract from the statement of financial position (balance sheet) at For
31 December 2010 showing the net amount of trade receivables. Examiner’s
Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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..........................................................................................................................................
................................................................................................................................... [2]
Klix Limited’s directors are reviewing the existing policy for calculating the provision for
doubtful debts.
They are considering applying a 4% rate to all debts as the basis for calculation.
REQUIRED
(d) (i) Calculate the effect of this change on the provision for doubtful debts.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
........................................................................................................................... [2]
(ii) Explain how this change would affect the company’s income statement and
statement of financial position.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
........................................................................................................................... [2]
© UCLES 2011 9706/21/O/N/11

9
(iii) Explain why this change might be necessary. For

Examiner’s
.................................................................................................................................. Use
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
........................................................................................................................... [4]
(e) State three factors that the directors should consider when creating a provision for
doubtful debts.
(i) ..................................................................................................................................
..................................................................................................................................
(ii) ..................................................................................................................................
..................................................................................................................................
(iii) ..................................................................................................................................
..................................................................................................................................
[3]
[Total 30]

10
3 Tattersall Ltd manufactures a single product. They have two production and two service For
departments. Examiner’s
Use
The following information relates to a four-week period.
Production Departments Service Departments

Machining Assembly Maintenance Canteen
Overheads $143 500 $154 700 $165 800 $176 900
Direct machine hours 18 845 14 050 – –
The service departments’ overheads are apportioned to the production departments on the
following basis:
Machining Assembly Canteen
Maintenance 60% 30% 10%
Canteen 40% 60% –
REQUIRED
(a) Prepare an overhead absorption apportionment table clearly showing the reapportionment
of the service departments’ overheads to the appropriate departments for one period.
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................................................................................................................................... [8]
© UCLES 2011 9706/21/O/N/11
11
(b) Calculate the overhead absorption rate for each production department. For
Examiner’s
State the bases used. Use
Show your answer to two decimal places.
..........................................................................................................................................
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..........................................................................................................................................
................................................................................................................................... [8]
The manager of Tattersall Ltd calculates selling price per unit based on full cost plus a 25%
mark-up.
The costs per unit are:
Materials 3 metres at $4 per metre

Labour 7 hours at $8 per hour
Each unit takes 3 hours in the machining department and 4 hours in the assembly
department.
All overheads are fixed.
REQUIRED
(c) Calculate the full cost per unit.
..........................................................................................................................................
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................................................................................................................................... [5]
12
(d) Calculate the selling price per unit. For

Examiner’s
.......................................................................................................................................... Use
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(e) Calculate the number of units Tattersall Limited has to produce and sell in each period
to break-even.
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(f) State two limitations of break-even analysis.
(i) ..................................................................................................................................
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(ii) ..................................................................................................................................
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[2]
[Total 30]
© UCLES 2011 9706/21/O/N/11

* 3 5 3 9 1 9 8 7 2 9 *
ACCOUNTING 9706/22
1 hour 30 minutes

Total
DC (SM/SW) 35770/2
2
1 Kirsty, a sole trader, prepared the following trial balance at 30 April 2011. For
Examiner’s
Use
$ $
Rent 4 000
Insurance 3 300
Salaries 14 000
Electricity 2 000
Capital 44 000
Bad debts 200
Drawings 6 000
Inventory 3 600
10% Loan 15 000
Loan interest 1 250
Commission received 730
Ordinary goods purchased 56 000
Revenue 108 000
Sales returns 4 800
Discounts allowed 600
Equipment 48 000
Provision for depreciation of equipment 14 400
Provision for depreciation of motor vehicles 10 800
200 150 200 150
1 The closing inventory at 30 April 2011 was valued at $4200.
2 Included in the general expenses is an item of equipment purchased during the

year for $1200. This item has not yet been included in the equipment account.
3 A cheque for $800 received from a credit customer has not yet been entered in the
accounts.
4 At 30 April 2011:
loan interest owing amounted to $250
electricity owing was $380
insurance was prepaid by $460
5 During the year Kirsty had withdrawn, for her personal use, goods costing $1800.
This has not been recorded in the accounts.
6 Commission receivable of $150 was owing to Kirsty at 30 April 2011.
7 The provision for doubtful debts is to be provided for a specific debt of $200, plus
2% of the remaining debtors.
© UCLES 2011 9706/22/O/N/11
3
8 One half of the 10% loan is repayable during the year ending 30 April 2012, and the For
balance is repayable after that date. Examiner’s
Use

Equipment 10% per annum on cost.
A full year’s depreciation is provided on all equipment held at 30 April 2011,
regardless of the date of purchase.
Motor vehicles 25% by the reducing (diminishing) balance method. There were
no additions or disposals during the year.
REQUIRED
(a) Prepare the income statement (trading and profit and loss account) for Kirsty for the
year ended 30 April 2011.
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For
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Use
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© UCLES 2011 9706/22/O/N/11
5
(b) Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011. For
Examiner’s
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6
For
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Use
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© UCLES 2011 9706/22/O/N/11

7
During May 2011 Kirsty purchased new machinery with the following pricing details. For
Examiner’s
Use
$
List price 60 000
10% trade discount 6 000
Delivery costs 1 000
Installation costs 2 000
The machinery maintenance costs are estimated to be $5000 per annum.
Kirsty plans to keep the machinery for 5 years and then dispose of it for an estimated residual
value of $4000.
REQUIRED
(c) Calculate the cost figure which should be used as the basis for depreciation.
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(d) Calculate the annual depreciation charge using the straight line method.
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(e) Prepare the Disposal of Machinery Account if the machinery is sold for $12 000 at the
end of four years.
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[Total: 30]

8
2 Answer Section A and Section B. For

Examiner’s
A The sales ledger control account of Dream Beds for the year ended 31 December 2010 Use
is shown below.
$ $
Jan 1 Balance b/d 43 900 Dec 31 Sales returns 28 510
Dec 31 Sales 522 650 Bank 436 300
Bank (dishonoured cheques) 2 200 Discount allowed 28 800
Bad Debts 8 400

PLCA 3 210
Balance c/d 63 530
568 750 568 750
The schedule of trade receivables (debtors) extracted from the sales ledger at
31 December 2010 totalled $61 140.
The following errors were subsequently discovered:
1 A sale of $750 had been entered in John’s account in the sales ledger as
$570. The correct entry had been made in the sales journal.
2 An entry of $850 was correctly entered in Samera’s account in the sales ledger,
closing the account owing to Samera’s bankruptcy. No other entry had been
made.
3 A sum of $120 discount allowed had been debited to Beach’s account in the
sales ledger. The correct entry had been made in the cash book.
4 At 31 December 2010 the balances in Richard’s accounts were:
$
Purchases Ledger 2680 Credit
Sales Ledger 1980 Debit
It was decided to set off Richard’s balance in the sales ledger against the
balance in the purchases ledger. No entries had been made.
5 Goods to the value of $800 were sold to Claire in June 2010, and the account
had not yet been paid. Interest charges of $30 are to be applied on the overdue
account, but no entries for this had yet been recorded.
In addition a provision for doubtful debts of 10% on the new outstanding

balance is to be created.
6 Dream Beds had sent goods with a selling price of $400 on a sale or return
basis to Majit. Majit had not yet signified any intention to purchase the goods.
Dream Beds had considered the goods as sold, and made the relevant
accounting entries.
7 A page in the sales returns journal in October 2010 had been undercast by
$1600. No correction had yet been made.
© UCLES 2011 9706/22/O/N/11

9
REQUIRED For
Examiner’s
(a) Prepare the corrected sales ledger control account for the year ended 31 December 2010. Use
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(b) Prepare a statement reconciling the schedule of trade receivables (debtors) total with
the corrected balance in the sales ledger control account.
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10
(c) Explain two advantages of using a sales ledger control account. For
Examiner’s
(i) .................................................................................................................................. Use
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(ii) ..................................................................................................................................
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B S Turner owns a food wholesale business. The following amounts were extracted from
books of account at 31 December 2010.
$
Inventory – 1 January 45 000
Inventory – 31 December 65 000
Business expenses 130 000
Capital – 31 December 2010 1 125 000
The mark up on goods is 25%.
REQUIRED
(a) Calculate the profit for the year (net profit) ended 31 December 2010.
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(b) Calculate the following ratios, giving your answer to one decimal place.
(i) Return on capital employed
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© UCLES 2011 9706/22/O/N/11

11
(ii) Inventory turnover (as a number of times) For

Examiner’s
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(iii) Liquid (acid test) ratio.
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S Turner is considering expanding her business by purchasing another food wholesale

business.
She has obtained the following information on two possible business purchases.
Paradis Jones
Foods Wholesalers
Return on capital employed 15% 6%
Current ratio 3.4:1 1.8:1
Liquid (acid test) ratio 0.5:1 1.4:1
REQUIRED
(c) Advise which business, if any, she should purchase on the basis of all of the
information provided. Justify your answer.
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[Total: 30]
12
3 Mary Smith’s sales and costing information for the year ended 31 December 2010 included For
the following: Examiner’s
Use
Sales (units) 25 000

Total costs for the year $

Variable overheads 50 000
Fixed costs 180 000
REQUIRED
(a) Calculate the following for the year ended 31 December 2010.
(i) Contribution per unit
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(ii) Break even output level in units
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© UCLES 2011 9706/22/O/N/11
13
(iii) The margin of safety expressed both in units and as a percentage of sales. For
Examiner’s
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(b) State three fixed costs a business typically incurs.
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(c) Explain what is meant by the term ‘stepped costs’.
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14
During 2011 sales (in units) were expected to remain at the 2010 level of 25 000 units. For
Examiner’s
Mary Smith is in the process of compiling her 2012 budget. Research has indicated a potential Use
increase in sales (in units) of 60% compared with the 2010 level. The company is assuming
that selling price and all variable costs per unit in 2012 will remain at the 2010 level.
The current production level is 32 000 units per annum.
To increase production further would require:
capital investment of $3 000 000;
an increase in fixed costs of $195 000 per annum.
REQUIRED
(d) Prepare and label a break-even chart for 2012, taking into account all of the potential
amendments.
Use the space below for your workings.
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[6]
© UCLES 2011 9706/22/O/N/11

15
(e) Increasing production will allow the firm to potentially earn more profit. However, it could For
pose significant risks to the business. Examiner’s
Use
Evaluate the above statement using your answers to parts (a) and (d).
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[Total: 30]
© UCLES 2011 9706/22/O/N/11

16
BLANK PAGE
© UCLES 2011 9706/22/O/N/11

* 3 0 4 8 4 0 2 0 0 7 *
ACCOUNTING 9706/23
1 hour 30 minutes

Total
DC (SM) 35772/4
2
1 Carl and Daniel are in partnership. Their partnership agreement provides that: For
Examiner’s
1 Daniel has a partnership salary of $3000 per annum Use
2 Interest on capital is 6% per annum
3 Interest on drawings is charged
4 Residual profits / losses are shared 3:2 respectively.
The partners have never kept full accounting records but provided the following information:
Cash book summary for the year ended 31 December 2010
$ $
Balance b/d 2 178 Trade payables 195 911
Trade receivables 44 049 Wages 63 156
Cash sales 332 467 Purchase of machine 8 800
Rent received 7 000 General expenses 56 676
Drawings – Carl 35 660
Drawings – Daniel 26 480
The assets and liabilities were:

$ $
Fixed capital account – Carl 100 000Cr 100 000Cr
Fixed capital account – Daniel 70 000Cr 70 000Cr
Current account – Carl 3 210Cr ?
Current account – Daniel 1 304Cr ?
Machinery (Net Book Value) 147 000 145 000
Motor vehicle (Net Book Value) 16 000 8 000
Inventory 14 003 13 471
Wages accrued 612 938
Rent receivable accrued 500 –
Rent receivable prepaid – 500
1. During the year, an old machine which had cost $10 000 was traded in for $3200 in part
exchange for a new machine costing $12 000. The old machine had been depreciated
by $6000 over its lifetime.
2. Interest on drawings for the year amounted to:

Carl – $230
Daniel – $100
© UCLES 2011 9706/23/O/N/11

3
REQUIRED For
Examiner’s
(a) Prepare the income statement (trading and profit and loss account) and appropriation Use
account for Carl and Daniel for the year ended 31 December 2010.
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For
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Use
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© UCLES 2011 9706/23/O/N/11

5
(b) Prepare the partners’ current accounts (in columnar format) for the year ended For
31 December 2010. Examiner’s
Use
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[Total: 30]
6
2 Answer Sections A and B. For

Examiner’s
A Sarah runs a wholesale business. An extract from her statement of financial position Use
(balance sheet) at 31 December 2009 shows:
Motor vehicles at cost $371 000

Motor vehicle accumulated depreciation $130 000
During the financial year ended 31 December 2010 the following transactions took place.
1 A motor vehicle purchased on 1 January 2006 for $9200 was sold on

30 June 2010 for $500.
2 A motor vehicle was purchased on 1 April 2010 for $15 000.
Depreciation is charged at 20% per annum on cost, with the rate being applied for each
part of the year. No allowance is made for any residual value.
All motor vehicles held by the company at 31 December 2010 had been purchased
within the previous five years.
All transactions are by cheque.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 31 December 2010.
(i) Motor vehicles account
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(ii) Provision for depreciation of motor vehicles account
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© UCLES 2011 9706/23/O/N/11
7
(iii) Motor vehicle disposal account For

Examiner’s
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(b) Prepare an extract from the statement of financial position (balance sheet) for
non-current assets at 31 December 2010.
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(c) Explain why businesses provide for depreciation on their non-current assets.
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8
B The treasurer of Hamilton Social Club has provided the following information for the For
year ended 31 March 2011. Examiner’s
Use
31 March 2010 31 March 2011

$ $
Café inventory at cost 3400 3950
Café trade payables 1570 880
Subscriptions in arrears 240 120
Equipment (net book value) 5400 9360
Stock of stationery at cost 110 85
Cash at bank 1800 340
5% loan (repayable 2015) – 5000
Equipment costing $5000 was purchased on 1 April 2010. It was financed by the 5% loan.
At the year end 31 March 2011, no payment of interest had been made.
Included in the café inventory at 31 March 2011 were items costing $120 that were out
of date. They had a net realisable value of $30.
REQUIRED
(a) Prepare a statement of financial position (balance sheet) for Hamilton Social Club
at 31 March 2011. Show clearly the surplus or deficit for the year. An income and
expenditure account is not required.
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© UCLES 2011 9706/23/O/N/11

9
For
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Use
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[Total: 30]
10
3 Redwood Manufacturing Ltd started in business on 1 January 2008 to manufacture furniture For
to customers’ special requirements. The following information is available for its first three Examiner’s
years in business. Use
2008 2009 2010

$ $ $
Fixed Costs 60 000 66 000 70 000
Direct materials (per unit) 15 15 16
Direct labour (per unit) 8 9 9
Variable overheads (per unit) 4 6 7
The production and sales quantities during the period were:
Production (units) 15 000 12 000 16 000
Sales (units) 12 000 13 000 16 000
All inventory has been valued using FIFO.
REQUIRED
(a) Prepare a statement showing the gross profit for each of the three years if the company
used
(i) marginal costing principles to valuing inventory (stock);
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© UCLES 2011 9706/23/O/N/11
11
(ii) absorption costing principles to valuing inventory (stock). For

Examiner’s
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12
(b) Prepare a statement to reconcile the amounts of profit for each of the three years For
calculated under both marginal costing and absorption costing principles. Examiner’s
Use
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[Total: 30]
© UCLES 2011 9706/23/O/N/11

*3332318742*
ACCOUNTING 9706/21
1 hour 30 minutes
Candidates answer on the Question Paper

For Examiner's Use
Total
IB12 11_9706_21/2RP
2
1 Aziz has been in business for several years, but does not keep proper books of For Examiner's
account. He provides you with the following list of balances for the financial year ended Use
30 June 2011.
$
Motor vehicles (cost $65 000) 50 000
Fixtures (cost $48 000) 32 000
Accrued expenses 500
Inventory 6 000
Premises at cost 100 000
A summary of his receipts and payments for the year ended 30 June 2012 is as
follows:
$ $
Receipts Payments
Receipts from credit Payments to credit
customers 132 900 suppliers 88 600
Sale of old motor vehicle 3 600 Purchase of vehicle 15 000
Cash sales 6 600 Expenses paid 17 400
At 30 June 2012 trade receivables were $20 500 and trade payables were $13 600.
REQUIRED
(a) Calculate the purchase of goods for resale for the year ended 30 June 2012.
[3]
© UCLES 2012 9706/21/O/N/12

3
(b) Calculate the total sales for the year ended 30 June 2012. For
Examiner's
Use
[5]

4
Aziz earns a uniform gross profit of 40% on all his sales. Early in June 2012 he For
had a flood in his premises which damaged some of his stock and made it Examiner's
Use
impossible to sell. He has valued his remaining stock at 30 June 2012 at a selling
price of $14 000.
REQUIRED
(c) Calculate the cost of the stock destroyed in the flood.
[7]
The vehicle which Aziz sold during the year ended 30 June 2012 had been
purchased on 30 September 2009 for $16 000. Aziz depreciates his vehicle at 25%
per annum using the straight line method. He charges a full year's depreciation in
the year of purchase and none in the year of disposal. He received $5 000 as a
trade-in allowance for the new vehicle.
REQUIRED
(d) Calculate the profit or loss on the disposal of the vehicle.
[5]
© UCLES 2012 9706/21/O/N/12

5
Aziz depreciates his fixtures at 10% per annum using the reducing balance method. For
He also wants to create a provision for doubtful debts equal to 3% of his trade Examiner's
Use
receivables. At 30 June 2012 he had prepaid expenses of $320.
REQUIRED
(e) Prepare Aziz's income statement for the year ended 30 June 2012.
[10]
[Total: 30]

6
2 The PPE Rowing Club prepares its accounts annually on 31 March.
The summary of the Receipts and Payments Account for the year ended 31 March
2012 is shown below.
Balance b/d 3 000 Competition prizes 3 100
Subscriptions received 84 400 Dinner dance – hire of band 2 400
Competition receipts 12 200 Dinner dance – catering 5 200
Dinner dance ticket sales 14 000 Insurance 9 800
Donations 1 500 Clubhouse maintenance 10 300
Sale of equipment 24 000 Equipment 46 000
Electricity 1 600
Transfer to deposit account 20 000
1 The remaining assets and liabilities of the club at the beginning and end of the
year were:
1 April 2011 31 March 2012
$ $
Clubhouse 150 000 150 000
Equipment 160 000 140 000
General expenses owing 800 400
Subscriptions due and unpaid 2 600 3 100
Stock of competition prizes 800 300
Deposit account - 20 000
2 During the year equipment with a book value of $26 000 was sold for $24 000.
3 Of the subscriptions due on 1 April 2011, $280 remains unpaid. This is to be

treated as a bad debt.
4 On 1 October 2011, $20 000 was transferred from the Receipts and Payments
Account to a short-term deposit account. This transfer is shown in the
summarised Receipts and Payments Account above. Interest of 5% per annum is
earned on the deposit account. This interest has not yet been recorded.
© UCLES 2012 9706/21/O/N/12

7
REQUIRED For
Examiner's
Use
(a) Prepare the subscriptions account for PPE Rowing Club for the year ended
31 March 2012.
[7]

8
(b) Prepare the income and expenditure account for PPE Rowing Club for the year For
ended 31 March 2012. Clearly identify the profit or loss on the dinner dance and Examiner's
Use
competitions.
[13]
© UCLES 2012 9706/21/O/N/12

9
(c) Prepare the statement of financial position for PPE Rowing Club at 31 March 2012. For
Examiner's
Use
[10]
[Total: 30]

10
3 Cumfycars Ltd produce 3 grades of car seat covers, Basic, Deluxe and Super. Each For
Examiner's
seat cover is manufactured using a different grade of material. Use
Sales demand for the year ended 30 April 2013 is forecast to be:
Basic Deluxe Super

Sales demand (units) 4000 2000 500
The following figures are available:
Per Unit Basic Deluxe Super
Sales price $12 $20 $30
Variable costs $6 $14 $16
Direct labour hours 3 5 8
Total fixed overhead costs for the year ending 30 April 2013 are estimated to be
$39 000.
Fixed overhead costs are absorbed on the basis of direct labour hours.
REQUIRED
(a) (i) Calculate the total direct labour hours required to meet the forecast demand
for all 3 products.
[2]
(ii) Calculate the estimated fixed overhead recovery rate.
[3]
(iii) Calculate the estimated contribution per unit for each product.
[3]
© UCLES 2012 9706/21/O/N/12

11
(iv) Calculate the estimated contribution per direct labour hour for each For
Examiner's
product. Use
[3]
The human resource manager has warned of a future skill shortage and forecasts that
only 24 400 direct labour hours will be available for the year ended 30 April 2013.
(b) Calculate the quantity of each product that should be made in order to maximise
total profit if this forecast is correct.
[4]

12
(c) (i) Prepare a statement showing the net profit or loss made by each product For
Examiner's
(Basic, Deluxe and Super) for the year ending 30 April 2013. Use
[7]
(ii) Using the estimated fixed overhead recovery rate calculated in (a) (ii)
clearly show any fixed overhead over/under-absorbed.
[3]
© UCLES 2012 9706/21/O/N/12

13
Cumfycars Ltd also produce car roof racks in separate premises. For
Examiner's
Use
The total forecast fixed costs for the year ending 30 April 2013 amount to $10 000.
Each roof rack has the following unit costs:
Unit costs $
Raw materials 40
Direct labour 30
Variable Overheads 25
There are no other costs. Each roof rack sells for $100.
REQUIRED
(d) Calculate the estimated break-even point in units and in sales revenue.
[3]
(e) Calculate the estimated margin of safety in units and revenue if 2200 units are
produced.
[2]
[Total: 30]
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*6093861380*
ACCOUNTING 9706/22
1 hour 30 minutes

For Examiner's Use
Total
IB12 11_9706_22/2RP
2
1 Sharon Woo does not maintain full accounting records but is able to provide the following
cash receipts and payments information for the year ended 30 April 2012.
Cash receipts $ Cash payments $

Cash sales 260 000 Payments to credit suppliers 216 000
Receipts from trade debtors 40 000 Equipment 20 000
Disposal of surplus equipment 4 800 Wages 22 000
Drawings 48 000
Rent 10 000
1 Balances 1 May 2011 30 April 2012

$ $
Premises 100 000 100 000
Bank 8 000 3 200 Cr
Equipment 24 000 36 400
Rent prepaid 1 200 1 600
Inventory 16 800 20 800
2 Surplus equipment was sold at a loss of $400
3 The sales figure does not include $18 000 of which Sharon Woo took $6 000 for
her own use and the remainder was used to pay wages.
4 Discounts allowed during the year amounted to $7200.
5 Discounts received during the year amounted to $10 800.
© UCLES 2012 9706/22/O/N/12

3
REQUIRED For
Examiner's
Use
(a) Calculate Sharon Woo’s capital at 1 May 2011.
[4]

4
(b) Prepare Sharon Woo’s income statement for the year ended 30 April 2012. For
Examiner's
Use
[20]
© UCLES 2012 9706/22/O/N/12

5
(c) Calculate the return on capital employed for the year ended 30 April 2012 (to For
two decimal places) using the opening capital figure. Examiner's
Use
[3]
(d) Advise Sharon Woo how she can use the figure for return on capital employed
to assess the performance of her business.
[3]
[Total: 30]

6
2 Amina and Nizam are in partnership sharing profits and losses in the ratio of 3:5. Their For
Examiner's
accounting year ended on 31 December 2011. Use
The partnership agreement also states that:
1 Amina receives a salary of $24 450 annually;
2 Interest on drawings is charged at 5% on annual drawings;
3 Interest on capital is payable at the rate of 4% per annum.
The following balances were extracted from the books on 1 January 2011.
Capital account Current account

Amina $140 000 $8 400 Dr
Nizam $240 000 $3 200 Dr
On 1 July 2011, Amina paid an additional $20 000 capital into the business bank
account.
Drawings for the year were Amina $26 000, Nizam $35 000.
Profit for the year before appropriations was $120 000.
REQUIRED
(a) Prepare the appropriation account for Amina and Nizam for the year ended
31 December 2011.
[6]
© UCLES 2012 9706/22/O/N/12

7
(b) Prepare the current accounts for Amina and Nizam for the year ended For
Examiner's
31 December 2011. Use
[6]

8
On 1 January 2012, Amina and Nizam agree to admit Sarah as a partner. For
Examiner's
Use
At that date goodwill was valued at $40 000. The following were also agreed about the
new partnership:
1 Goodwill would not remain in the books;
2 Amina, Nizam and Sarah would share profits and losses in the ratio 3:5:2
respectively;
3 Sarah would put $70 000 cash into the business;
4 Sarah would bring into the partnership inventory at a value of $30 000 and a
motor vehicle valued at $20 000.
REQUIRED
(c) Prepare the capital accounts for Amina, Nizam and Sarah at 1 January 2012.
[6]
© UCLES 2012 9706/22/O/N/12

9
In July 2012, Amina, Nizam and Sarah discovered several errors that had been made in For
Examiner's
their accounts. Their trial balance failed to agree and the difference was entered into a Use
suspense account.
1 The revenue (sales) account had been overcast by $18 200.
2 Discounts received of $9 600 had been entered on the debit side of the discounts
allowed account.
3 Simon, a debtor, had paid a cheque for $9 400 to clear his account. His account
had been credited for this amount but no entry had been made in the cash book.
REQUIRED
(d) Prepare journal entries to correct each of the errors which had been discovered
(narratives are not required).
[8]

10
(e) Prepare the suspense account, clearly showing the balance brought forward. For
Examiner's
Use
[4]
[Total: 30]
© UCLES 2012 9706/22/O/N/12

11
3 Rapunzel Ltd produce three types of shampoo: Aloe, Hazel and Peach. For
Examiner's
Use
Each shampoo uses the same manufacturing process but contains different
ingredients.
The following data is available for the 6 months ended 31 October 2012.
Aloe Hazel Peach

Sales (litres) 120 000 39 000 60 000
Selling price per litre $8.00 $14.00 $10.00
Direct materials per litre $2.70 $7.80 $5.36
Variable overheads per litre $1.80 $2.20 $1.00
Direct labour rate per hour $3.20 $3.20 $3.20

Output per labour hour (litres) 8 4 5
Total fixed costs of $477 750 for the 6 months were recovered at the rate of $13.00 per
direct labour hour.
No inventory is kept and all output is sold in the month of production.
REQUIRED
(a) Calculate the total direct labour hours required for the 6 months ended
31 October 2012.
[2]

12
(b) Prepare a statement showing the net profit or loss for each of the three For
Examiner's
products, and the total profit made for the six months ended 31 October 2012. Use
[12]
(c) Calculate the contribution made per direct labour hour for each product.
[3]
© UCLES 2012 9706/22/O/N/12

13
One of the directors suggests that production of the Hazel shampoo should be For
Examiner's
stopped and resources should be concentrated on the production of the Aloe and Use
Peach shampoos.
If this decision is implemented:

• The sales of Aloe and Peach shampoos are forecast to increase by 10% each;
• There will be no increase in the selling price;
• The rates for variable costs will remain unchanged;
• Higher marketing costs will increase the total fixed costs to $550 000.
REQUIRED
(d) Prepare a statement showing the expected net profit or loss for the Aloe and
Peach shampoos and the total expected net profit for the 6 months ending
30 April 2013.
Using the overhead recovery rate of $13.00 per direct labour hour clearly show
any fixed overhead over/under absorbed.
[9]

14
(e) Based on your calculations in (b) and (d) above, advise the Board of Directors For
Examiner's
regarding the future production of the range of shampoos. Use
[4]
[Total: 30]
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16
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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where
possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance
have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity.
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand
name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2012 9706/22/O/N/12

*3301140827*
ACCOUNTING 9706/23
1 hour 30 minutes

For Examiner's Use
Total
IB12 11_9706_23/4RP
2
1 On 31 March 2012 the following balances were extracted from the books of YCAT.
$
Inventory – 1 April 2011 Raw materials 53 000
Raw materials purchased 800 000
Revenue 2 500 000
Direct wages 450 000
Carriage inwards on raw materials 6 000
Returns outwards on raw materials 18 500
Revenue returns 22 000
Rates and insurance 38 000
General factory overheads 93 000
Loan interest paid 5 000
General office expenses 100 000
Premises 600 000
Factory machinery at cost 220 000
Provision for depreciation of factory machinery 40 000
10% Long term loan 100 000
.
$
1 Inventory – 31 March 2012 Raw materials 47 000
2 The provision for doubtful debts is to be 5% of trade receivables.
3 At 31 March 2012 rates and insurance owing amounted to $950. Rates and
insurance are apportioned between the factory and general office in the ratio of
4:1 respectively.
4 Depreciation is to be provided on premises at 5% per annum straight line. This is

apportioned between the factory and general office in the ratio of 4:1 respectively.
5 Depreciation on factory machinery is to be provided at 15% using the reducing

balance method.
© UCLES 2012 9706/23/O/N/12

3
REQUIRED For
Examiner's
Use
(a) Prepare the manufacturing account for the year ended 31 March 2012.
[13]

4
(b) Prepare the income statement for the year ended 31 March 2012. For
Examiner's
Use
[11]
© UCLES 2012 9706/23/O/N/12

5
(c) Define the prudence concept. State three examples of how this has been For
Examiner's
applied in the financial statements. Use
[6]
[Total: 30]

6
2 Maurice and Ravel had been in partnership for a number of years, sharing profits and For
losses equally. Examiner's
Use
On 1 July 2011, they decided to admit Bach as a partner. Bach paid $39 000 capital
into the partnership and also provided a motor van, valued at $8000, for partnership
use.
A new partnership agreement was drawn up, effective from 1 July 2011 which stated:
1 Profits and losses will be shared by Maurice, Ravel, and Bach in the ratio
2:2:1.
3 Interest on drawings is charged at 5% on annual drawings.
4 Ravel would receive an annual salary of $10 000 per annum.
Goodwill in the business was valued at $40 000 and the partners agreed that this
would not remain in the books.
Capital accounts before goodwill – 1 July 2011 Maurice $120 000

Ravel $ 80 000
REQUIRED
(a) Prepare the capital accounts for all three partners at 1 July 2011.
[5]
© UCLES 2012 9706/23/O/N/12

7
The following additional information relates to the year ended 30 June 2012 For
Examiner's
Use
$
Revenue 2 600 000
Revenue (sales) returns 200 000
Purchases 1 625 000
Inventory: 1 July 2011 120 000
Inventory: 30 June 2012 145 000
Current accounts – 1 July 2011 Maurice 17 000 Cr
Ravel 12 000 Dr
Drawings Maurice 96 000
Ravel 120 000
Bach 35 000
REQUIRED
(b) (i) Prepare the income statement for the year ended 30 June 2012
[6]

8
(ii) Prepare the appropriation account for the year ended 30 June 2012. For
Examiner's
Use
[9]
© UCLES 2012 9706/23/O/N/12

9
(c) Prepare the current accounts for all three partners at 30 June 2012. For
Examiner's
Use
[7]

10
(d) The partners are now considering changing their business from a partnership to For
a limited company. Explain to the partners the meaning of the term ‘limited Examiner's
Use
liability’.
[3]
[Total: 30]
© UCLES 2012 9706/23/O/N/12

11
3 ABG Ltd manufactures three products, Alpha, Beta and Gamma, all of which are made For
Examiner's
from one basic raw material. Use
Forecast costs and selling prices are as follows.
Product Alpha Beta Gamma

Sales per month (units) 9 000 12 000 7 000
$ $ $
Selling price per unit 72 74 58
Variable costs per unit:
Variable overheads 14 13 12
The total fixed costs are $250 000 each month.
REQUIRED
[3]

12
(b) Calculate the total monthly profit which can be achieved. For
Examiner's
Use
[5]
Due to a material shortage, ABG Ltd will only receive 80% of its material requirement
for the month of April 2013. No other shortages are expected.
REQUIRED
(c) Using the quantity of material that is available, prepare a statement to show the
maximum profit that could be achieved for the three months ended
30 April 2013.
[12]
© UCLES 2012 9706/23/O/N/12

13
(d) ABG Ltd has received an enquiry for an additional order of 3000 units of For
Examiner's
Gamma at a special price of $50 per unit. Additional fixed costs of $15 000 Use
would be incurred.
Assuming no material shortage, calculate the profit or loss on this order.
[4]
(e) Identify three factors which ABG Ltd should consider when deciding whether to
accept this additional order for Gamma.
[2]
[2]
[2]
[Total: 30]
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*6483509957*
ACCOUNTING 9706/21
1 hour 30 minutes

IB13 11_9706_21/4RP
2
1 Booksellers Limited prepared the following trial balance for the year ended
31 December 2012:
$000 $000
Gross profit for the year 415

Wages and salaries 127
Rent 44
Heating and lighting 15
Motor expenses 50
Office expenses 19
Insurance 15
Discount allowed 2
Other expenses 53
Inventory at 31 December 2012 37
Provision for doubtful receivables 4
Bank 37
Trade payables 15
Goodwill 44
Motor vehicles at cost 176
Shop fittings at cost 42
Office fittings at cost 25
Provision for depreciation on motor vehicles 46
Provision for depreciation on shop fittings 12
Provision for depreciation on office fittings 3
5% Debentures 20
Ordinary share capital 190
Retained earnings ___ 26
731 731
1 Wages owing amounted to $23 000 at 31 December 2012.

2 Debenture interest for the year had not been paid.
3 Bad debts of $5000 were to be written off.
4 The provision for doubtful receivables was to be 5% of trade receivables.
5 Depreciation was provided on motor vehicles at 12½% on cost and on shop fittings at
10% on net book value.
6 Office fittings had been revalued at $19 000.
7 Rent paid in advance was $8000.
© UCLES 2013 9706/21/O/N/13

3
REQUIRED For
Examiner's
Use
(a) (i) Prepare an income statement for the year ended 31 December 2012.
[12]

4
(ii) Calculate the retained earnings of Booksellers Limited at 31 December 2012.

For
Examiner's
Use
[2]
(b) Prepare, in as much detail as possible, a statement of financial position at

31 December 2012.
© UCLES 2013 9706/21/O/N/13

5
For
Examiner's
Use
[8]
(c) (i) The directors wish to raise funds to expand the business. State two sources of
finance they could use.
[2]
(ii) State the advantages and disadvantages to the company of the two sources of
finance you have chosen.
[6]
[Total: 30]

6
2 (a) Complete the following table stating the formula used to calculate the ratio, what the
ratio measures and reasons why it may change. For
Examiner's
Use
Ratio Formula What the ratio Why the ratio may
measures change
Gross profit ratio
Inventory turnover
Quick (acid test)

ratio
Return on capital
employed
Trade receivables
turnover
[20]
© UCLES 2013 9706/21/O/N/13

7
(b) State and explain five limitations of using ratio analysis as an indicator of business For
performance. Examiner's
Use
[10]
[Total: 30]

8
3 Shostakovich Limited is a wholesale business selling three products: Preludes, Fugues and
Sonatas. For
Examiner's
Use
At present they use the FIFO method of inventory valuation but are considering a change.
At 31 March 2013, Shostakovich Limited provisionally calculated its profit for the year at
$86 300 using closing inventory valued at $10 200 under the FIFO method.
The following information is also available at 31 March 2013:
1 Different methods of inventory valuation for the three products provide the following
closing inventory values:
FIFO AVCO
$ $
Preludes 4600 4300
Fugues 3900 3750
Sonatas 1700 1500
2 Owing to a flood during the financial year it has been found that the total inventory of
Sonatas has been damaged. It is estimated that the inventory could be sold by
Shostakovich Limited at a selling price of $1200. This adjustment has not been
accounted for in the inventory calculated above.
REQUIRED
(a) (i) Calculate the revised inventory valuation at 31 March 2013 using FIFO and AVCO.
[4]
© UCLES 2013 9706/21/O/N/13

9
(ii) Calculate the revised profit for the year at 31 March 2013 using FIFO and AVCO. For
Examiner's
Use
[6]
(b) Explain three reasons why a business cannot normally use the latest selling price of its
products to value the inventory.
[6]

10
(c) Advise Shostakovich Limited on why the distinction between capital and revenue
expenditure is important when preparing financial statements. For
Examiner's
Use
[6]
Shostakovich Limited’s statement of financial position at 31 March 2013 showed the

following:
$
Property 200 000
Accumulated depreciation 14 000
The value of the property is split equally between land and buildings. They had been owned
for 7 years. On 1 April 2013 its property was revalued at $315 000.
REQUIRED
(d) (i) Prepare the journal entry to record this revaluation. A narrative is not required.
[3]
(ii) Name the section in Shostakovich Limited’s financial statements where the surplus
will appear.
[1]
© UCLES 2013 9706/21/O/N/13

11
(iii) Shostakovich Limited will continue to use the same rate of straight line For
depreciation for its buildings. Calculate the depreciation charge for the year on Examiner's
Use
buildings after the revaluation.
[4]
[Total: 30]
© UCLES 2013 9706/21/O/N/13

12
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© UCLES 2013 9706/21/O/N/13

*0271924287*
ACCOUNTING 9706/22
1 hour 30 minutes

IB13 11_9706_22/4RP
2
1 Joe Brown has a petrol station which has three departments, fuel, car wash and café. The
following information is available for the year ended 31 December 2012.
Fuel Car wash Cafe

$ $ $
Revenue 735 600 30 650 61 300
Inventory at 1 January 2012 38 700 3 650 4 725
Purchases 454 320 7 240 9 620
Inventory at 31 December 2012 39 760 2 480 4 820
Direct wages 36 000 3 000 12 000
Non-current assets at cost 120 000 15 000 2 760
Accumulated depreciation 6 000 1 200 850
Depreciation rate 10% 15% 15%

Depreciation method Straight line Reducing balance Straight line
Floor area (square metres) 3 400 850 425
Other expenses for the year are:

$
Rent of premises 46 288
Electricity 18 300
Administration charges 17 119
Other expenses 54 023
The expenses are split between the departments on the following basis:
Rent of premises in the ratio of floor area,

Electricity in the ratio 4:1:1 between fuel, car wash and café,
Administration charges in the ratio of wages,
Other expenses in the ratio of sales.
© UCLES 2013 9706/22/O/N/13

3
REQUIRED For
Examiner's
Use
(a) Prepare a departmental income statement for the year ended 31 December 2012.
[18]

4
(b) Joe is considering closing the car wash department due to its poor profitability. Advise
Joe on the long term effects of this decision. For
Examiner's
Use
[6]
(c) Joe is looking for funds to improve the business. He is considering applying for either a
bank loan or an overdraft. Explain three differences between a bank loan and an
overdraft.
[6]
[Total: 30]
© UCLES 2013 9706/22/O/N/13

5
2 Alec and Jean were in partnership with capitals of $90 000 and $60 000 respectively. For
Examiner's
Use
On 1 June 2012 Alec had a debit balance on his current account of $2900 and Jean had a
credit balance on her current account of $3100.
On 31 May 2013 Alec had a credit balance on his current account of $3000 and Jean had a
credit balance on her current account of $340.
The partnership agreement stated:
2 Interest on drawings is charged at 8% per annum.
3 Annual partnership salaries were Alec $14 000 and Jean $12 000.
4 Profits and losses are to be shared in the ratio of capital invested.
Alec withdrew $20 000 and Jean $22 000 during the year.
REQUIRED
(a) Prepare the current account of each partner for the year ended 31 May 2013.
[10]

6
(b) Calculate the profit for the year ended 31 May 2013 before appropriation.
For
Examiner's
Use
[6]
(c) Explain the term goodwill.
[4]
© UCLES 2013 9706/22/O/N/13

7
On 1 June 2013 Alec and Jean agreed to admit Chris as a new partner. It was agreed that For
Chris would pay cash into the business for goodwill. Examiner's
Use
Goodwill was valued at $36 000.

In addition Chris also introduced a motor vehicle valued at $12 150 and inventory of $5850.
The partners agreed that profits and losses are to be shared between Alec, Jean and Chris
in the ratio of 3:2:1. No goodwill account is to be maintained on the books.
REQUIRED
(d) Prepare the capital accounts of Alec, Jean and Chris after Chris’s admission to the
partnership.
[10]
[Total: 30]

8
3 Kirkton manufactures a single product, the Kirk. The following information relates to one unit
of Kirk: For
Examiner's
Use
Per unit $
Selling price 35.00
Variable production costs 13.50
Fixed production costs 3.50
Variable selling costs 1.50
Fixed selling costs 1.00
Kirkton produces and sells 800 Kirks a week.
REQUIRED
(a) (i) Calculate the weekly breakeven point in units.
[3]
(ii) Calculate the weekly breakeven point in revenue.
[2]
(iii) Calculate the margin of safety in revenue.
[3]
(iv) Calculate the margin of safety as a percentage.
[2]
© UCLES 2013 9706/22/O/N/13

9
Additional information: For

Examiner's
Use
Kirkton has four different machines that are used in the production of the Kirk. One of the
machines has broken down, causing production to stop completely. The company will be
without the machine for a period of four weeks and the owners have two alternatives.
1 Lease a machine at a cost of $2000 per week. Staff will need to be trained on the
new machine. This will cost $3000. Production will reduce from the current level of
800 units each week to 500 units each week.
2 Buy in the Kirks from a competitor. Each Kirk will cost $26.25. The competitor is able
to supply 800 units each week and will charge Kirkton $50.00 delivery for each 100
units.
REQUIRED
(b) Calculate the profit for the four weeks if Kirkton decide to lease a machine.
[9]

10
(c) Calculate the profit for the four weeks if Kirkton decide to buy the Kirks from the
competitor. For
Examiner's
Use
[7]
(d) State two advantages if Kirkton decides to buy the Kirks from the competitor rather than
lease the machine.
[2]
(e) State two disadvantages if Kirkton decides to buy the Kirks from the competitor rather
than lease the machine.
[2]
[Total: 30]
© UCLES 2013 9706/22/O/N/13

11
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12
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© UCLES 2013 9706/22/O/N/13

*9854853085*
ACCOUNTING 9706/23
1 hour 30 minutes

IB13 11_9706_23/5RP
2
1 The Cardio Health Club operates a fitness centre and a shop and has the following assets
and liabilities.
1 June 2012 31 May 2013

$ $
Premises 100 000 100 000

Sports equipment (at cost) 30 000 115 000
Sports equipment – depreciation provision 5 000 14 400
Shop inventory 8 500 4 800
Cash 250 250
Bank (current account) 10 000 ?
Bank (deposit account) 2 000 ?
Subscriptions outstanding 4 200 5 600
Shop staff wages accrued 1 000 3 000
Insurance paid in advance 1 000
Loan from sports association 40 000
The receipts and payments in the bank current account for the year ended 31 May 2013
were:
Receipts $
Shop revenue 120 000
Loan from sports association 40 000
Donations 450
Payments $
Wages of fitness coaches 16 000
Sports equipment 85 000
Printing and stationery 5 500
Transfer to deposit account 300
Sundry expenses 800
Insurance 12 000
Wages of shop staff 27 000
Shop purchases for resale 32 500
1 The wages of shop staff are treated as a direct cost.

2 Insurance and heating and lighting are apportioned 80:20 between the fitness club and
the shop.
3 The loan from the sports association was received on 1 December 2012. Interest is
payable at 6% per year.
4 Donations are treated as revenue.
5 During the year interest amounting to $90 had been credited to the bank deposit
account.
© UCLES 2013 9706/23/O/N/13

3
REQUIRED For
Examiner's
Use
(a) Prepare the shop income statement for the year ended 31 May 2013.
[8]

4
(b) Prepare the income and expenditure account of the Cardio Health Club for year ended
31 May 2013. For
Examiner's
Use
[14]
© UCLES 2013 9706/23/O/N/13

5
(c) Prepare the statement of financial position of the Cardio Health Club at 31 May 2013. For
Examiner's
Use
[8]
[Total: 30]

6
2 Luing Limited’s financial information for the year ended 31 December 2012 revealed the
following: For
Examiner's
Use
Gross profit ratio 35%
Net profit ratio 14%
Rate of inventory turnover 10 times
Trade payables turnover 42 days
Current ratio 3:1
Inventory at 1 January 2012 $7 800 000
Total revenue (all on credit) for 2012 $85 000 000
All purchases were on credit.
REQUIRED
(a) For the year ended 31 December 2012, calculate
(i) Gross profit
[2]
(ii) Cost of sales
[2]
(iii) Closing inventory
[4]
(iv) Ordinary goods purchased
[3]
© UCLES 2013 9706/23/O/N/13

7
(v) Profit for the year For

Examiner's
Use
[2]
(vi) Expenses
[2]
(vii) Trade payables
[3]
(viii) Trade receivables
[3]

8
(b) Identify three possible users of accounting ratios other than the directors of the
company. State what information the users would obtain from the ratios. For
Examiner's
Use
1
[9]
[Total: 30]
© UCLES 2013 9706/23/O/N/13

9
3 Argon is a manufacturing business divided into three separate departments, machining, For
finishing and stores. Examiner's
Use
The total estimated costs for the three months ending 31 October 2013 are as follows:
$
Depreciation of plant 6 000
Plant insurance 4 800
Rent 18 000
Supervision 25 000
The following information is available for the three departments:
Machining Finishing Stores

Floor area (sq metres) 5000 4500 500
Value of plant ($000’s) 86 8 2
Number of orders from Stores 3600 1480 -
Budgeted machine hours 4250 820 -
Budgeted direct labour hours 1200 4950 -
REQUIRED
(a) (i) Apportion the costs to the three departments using the most suitable basis. Clearly
state the basis you have used.
[5]

10
(ii) Re-apportion stores costs to each production department on the basis of the
number of orders. For
Examiner's
Use
[5]
(b) Calculate to two decimal places the forecast overhead absorption rate for the
machining and finishing departments for the three months ending 31 October 2013.
[6]
© UCLES 2013 9706/23/O/N/13

11
Actual figures for the three months ended 31 October 2013 are: For
Examiner's
Use
Machining Finishing
Machine hours 6 000 805
Overheads incurred $48 340 $22 780
REQUIRED
(c) Calculate the amount of overhead absorbed for each production department for the
three months ended 31 October 2013.
[6]
(d) Calculate the amount of under or over absorption for each production department.
[4]

12
(e) Explain what is meant by over and under absorption of overheads and how each will For
arise. Examiner's
Use
[4]
[Total: 30]
© UCLES 2013 9706/23/O/N/13

*0329988668*
ACCOUNTING 9706/21
1 hour 30 minutes

IB14 11_9706_21/6RP
2
1 The following is the draft statement of financial position of Chan Ya Wen, a sole trader, at
31 May 2014.
Statement of Financial Position at 31 May 2014
$000
Assets
Non-current assets
Buildings at valuation 500
Equipment at net book value 240
Motor vehicles at net book value 400
1140
Current assets
Inventories 55
Other receivables 4
95
Total assets 1235
Capital and Liabilities
Opening capital 900

Add profit for the year 250
1150
Less drawing 75
Closing capital 1075
Loan 100
Current liabilities
Trade payables 52
Other payables 8
60
Total capital and liabilities 1235
After preparation of the draft statement of financial position the following errors were discovered:
1 A purchase credit note received for $12 000 had been completely omitted from the books.
2 Inventory at 31 May 2014, cost $6000, was found to be damaged. A customer has agreed to
buy the goods for $2500. Delivery costs will be $250.
3 The loan was received on 1 December 2013. Loan interest of 4% per annum has not been
paid.
4 During the year vehicle repairs of $2000 had been incorrectly debited to the motor vehicles
account. Motor vehicles have been depreciated by 25% per annum on the year end value.
© UCLES 2014 9706/21/O/N/14

3
5 On 1 May 2014 a motor vehicle with a net book value of $16 000 had been badly damaged in
a collision. No entry has yet been made in the accounts for this. The insurance company has
agreed to pay $13 000 in compensation. The trader will receive a further $1200 for the scrap
value.
6 On 27 May 2014 a credit customer was declared bankrupt and it was decided to write off the
$8000 owing. No record in the accounts has yet been made.
REQUIRED
(a) Prepare a statement to show the corrected profit for the year ended 31 May 2014.
[10]

4
(b) Prepare a corrected statement of financial position at 31 May 2014.
[12]
© UCLES 2014 9706/21/O/N/14

5
At 31 July 2014 Cha Ya Wen had a debit balance of $8000 in the bank column of his cash book.
His bank statement showed a credit balance of $5600 at the same date.
On comparing the cash book with the bank statement the following discrepancies were found:
1 Bank charges of $150 appeared in the bank statement but had not been entered in the cash
book.
2 A credit of $450 for dividends received had not been entered in the cash book.
3 Cheques received from customers amounting to $3500 had been entered in the cash book
but had not yet been credited by the bank.
4 A cheque for $1200 received from a debtor had been returned by the bank marked
‘insufficient funds for payment’.
5 Cheques issued by the business amounting to $2000 were recorded in the cash book but did
not appear in the bank statement.
REQUIRED
(c) Update the bank columns of Cha Ya Wen’s cash book for the month of July 2014.
[4]
(d) Prepare a bank reconciliation statement as at 31 July 2014.
[4]
[Total: 30]

6
2 Aiden and Beatrice are in partnership. They share profits and losses in the ratio 2:1 and prepare
financial statements to 31 March. Their balances at 31 March 2013 were:
Capital accounts Current accounts

$ $
Aiden 38 500 4 250 Cr
Beatrice 27 600 2 975 Cr
On 1 April 2013 Charles was admitted to the partnership on the following terms.
1 He introduced $100 000 capital in cash and it was agreed that he would receive the same
level of profits as Beatrice. The profit sharing ratio between Aiden, Beatrice and Charles
would be 2:1:1.
2 Goodwill was valued at $120 000 and it was decided that goodwill was not to be retained in
3 Each partner was to receive an annual salary of $30 000.
4 Interest on capital was to be paid at 8% per annum.
5 No interest was to be charged on drawings up to $50 000. Interest at 6% per annum was to
be charged on any additional drawings.
For the year ended 31 March 2014:
1 The partnership made a profit of $325 000 before adjusting for the following items:
A debt of $5000 which had been written off as irrecoverable in the previous year was
recovered.
A cheque for $15 000 received from a debtor in January 2014 was dishonoured and the
debt is to be written off.
During the year Charles took a family holiday costing $2500. This was paid from the
partnership bank account and shown as an expense.
2 Total drawings for the year were Aiden $70 500; Beatrice $46 900; Charles $34 750.
© UCLES 2014 9706/21/O/N/14

7
REQUIRED
(a) Prepare the partners’ capital accounts for the year ended 31 March 2014.
[7]

8
(b) Prepare the appropriation account for the year ended 31 March 2014.
[12]
© UCLES 2014 9706/21/O/N/14

9
(c) Prepare the partners’ current accounts for the year ended 31 March 2014.
[11]
[Total: 30]

10
3 Zumbi Limited manufactures three products, Ess, Tee and Ewe. The following information is
available for December 2014.
Ess ($) Tee ($) Ewe ($)

Direct materials ($2 per metre) 6 6 8
Direct labour ($8 per hour) 8 10 12
Maximum demand for the month (in units):
Ess 19 500
Tee 16 500
Ewe 15 000
REQUIRED
Ess ($) Tee ($) Ewe ($)
[7]
1 Due to the production process, Zumbi Limited must manufacture batches of three units of
Ess for every two units of Tee.
2 Ewe is always produced in batches of five.
© UCLES 2014 9706/21/O/N/14

11
REQUIRED
(b) Calculate the contribution per batch.
Ess ($) Tee ($) Ewe ($)
[7]
1 Zumbi Limited has a contract to supply 7000 units of Ewe each month. The company must
honour this contract.
2 The maximum production capacity is a total of 40 000 units per month.
3 All goods will be sold in the month they are produced.
4 Annual fixed overheads are $2 160 000.

12
REQUIRED
(c) Prepare a statement for December 2014 showing the maximum monthly profit.
[8]
Zumbi Limited has the opportunity to purchase unlimited quantities of product Ewe from an
outside supplier at a cost of $30 per unit.
© UCLES 2014 9706/21/O/N/14

13
REQUIRED
(d) Discuss the advantages and disadvantages to the company if it purchases Ewes from the
outside supplier.
Advantages
Disadvantages
[6]
© UCLES 2014 9706/21/O/N/14

14
(e) Advise the directors if they should purchase Ewes from the outside supplier.
[2]
[Total: 30]
© UCLES 2014 9706/21/O/N/14

15
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16
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© UCLES 2014 9706/21/O/N/14

*1440226124*
ACCOUNTING 9706/22
1 hour 30 minutes

IB14 11_9706_22/4RP
2
1 The following information relates to the business of Nother Limited.
Trial Balance at 31 March 2014

Dr Cr
$000 $000
Share capital 1500
Factory premises at cost 1000
Factory machinery at cost 280
Provisions for depreciation: Premises 250
Machinery 140
Inventories at 1 April 2013: Raw materials 360
Work in progress 210
Finished goods 432
Revenue 5054
Purchases of raw materials 1896
Manufacturing wages 1250
Factory expenses 780
Sales expenses 416
Trade receivables and payables 840 240
Bank overdraft 144
Bad debts written off 16

7560 7560
1 Inventories at 31 March 2014 $

2 Other payables at 31 March 2014

$
Factory expenses 112 000
Sales expenses 56 000
3 Prepayments at 31 March 2014

$
© UCLES 2014 9706/22/O/N/14

3
4 During the year ended 31 March 2014 a machine was sold for $14 000. This had been
debited to the bank account and credited to the sales account.
The machine had been purchased for $44 000 and depreciation of $24 000 had been written
off up to 31 March 2013. A full year’s depreciation is provided in the year of purchase but
none in the year of sale.

Factory premises 1% straight line
Factory machinery 15% reducing (diminishing) balance.
6 The provision for doubtful debts is to be adjusted to 5% of trade receivables.
REQUIRED
(a) Prepare Nother Limited’s manufacturing account for the year ended 31 March 2014.
[10]

4
(b) Prepare Nother Limited’s income statement for the year ended 31 March 2014.
[10]
© UCLES 2014 9706/22/O/N/14

5
(c) Explain the following terms.
Direct costs
[2]
Indirect costs
[4]
Prime cost
[2]
Production cost
[2]
[Total: 30]

6
2 Bill and Charles are in partnership sharing profits and losses in the ratio of 2:1.
Each partner draws $2000 cash from the business each month.
On 1 October 2013 Bill paid $24 000 into the business bank account.
They provided the following information.
Capital accounts 1 January 2013

$
Bill 120 000
Charles 60 000
Current accounts 1 January 2013 31 December 2013

$ $
Bill 17 000 Cr 2 160 Cr
Charles 18 000 Cr 2 800 Dr
REQUIRED
(a) Calculate the partnership profit for the year ended 31 December 2013 before
appropriation.
[5]
© UCLES 2014 9706/22/O/N/14

7
On 1 January 2014 a new partnership agreement came into force which stated that Bill and
Charles will share profits and losses in the ratio of 3:2. Bill will receive $6000 salary per annum,
and Charles $5200 salary per annum.
The rate of interest on capital is to be 8% per annum and interest on drawings is to be charged at
11% per annum.
Bill and Charles will continue to withdraw $2000 each per month.
Goodwill was valued at $48 000 but is not to be retained in the books of account.
The net profit for the 6 months ended 30 June 2014 was $12 000.
REQUIRED
(b) Prepare the capital accounts of Bill and Charles for the six months ended 30 June 2014.
[7]

8
(c) Prepare the partnership appropriation account for the six months ended 30 June 2014.
[7]
© UCLES 2014 9706/22/O/N/14

9
(d) Prepare the current account of Bill for the 6 months ended 30 June 2014.
[7]
(e) (i) State two reasons why the partners are charged interest on drawings.
[2]
(ii) State two reasons why the partners receive interest on capital.
[2]
[Total: 30]

10
3 Aluko Limited manufactures three products for the automobile industry, BS100, BS200 and
BS300.
The business is divided into four departments – machining, assembly, stores and canteen.
The following information is available for one unit of the three products.
BS100 BS200 BS300
Direct materials $12.60 $14.10 $18.80
Direct labour hours – machining ($7.80 per hour) 30 minutes 50 minutes 55 minutes
Direct labour hours – assembly ($6.30 per hour) 10 minutes 12 minutes 15 minutes
Machine hours – machining 20 minutes 30 minutes 30 minutes
Machine hours – assembly 5 minutes 5 minutes 10 minutes
The total estimated overhead costs for the year ended 30 June 2015 are as follows:
Machinery maintenance 94 000
Machinery insurance 9 020
Machining Assembly Stores Canteen
Number of indirect employees 8 16 4 2
Floor area (sq metres) 8 000 9 000 2 000 1 000
Value of machinery ($000) 290 120
Number of orders from stores 6 300 1 300
Budgeted labour hours 7 720 28 600
Use of canteen 30% 55% 15%
© UCLES 2014 9706/22/O/N/14

11
REQUIRED
(a) Apportion the costs to the four departments and re-apportion the service departments’ costs
to production departments using a suitable basis.
Total Machining Assembly Stores Canteen

$ $ $ $ $
Indirect wages
Machinery insurance
Rent and rates
Buildings insurance
Machinery depreciation
Reapportionment of canteen
Reapportionment of stores
[8]
(b) Calculate appropriate absorption rates for each production department correct to two
decimal places.
[4]

12
Machining Assembly
REQUIRED
(c) Calculate the under or over absorption of overheads for each production department.
Machining Assembly
$ $
[4]
(d) Explain the reason for the over or under absorption of overheads calculated for each
production department in part (c).
[2]
Aluko Limited has been asked to prepare a quotation for a customer requiring 250 units of
BS200. The company requires a 35% gross profit on each order.
© UCLES 2014 9706/22/O/N/14

13
REQUIRED
(e) Calculate the quoted selling price.
[6]
(f) Explain the following terms in relation to overheads.
1 Allocation
2 Apportionment
3 Absorption
[6]
[Total: 30]
© UCLES 2014 9706/22/O/N/14

14
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© UCLES 2014 9706/22/O/N/14

15
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© UCLES 2014 9706/22/O/N/14

16
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Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge
© UCLES 2014 9706/22/O/N/14

*8932649015*
ACCOUNTING 9706/23
1 hour 30 minutes

IB14 11_9706_23/4RP
2
1 Asif operates a delivery service and does not keep proper accounting records. He provided the
following information for the year ended 30 June 2014.
$
Cash in hand at 1July 2013 3 270
Cash in hand at 30 June 2014 2 349
Cash receipts and payments:

Vehicle repairs 2 400
Fuel payments for vehicles 14 301
Driver’s wages 4 748
Rent of a garage 1 600
Sundry expenses 2 972
Drawings 11 450
Receipts from sale of old vehicle 1 300
Cash stolen by Asif’s driver 430
Cash received from customers ?
REQUIRED
(a) Prepare Asif’s cash account for the year ended 30 June 2014.
[7]
© UCLES 2014 9706/23/O/N/14

3
$
Trade receivables at 1 July 2013 3766
Trade receivables at 30 June 2014 2863
Bad debts written off during the year ended 30 June 2014 1648
REQUIRED
(b) Calculate Asif’s revenue figure for the year ended 30 June 2014.
[5]
1 The vehicle which had been sold was purchased in May 2012 for $6200. Asif’s policy is to
depreciate the vehicles at 50% per annum using the reducing balance method. A full year’s
depreciation is charged in the year of acquisition. No depreciation is charged in the year of
disposal.
2 At 30 June 2014 driver’s wages of $200 were owing and garage rent of $400 was prepaid.
Question 1(c) is on the next page.

4
REQUIRED
(c) Prepare Asif’s income statement for the year ended 30 June 2014.
[12]
© UCLES 2014 9706/23/O/N/14

5
Asif is considering introducing a system of credit control.
REQUIRED
(d) Explain the benefits this may bring to the business.
[4]
(e) State two ratios that Asif could use to measure the profitability of his business.
2 [2]
[Total: 30]

6
2 Lance, a trader, has provided the following balances at 30 November 2014 after the preparation
of the income statement for the year.
$000
Profit for the year 30
Non-current assets – at cost 500
–accumulated depreciation 200
Accrued expenses 20
Cash in hand 10
Bank overdraft 25
Inventory 80
Trade payables 35
Bank loan (2020) 40
Opening capital 310
Drawings 20
REQUIRED
(a) Prepare the statement of financial position at 30 November 2014.
Lance
Statement of Financial Position at 30 November 2014
© UCLES 2014 9706/23/O/N/14

7
[8]
(b) Calculate, stating the formula used, the following ratios correct to two decimal places.
Current
Liquid (acid test)
[4]
Ratio 2012 2013
Current 2.0:1 2.30:1
Liquid (acid test) 1.40:1 1.0:1

8
REQUIRED
(c) Evaluate the change in Lance’s liquidity position over the three years.
[8]
Lance has provided the following forecast for December 2014:
1 Sales are expected to be $75 000 of which 30% will be on a cash basis and the remainder
payable the month after sale. All trade receivables outstanding at 30 November 2014 were
expected to pay in full during December 2014.
2 Purchases are expected to be $45 000 of which 40% will be cash and the remainder payable
the month after purchase. All trade payables at 30 November 2014 were expected to be paid
in full during December 2014.
3 Business expenses of $12 500 will be paid in the month incurred.
4 Depreciation on non-current assets will be $9500 per month.
5 A loan of $25 000 will be negotiated with the bank and interest at 6% per annum will be paid
on a monthly basis from December 2014 onwards.
© UCLES 2014 9706/23/O/N/14

9
REQUIRED
(d) Complete the following cash budget for December 2014.
Lance
Cash budget for December 2014
Receipts
Payments
Net cash flow
Opening balance
Closing balance
[10]
[Total: 30]

10
3 KC Global Limited provides the following budgeted information.
January 2015 February 2015
Production 10 000 units 10 000 units

Sales 7 000 units 13 000 units
Production costs per unit:
Direct materials $4.50 $4.50
Direct labour $6.00 $6.00
Variable overheads $2.50 $2.50
1 The budgeted selling price per unit is $17.
2 Budgeted production for the year is 120 000 units spread equally over the year.
3 There is no opening inventory at 1 January 2015.
4 Annual fixed overheads are budgeted to be $324 000.
5 Fixed overheads are absorbed on a unit basis.
REQUIRED
(a) Calculate the monthly breakeven point in units.
[2]
(b) Prepare forecast profit statements for January and February 2015 using absorption costing.

$ $
[4]
© UCLES 2014 9706/23/O/N/14

11
(c) Prepare forecast profit statements for January and February 2015 using marginal costing.

$ $
[4]
(d) Prepare a reconciliation statement showing the difference between the absorption costing
profit and the marginal costing profit for January and February 2015.

$ $
Absorption costing profit
Marginal costing profit

[4]

12
(e) Explain why the absorption costing statement produces a different profit figure to the
marginal costing statement.
[4]
The directors of KC Global Limited are considering an advertising campaign starting in January
2015. This will cost $60 000 spread evenly over the year. The volume of sales and production
would both increase by 10%.
REQUIRED
(f) Prepare a revised profit statement for January 2015, using absorption costing.
[5]
© UCLES 2014 9706/23/O/N/14

13
(g) State three situations where marginal costing would help in making a short term decision.
[3]
(h) Evaluate the limitations of marginal costing.
[4]
[Total: 30]
© UCLES 2014 9706/23/O/N/14

14
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© UCLES 2014 9706/23/O/N/14

15
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© UCLES 2014 9706/23/O/N/14

16
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© UCLES 2014 9706/23/O/N/14

*6883294814*
ACCOUNTING 9706/21
1 hour 30 minutes

IB15 11_9706_21/4RP
2
1 The City Cricket Club’s Receipts and Payments Account for the year ended 30 September 2015
is as follows:
Receipts Payments
$ $
Balance at 1 October 2014 5 604 Supplies for refreshments 2 697
Subscriptions received 6 650 Groundsman’s wages 3 500
Sale of refreshments 4 430 New equipment 3 600
Sale of advertising space 2 600 Team travelling expenses 942
Donations 770 Rent of the ground 4 500
Sale of old equipment 1 500 Balance at 30 September 2015 6 315
21 554 21 554
Other balances were as follows:
at 1 October 2014 at 30 September 2015
$ $
Trade payables for refreshments 960 840
Inventory of refreshments 770 590
Subscriptions in advance 670 540
Life membership fund 2 800 ?
Equipment at cost 10 700 ?
Accumulated depreciation 4 800 ?
5% Loan account repayable in 2017 5 000 5000
1 Some of the subscriptions in arrears at 1 October 2014, amounting to $50, were never
received and are to be written off.
2 The equipment is depreciated monthly at 20% per annum using the straight-line basis.
3 Old equipment sold on 31 March 2015 had been purchased on 1 January 2012 for $5000.
New equipment was purchased on 1 April 2015.
4 Life membership costs $40 and there were 10 new members during the year included in
subscriptions received. The life membership is written off over 10 years.
REQUIRED
(a) Prepare the refreshments trading account for the year ended 30 September 2015.
[3]
© UCLES 2015 9706/21/O/N/15

3
(b) Prepare the club’s income and expenditure account for the year ended 30 September 2015.
[12]

4
(c) Prepare the club’s statement of financial position at 30 September 2015.
[9]
© UCLES 2015 9706/21/O/N/15

5
(d) Explain the accounting treatment of a life membership fund.
[3]
(e) Explain why the balance on the club’s bank account is not the same as its surplus.
[3]
[Total: 30]

6
2 Alex and Barry have been in partnership for many years. The terms of the partnership agreement
are as follows.
1 Interest is payable to the partners on their loan accounts at 10% per annum.
2 Interest on capital is allowed at the rate of 5% per annum.
3 Barry is entitled to a salary of $6000 per annum.
4 Interest on drawings is charged at the rate of 4% on the annual drawings.
5 Profits and losses are shared in the ratio of 3:1.
The following balances were taken from their books of account at 31 May 2014.
Alex Barry
$ $
Capital account 90 000 60 000
Current account 14 000 Cr 12 500 Dr
Loan account 15 000 16 000
During the year ended 31 May 2015, drawings for Alex totalled $5000 and for Barry $12 000.
After the deduction of loan interest, the draft profit for the year ended 31 May 2015 was $90 000.
REQUIRED
(a) Prepare the partnership appropriation account for the year ended 31 May 2015.
© UCLES 2015 9706/21/O/N/15

7
[7]
(b) Prepare the current accounts of Alex and Barry for the year ended 31 May 2015.
Current accounts
Details Alex Barry Details Alex Barry
$ $ $ $
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
««..«...«.....«..... ««..«.. ««..«.. ««..«...«.....«..... ««..«.. ««..«..
[8]

8
The partners agreed that it would be beneficial to admit another partner and on 1 June 2015
Cesar joined the partnership.
REQUIRED
(c) State two possible advantages to Alex and Barry of the admission of a new partner.
[2]
Cesar joined the partnership on 1 June 2015 and paid $100 000 into the partnership bank account
as his capital.
It was agreed that the goodwill was to be valued at $60 000 and that no goodwill account would
remain in the books of account.
The new profit sharing ratio for Alex, Barry and Cesar from 1 June 2015 was to be 3:2:1.
REQUIRED
(d) Prepare the capital accounts of Alex, Barry and Cesar to show the admission of Cesar on
1 June 2015.
Capital accounts
Details Alex Barry Cesar Details Alex Barry Cesar
$ $ $ $ $ $
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
««..«..«. ««..«.. ««..«.. ««..«.. ««..«..«. ««..«.. ««..«.. ««..«..
[8]
© UCLES 2015 9706/21/O/N/15

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When the books of account were finally checked the following errors were discovered.
1 The sales day book had been undercast by $20 000.

2 Closing inventory valued at cost of $5000 had a net realisable value of $3000.
3 Repairs to motor vehicles of $7000 had been wrongly debited to the motor vehicles at cost
account. (Ignore any depreciation.)
4 A purchase invoice of $4000 had been wrongly entered in the books as $400.
REQUIRED
(e) Prepare a statement to show the corrected profit for the year ended 31 May 2015.
[5]
[Total: 30]

10
3 Highlander Limited has two production departments, Machining and Assembling, and one service
department, Maintenance.
The following estimates had been made for year 1.
Annual budgeted information
Machining Assembling Maintenance Total

Power (kilowatt hours) 70 000 52 500 17 500 140 000
Direct machine hours 14 000 400 - 14 400
Direct labour hours 1 000 6 000 - 7 000
$ $ $ $
Indirect material 300 268 320 888
Indirect wages 2 720 1 480 860 5 060
Value of machinery 52 000 48 000 - 100 000
Annual budgeted overheads

$
Rent 12 800
Power 7 200
Supervision of employees 6 400
Indirect materials 888
Indirect labour 5 060
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11
REQUIRED
(a) Apportion the budgeted overheads to the three departments and re-apportion the
maintenance department costs to the two production departments on the basis of the value
of machinery.
Overhead Analysis Sheet
Basis of
Overheads Machining Assembling Maintenance Totals
Apportionment
$ $ $ $
Rent floor area
Machinery value of
depreciation machinery
Power kw hours
Supervision of number of
employees employees
Indirect materials allocated
Indirect labour allocated
re-apportionment
of maintenance
department
overheads
[10]

12
The Machining department overhead absorption rate is applied on a machine hour basis.
The Assembling department overhead absorption rate is applied on a direct labour hour basis.
REQUIRED
(b) Calculate overhead absorption rates for each of the two production departments.
Calculations should be to two decimal places.
(i) Machining department
[3]
(ii) Assembling department
[3]
The following information relates to Job 68 which was completed during year 1.
Machining Assembling
$ $
Direct materials 3 500 100
Machine hours 100 10

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13
REQUIRED
(c) (i) Prepare a statement to show the total cost of Job 68.
Clearly identify the prime cost and the total overhead cost.
[5]
(ii) Calculate the selling price of Job 68 if the profit margin is 20% of selling price.
Round-up your answer to the nearest whole number.
[3]
At the end of year 1 the estimated cost figures were compared with the actual cost figures.
Machining department
Indirect wages amounted to $2020 and not the $2720 estimated.
Assembling department
Actual direct labour hours used in the department totalled 5570 hours and not the 6000 hours
estimated.

14
REQUIRED
(d) Explain the meaning of the following terms. Illustrate your answer by reference to the
additional information and, where appropriate, your answer to part (b).
(i) Overhead over absorption
[3]
(ii) Overhead under absorption
[3]
[Total: 30]
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*5177343641*
ACCOUNTING 9706/22
1 hour 30 minutes

IB15 11_9706_22/5RP
2
1 The treasurer of the Winners Athletic Club has provided the following information for the year
ended 30 June 2015.
Receipts and Payment Account

$ $
Subscriptions received 8 690 Balance at 1 July 2014 3 690
Receipts from shop sales 6 670 Purchases for shop 2 590
Sales of tickets for events 3 720 Wages for shop 2 780
Sales of old equipment 1 200 Costs of events 2 120
New equipment 3 600
Entry fees 2 160
Secretary’s expenses 1 370
Balance at 30 June 2015 1 970
20 280 20 280
1 July 2014 30 June 2015

$ $
Life membership fund 2500 ?
Shop inventory 640 530
Equipment at net book value 6700 ?
Trade payables for shop 376 429
Trade receivables for shop 540 690
Subscriptions in advance 675 895
Events tickets in advance - 275
Entry fees in arrears - 140
1 The treasurer has found out that $60 of the trade receivables will not be received.
2 Bank charges of $126 have not been entered in the books.
3 The subscriptions include seven life memberships of $300 each. The life membership fund is
to be transferred to income and expenditure over a 10-year period.
4 Depreciation is charged at 20% on the net book value of assets held at the year end. The
equipment sold had cost $3000 and had been depreciated by $1540 at the date of sale.
© UCLES 2015 9706/22/O/N/15

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REQUIRED
(a) Prepare an income statement for the shop for the year ended 30 June 2015.
[7]

4
(b) Prepare the income and expenditure account for the year ended 30 June 2015.
[11]
© UCLES 2015 9706/22/O/N/15

5
(c) Prepare the statement of financial position at 30 June 2015.
[8]

6
(d) Explain why no amounts have been entered in the financial statements in respect of the
many hours worked during the year by volunteers.
[2]
(e) Explain why the amounts prepaid and accrued are included in the financial statements of the
club.
[2]
[Total: 30]
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8
2 The following is the statement of financial position of Francis Flintoff at 31 December 2014.
$ $
Non-current assets
Premises at valuation 254 000
Office equipment at book value 74 500
Motor vehicles at book value 40 500
369 000
Current assets
Inventory 65 600

Capital at 1 January 2014 348 200
401 600
Non-current liability
6% Loan repayable 2021 24 000
Current liabilities
After preparation of this statement the following were discovered.
1 Goods which were included in the inventory at their cost price of $1900 had been damaged
and could be sold for only $360.
2 Interest at 6% had not been paid on the loan. No entry had been made for this.
3 Insurance costing $12 000 for the year ended 30 September 2015 had not been paid and had
been completely omitted from the accounts.
4 Depreciation for the year ended 31 December 2014 had been charged correctly. The
book-keeper had also entered a charge for motor vehicles for the year ended
31 December 2015 in error.
Depreciation is charged on motor vehicles at 10% on a reducing balance basis.
© UCLES 2015 9706/22/O/N/15

9
REQUIRED
(a) Complete the following table to show the correct profit for the year ended
31 December 2014.
Add Deduct Total

($) ($) ($)
Original profit for the year
[10]

10
(b) Prepare the corrected statement of financial position at 31 December 2014.
[10]
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(c) Name five external users of accounting information and state their interest in the information.
[10]
[Total: 30]

12
3 A division of Hobbs Limited manufactures one product, the Wye. The directors had prepared the
following forecast for the year ending 30 June 2016.
$000
Sales revenue 4400
Direct materials 1400
Direct labour 1000
Variable administration costs 400
Fixed administration costs 300
Other fixed overheads 1200
Budgeted sales for the year ending 30 June 2016 are expected to be 40 000 units.
REQUIRED
(a) Calculate for product Wye:
(i) the contribution per unit
[2]
(ii) the budgeted break-even point in units
[2]
(iii) the margin of safety in units
[1]
The directors have been warned that trading conditions are likely to change in the coming year
and they plan to make the following changes to their forecasts.
1 Reduce the selling price of the product by 10%.
2 Budget for a 20% increase in sales.
3 Budget for a 3% increase in direct labour.
4 Budget for a 10% decrease in fixed costs.
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REQUIRED
(b) Calculate for product Wye:
(i) the revised contribution per unit
[4]
(ii) the revised break-even point in units
[2]
(iii) the revised margin of safety in units
[1]
Another division of Hobbs Limited also manufactures one product, the Exe.
The following data is available for the year ending 30 June 2016.
Unit selling price $20

Unit variable costs $15
Budgeted fixed costs per annum $30 000
Budgeted sales 8000 units
REQUIRED
(c) Calculate the monthly break-even point in revenue.
[2]

14
(d) Prepare a break-even chart for product Exe for the year ending 30 June 2016. Clearly
indicate the areas of profit and loss.
[7]
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15
(e) State three assumptions the accountant must make when preparing a break-even chart.
[3]
The company uses marginal costing in order to calculate its break-even point for its ‘make or buy’
decisions.
REQUIRED
(f) State three further reasons why a business might use a marginal costing system.
[6]
[Total: 30]
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*6275563674*
ACCOUNTING 9706/23
1 hour 30 minutes

IB15 11_9706_23/4RP
2
1 Anton, a sole trader, does not keep proper books of account. He supplies the following
information for the year ended 30 September 2015.
1 October 2014 30 September 2015

$ $
Office fixtures at net book value 9 500 8 600
Delivery vehicles
Cost 15 700 ?
Accumulated depreciation 4 600 ?
Rent payable owing 1 500 2 400
Cash 980 445
Inventory 24 640 40 800
Bank 2 400 Credit ?
Summary of Anton’s bank account is as follows.
Bank Account Summary

$
Receipts
Sale of delivery vehicle 5 400
Payments
Payments to credit suppliers 118 900
Wages 17 800
Rent 8 500
Electricity 7 540
Purchase of delivery vehicle 13 600
1 The inventory at 30 September 2015 was valued at selling price. Anton applies a mark up of 50%.
2 During the year a delivery vehicle which had cost $9000 on 1 October 2012 was sold for $5400.
3 Delivery vehicles are depreciated at 20% per annum using the reducing balance method.
Depreciation is charged in the year of purchase but not in the year of sale.
4 Anton took cash drawings of $600 per month before the cash sales were banked but has not
recorded these. He also took goods for his own use which had a sales value of $2763.
5 Total cash sales were $20 476.
6 There are unrecorded delivery vehicle expenses not accounted for.
© UCLES 2015 9706/23/O/N/15

3
REQUIRED
(a) Prepare Anton’s income statement for the year ended 30 September 2015.
[16]

4
(b) Prepare a statement of financial position at 30 September 2015.
© UCLES 2015 9706/23/O/N/15

5
[8]
Anton is not sure if he will recover all trade receivables due and has been advised to set up a
provision for doubtful debts. He plans to write off a bad debt of $750 and set up a provision for
doubtful debts at 4%.
REQUIRED
(c) Calculate the effect these adjustments would have on his profit.
[3]
(d) Explain why he should include the provision for doubtful debts in his accounts.
[3]
[Total: 30]

6
2 Tania and Sue are in partnership. The following balances have been taken from their books of
account at 31 January 2015.
Revenue 163 400

Insurance 13 260
Wages 6 500
Rent received 10 400
Rates paid 9 500
Office expenses 28 200
Capital
Tania 120 000
Sue 80 000
1 On 31 January 2015, insurance prepaid amounted to $6400 and wages accrued amounted
to $8500.
2 Rent received is for the period 1 February 2014 to 28 February 2015.
3 Office expenses include $470 for use of Tania’s home telephone.

On 31 January 2015 the trade receivables totalled $7800.
5 Fixtures and fittings are depreciated at 10% per annum using the straight-line method.
Fixtures and fittings cost $7500.
6 Motor vehicles cost $60 000. Accumulated depreciation at 31 January 2014 was $35 000. No
vehicles were bought or sold during the year. Vehicles are depreciated at 20% using the
reducing balance method.
7 Computer equipment was valued at $5700 on 1 February 2014. A new computer costing
$1800 was purchased during the year. There were no sales of computer equipment during
the year. On 31 January 2015 the computer equipment was valued at $6200.
© UCLES 2015 9706/23/O/N/15

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REQUIRED
(a) Prepare the partnership’s income statement for the year ended 31 January 2015.
[11]

8
On 1 February 2014 the balance on Tania’s current account was $5000 (credit).
On 31 January 2015, the balance on her current account was $71 068 (credit). She withdrew
$5000 during the year.
The partnership agreement provides for the following:
1 Partners are permitted to withdraw up to a maximum of 5% of capital invested.
2 Interest on drawings is charged at a rate of 7% on the annual drawings.
3 Interest on capital is payable at 4% per year.
4 Tania receives a salary of $1450 per month.
5 Profits and losses are shared in the ratio of capital invested.
REQUIRED
(b) Prepare Tania’s current account for the year ended 31 January 2015 to identify her share of
profit for the year.
[7]
(c) State four possible causes of depreciation of non-current assets.
[4]
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9
(d) State and explain two accounting concepts that apply to depreciation.
[4]
(e) State why the reducing balance method of depreciation is more appropriate for non-current
assets like motor vehicles.
[4]
[Total: 30]

10
3 Tellwright Limited started trading on 1 January 2015. It produced two products, the Mynor and the
Hanbridge. After three months of trading the following information was available.
Mynor Hanbridge
Units produced 800 600
Units sold 700 400
Direct materials per unit 2 kilos at $6 per kilo 3 kilos at $5 per kilo
Direct labour per unit 4 hours at $9 per hour 4.5 hours at $10 per hour
Selling price per unit $90 $120
REQUIRED
(a) Complete the following table to show the total direct cost incurred for each product in the
three month period ended 31 March 2015.
Mynor Hanbridge
$ $
Direct materials
Direct labour
Total
[4]
In addition to the two production departments there was also a sales and administration department.
Data relating to the three departments were as follows.
Mynor Hanbridge Sales and

administration
Floor area (square metres) 2 500 2 000 500
Power usage (kilowatt hour) 12 000 15 000 3 000
Non-current assets (cost at start of trading) $9 000 $8 000 $3 000
Following information is also available.
1 The factory supervisor is paid $23 600 a year. His time is spent in proportion to the direct
labour hours worked in each production department.
2 The lease specifies that the rent is $50 000 a year.
3 The invoice for power used in the first three months of trading amounted to $6000.
4 Depreciation is charged at a rate of 20% per annum on cost.
5 Sales and administration costs amounted to $13 550 for the three months. These are regarded
as fixed costs by the business.
6 No inventory of raw materials is kept.
7 Inventory of finished goods is valued on the basis of absorption cost.
© UCLES 2015 9706/23/O/N/15

11
REQUIRED
(b) Complete the following table to value inventory by allocating overhead costs across the three
departments for the three months ended 31 March 2015. (Where there is no allocated cost
enter a zero.)
Total Mynor Hanbridge Sales and

administration
$ $ $ $
Supervisor’s salary
Rent
Power
Depreciation
Sales and administration
Total
[7]
(c) Complete the following table to show the value of inventory of each product at 31 March 2015.
Mynor Hanbridge
$ $
Value per unit
Number of units in inventory
Total value of inventory

[6]
Question 3(d) is on the next page.

12
(d) Prepare the manufacturing account for the three months ended 31 March 2015.
[6]
© UCLES 2015 9706/23/O/N/15

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(e) Prepare the income statement for the three months ended 31 March 2015.
[7]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB16 11_9706_21/3RP
2
1 Alan and Jack have been in partnership for several years, sharing profits and losses equally.
They prepare their financial statements annually to 30 September.
On 30 September 2014 the balances on their capital accounts were Alan $139 800 and Jack $128 000.
On 1 October 2014 the following took place:
1 Max joined the partnership. He paid $27 000 into the partnership bank account and introduced
inventory valued at $5000.
2 Alan transferred $15 000 from his capital account into a loan account. Interest on the loan is
to be paid at 10% per annum. The loan is repayable by 30 September 2020.
3 The partners agreed a value for goodwill of $40 000. No goodwill is to be recorded in the
books.
4 Alan, Jack and Max are to share profits and losses in the ratio 2 : 2 : 1 respectively.
REQUIRED
(a) Prepare the capital accounts of the partners at 1 October 2014 taking the above into account.
Alan, Jack and Max

Capital accounts at 1 October 2014
[6]
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3
(b) (i) State what is meant by goodwill.
[1]
(ii) State three factors which affect the value of goodwill.
[3]
The terms of the new partnership agreement included the following:
Interest on capital 7.5% per annum on capital account balances at the end of each financial
year
Interest on drawings 3% on total drawings for the year
Salary to Max $10 000 per annum
The following information is also available for the year ended 30 September 2015:
Alan Jack Max

$ $ $
Current account balances at 1 October 2014 9 500 Credit 7 500 Credit Nil
Drawings for the year ended 30 September 2015 16 000 24 000 8 000
The residual profit to be shared by the partners in the profit sharing ratio is $90 000.

4
REQUIRED
(c) Prepare the partners’ current accounts for the year ended 30 September 2015.
Alan, Jack and Max

Current accounts
[7]
(d) Calculate the profit for the year ended 30 September 2015 transferred from the income
statement to the appropriation account.
[5]
© UCLES 2016 9706/21/O/N/16

5
The partners have calculated the following ratios for the business:
30 September 2014 30 September 2015
Liquid (acid test) ratio 1.1 : 1 0.85 : 1
REQUIRED
(e) (i) Comment on the changes in liquidity of the partnership from 30 September 2014 to
30 September 2015.
[4]
(ii) Suggest ways in which the partnership liquidity may be improved.
[4]
[Total: 30]

6
2 Raheem is a trader who makes all his sales on credit. He prepared the following sales ledger
control account for the month of December 2015:
$ $
Balance b/d 22 380 Sales returns journal 1 440
Sales journal 16 910 Bank 17 380
Balance c/d 20 470
39 290 39 290
Balance b/d 20 470
Raheem extracted a list of customer account balances from the sales ledger at
31 December 2015 totaling $18 740. This did not agree with the balance on the control account.
The following errors were found:
1 A sales invoice for $960 had been correctly recorded in the sales journal, but had not been
posted to the customer’s ledger account.
2 A customer’s irrecoverable debt of $250 had not been written off in any of Raheem’s books
of account.
3 A cheque received, $670, from a customer had been correctly recorded in the cash book. It
had been entered on the debit side of the customer’s ledger account as $760.
4 A cheque received, $200, from a customer had been returned unpaid by the customer’s
bank. No entry in respect of the returned cheque had been made in any of Raheem’s books
of account.
5 Discounts allowed of $830 had not been entered in the control account. They had been
entered in the customers’ ledger accounts.
6 A contra to the purchases ledger of $1370 had been entered in the customer’s sales ledger
account, but had not been included in the control account.
REQUIRED
(a) Prepare the updated sales ledger control account for the month of December 2015. Start
your answer with the balance brought down of $20 470.
[5]
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7
(b) Prepare a statement to reconcile the original total of sales ledger balances of $18 740 with
the closing balance on the amended sales ledger control account.
[5]
(c) State three advantages to a business of maintaining a sales ledger control account.
[3]
(d) State two types of errors that will not be identified by producing a sales ledger control
account.
[2]
[Total: 15]

8
3 The following is an extract from the statement of financial position of Chopin Limited at
30 June 2015:
$
During the year ended 30 June 2016, the following took place:
1 November 2015 Non-current assets were revalued to $1 000 000.
1 January 2016 A bonus issue of shares was made. The terms of the issue were 1 new
share for every 10 shares in existence. Reserves were maintained in the
most flexible form.
1 April 2016 Dividend of $0.02 per share was paid.
Profit for the year ended 30 June 2016 was $230 809.
REQUIRED
(a) Prepare a statement of changes in equity for the year ended 30 June 2016.
[7]
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9
(b) Explain why the company should not use its revaluation reserve to pay dividends to
shareholders.
[4]
(c) State two uses of a share premium account.
[2]
(d) State the difference between a bonus issue of shares and a rights issue of shares.
[2]
[Total: 15]

10
4 Costello Limited is a manufacturing business that produces one product, a wooden bookcase. All
production is sold to just one customer, Dando plc.
Costello Limited is contracted to produce 220 bookcases for the customer each week at a
contract price of $30 per bookcase.
Employees are paid a fixed salary each week plus a bonus based on output.
The costs incurred by Costello Limited are as follows:
$
Direct material cost 22.00 per unit
Production labour
Salaries 345.00 per week
Bonus 0.50 per unit
Finishing labour
Bonus 0.25 per unit
Machine hire 150.00 per week
Administration costs 500.00 per week
Property costs 260.00 per week
REQUIRED
(a) Calculate the weekly break-even point in units.
[5]
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11
(b) Calculate the weekly margin of safety in units and in revenue.
[2]
(c) Prepare an annual profit statement using marginal costing.
[4]

12
The directors of Costello Limited are concerned about the future prospects of the company.
Employees have spare capacity and the machinery is not being fully utilised.
The company has been approached by a large retailer asking for a quotation to produce
100 bookcases each week. The retailer requires the bookcases to have a different finish that
would add $2.25 to the direct material cost.
REQUIRED
(d) Calculate the selling price that the directors should charge the retailer in order to achieve a
20% contribution to sales ratio.
[4]
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13
Having considered the situation, the directors have decided to quote a price of $29 per bookcase
to the retailer. The additional work will involve employing one additional member of staff at a
weekly salary of $140.
The contract with Dando plc to produce 220 bookcases per week would still be maintained at the
price of $30 per bookcase.
REQUIRED
(e) Prepare a profit statement for Costello Limited to show the total annual contribution and
total annual profit if the retailer accepts the quotation.
[5]
(f) Advise the directors whether or not they should proceed with the additional order for the
retailer. Give reasons for your answer.
[4]

14
Businesses may value inventory using different methods.
REQUIRED
(g) Explain two advantages and one disadvantage of using the AVCO method of inventory
valuation.
Advantage 1
Advantage 2
Disadvantage
[6]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB16 11_9706_22/5RP
2
1 Tom and Jerry are in partnership. They do not have a formal partnership agreement.
The following information is available for the partnership for the year ended 30 November 2015:
$
Capital account balances at 30 November 2015
Tom 90 000
Jerry 54 000
Current account balances at 1 December 2014
Tom 18 000 Credit
Jerry 10 800 Debit
Drawings for the year
Tom 8 000
Jerry 2 800
Profit from operations 12 600
Loan from partner account
Tom 24 000
Tom made the loan to the partnership on 1 December 2014.
Profits had accrued evenly and drawings had been taken evenly throughout the year.
Tom and Jerry prepared a formal partnership agreement to take effect from 1 September 2015.
The terms of the agreement were:
1 Interest on capital was to be at a rate of 8% per annum.
2 Interest on drawings was to be at a rate of 3% per annum based on the annual drawings.
3 Tom was to be paid a salary of $16 216 per annum.
4 Profits and losses were to be shared in the ratio 3 : 2 respectively.
5 Loan interest was to be paid at a rate of 4% per annum.
REQUIRED
(a) Calculate the profit before appropriation for the nine months ended 31 August 2015 and the
three months ended 30 November 2015.
[3]
© UCLES 2016 9706/22/O/N/16

3
(b) Prepare the appropriation account for the nine months ended 31 August 2015 and the three
months ended 30 November 2015.
Appropriation Account
9 months 3 months
$ $
[6]

4
(c) Prepare the current accounts for Tom and Jerry for the year ended 30 November 2015.
[8]
The partnership is considering expansion and will need to purchase additional non-current assets
at a cost of $60 000.
REQUIRED
(d) State the difference between capital and revenue expenditure.
[2]
(e) Identify and explain one accounting concept relating to depreciation.
[3]
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5
(f) (i) Discuss two possible sources of finance which could be used to fund the purchase of
the additional non-current assets.
[6]
(ii) Recommend the most appropriate source of finance for the partnership. Justify your
answer.
[2]
[Total: 30]

6
2 The directors of Rebuild Limited are preparing the financial statements for the year ended
31 December 2015. The equity section of the statement of financial position at 31 December 2014
was as follows:
$
Ordinary shares of $2 each, fully paid 240 000
Share premium 8 000
363 500
During the year ended 31 December 2015, the following transactions took place:
March 1 Issued 10 000 ordinary shares at $2.10 each

March 31 Paid final dividend of 3% on all shares in issue at 31 December 2014
December 31 The directors revalued the company premises upwards by $20 000
The profit for the year ended 31 December 2015 was $47 100.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 31 December 2015.
[5]
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7
The directors of Rebuild Limited made a bonus issue of ordinary shares on 30 June 2016. The
basis of the issue was one ordinary share for every twenty-five ordinary shares held. The
company policy is to leave reserves in their most flexible form.
The profit for the 6 months ended 30 June 2016 was $25 000.
REQUIRED
(b) Prepare the statement of changes in equity for the 6 months ended 30 June 2016.
[4]
(c) State two differences between ordinary shares and debentures.
[4]

8
The following item appears on the statement of financial position of Rebuild Limited
at 31 December 2015:
6% debentures (2018–2020) $60 000
REQUIRED
(d) State the significance of (2018–2020).
[1]
(e) State why an issue of debentures does not appear in the statement of changes in equity.
[1]
[Total: 15]
© UCLES 2016 9706/22/O/N/16

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10
3 Contador, a sole trader, has provided the following extract from the trial balance for the year
ended 31 March 2015. He does not maintain control accounts as part of his accounting records.
$
Debit balances 112 375
Credit balances 120 835
REQUIRED
(a) (i) State the use of a suspense account.
[1]
(ii) State three advantages to a business of maintaining a sales ledger control account.
[3]
The following errors have been identified:
1 The sales journal had been overcast by $26 350.
2 Motor expenses of $5270 had been posted to the motor vehicles account. Motor vehicles
had been depreciated at 20% per annum.
3 Interest received of $8945 had been debited to both the bank account and the interest
received account.
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11
REQUIRED
(b) Prepare journal entries to correct all of the errors identified. Narratives are not required.
[8]
(c) Assess the effect of these errors on the profit for the year.
[3]
[Total: 15]

12
4 Rodriguez Limited is a manufacturing business producing two products, Product X and Product Y.
The following budgeted information is available for the next month:
Product X Product Y
Budgeted production (units) 5000 7000
Costs per unit: $ $

Materials 12.50 10.75
Labour 18.40 27.60
Variable overheads 9.10 6.65
Fixed overheads 5.75 4.80
1 Both products are sold with a 20% mark-up on marginal cost.
2 Direct labour is paid at a rate of $4.60 per hour.
REQUIRED
(a) Calculate for each product
(i) unit contribution in dollars,
[2]
(ii) total direct labour hours required to meet budgeted production.
[2]
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13
The business only has a total of 59 000 direct labour hours available.
REQUIRED
(b) Calculate the maximum profit that can be achieved from the total direct labour hours
available.
[7]

14
The company has two possible options to enable it to achieve the budgeted production.
Option 1 Pay existing staff overtime. This will be paid at a rate of $5.75 per hour.
Option 2 Buy in the required products from an external supplier at a cost of $50 per unit.
REQUIRED
(c) (i) Evaluate the options available to the company to achieve the budgeted production.
Support your answers with calculations.
Option 1
Option 2
[10]
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15
(ii) Recommend which option the company should choose. Justify your answer.
[3]
(d) (i) State three advantages of budgetary control.
[3]
(ii) State three disadvantages of budgetary control.
[3]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB16 11_9706_23/4RP
2
1 Maneesh has not maintained a full set of accounting records for the year ended 31 December 2015.
The following information has been provided:
Assets and liabilities at 1 January 2015
Assets Liabilities
$ $
Inventory 18 500
Prepaid rent 1 900
Cash in hand 180
Accrued general expenses 1 320
Balance at 1 January 2015 106 710
126 440 126 440
Summary bank account for the year ended 31 December 2015
$ $
Receipts from credit customers 176 750 Balance at 1 January 2015 5 640
Cash sales banked 7 450 Payments to credit suppliers 138 132
Balance at 31 December 2015 17 272 Non-current assets 5 200
Drawings 14 120
Rent 27 100
201 472 201 472
Balance at 1 January 2016 17 272
1 Maneesh makes both cash and credit sales. All sales were made at 40% gross margin.
2 Credit sales for the year totalled $184 190.
3 Credit purchases for the year totalled $136 422. There were no cash purchases.
4 The business maintains a cash float of $180.
5 Maneesh withdrew $20 per week from cash sales for drawings, before banking the rest.
6 Maneesh depreciates his non-current assets at 20% per annum using the reducing balance
method.
7 The rent charge for the year was $24 600.
8 The general expenses charge for the year was $14 160.
9 Irrecoverable debts of $900 should be written off at 31 December 2015.
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REQUIRED
[6]

4
(b) Prepare the statement of financial position at 31 December 2015.
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[9]

6
Maneesh is concerned that the bank overdraft has increased substantially during the year ended
31 December 2015.
REQUIRED
(c) Suggest to Maneesh four possible reasons for the increase in the bank overdraft.
[4]
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7
Maneesh has been advised by the bank manager that the bank overdraft must be repaid in full as
soon as possible. Maneesh’s brother has offered the following possible solutions.
1 Lend Maneesh $20 000 repayable in five equal annual instalments of $5000 each (including
interest).
2 Enter into a formal partnership with Maneesh in which his brother:
(i) immediately pays $20 000 into the business bank account; and
(ii) receives 10% share of the future profits for the year.
REQUIRED
(d) Advise Maneesh which option he should choose. Justify your answer.
[7]

8
(e) State two items which may be included in a partnership agreement (other than the share of
profit)
which will affect the appropriation account
2 [2]
which will not affect the appropriation account.
2 [2]
[Total: 30]
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10
2 Alice, Eve and Jean are in partnership sharing profits and losses in the ratio 5 : 3 : 2 respectively.
The partnership statement of financial position at 30 June 2016 was as follows:
$
Current assets
Inventory 17 208
28 584
Capital accounts
Alice 76 500
Eve 63 000
Jean 27 000
166 500
Current accounts
Alice 14 112 Debit
Eve 8 226 Credit
Jean 18 982 Credit
13 096
Current liabilities
10 988
On 1 July 2016
1 Alice retired from the partnership.
2 Monies due to Alice on her retirement were paid to her from the partnership bank account.
3 Non-current assets were revalued at 20% lower than the net book value.
4 Inventory had a net realisable value of $12 908.
5 An amount of $1990 was written off as an irrecoverable debt.
6 Goodwill was valued at $20 250 and was not to remain in the books of account.
7 Eve and Jean continued in partnership sharing profits and losses in the ratio 3 : 2
respectively.
REQUIRED
(a) (i) State what is meant by net realisable value.
[1]
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11
(ii) State two reasons why assets are revalued on the change of a partnership.
[2]
(iii) Identify two situations where the capital accounts of partners may be adjusted for
goodwill.
[2]
(b) Prepare the partners’ capital accounts at 1 July 2016.
[6]

12
(c) Assess the impact of Alice’s retirement on the partnership’s statement of financial position.
[4]
[Total: 15]
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14
3 Dolphin Limited is a bakery producing goods for wholesale.

The issued share capital of the company is 300 000 ordinary shares of $2 each.
The directors offered a further 125 000 ordinary shares to family and friends.
The terms of issue were:
1 April 2016 – Payable on application $1.00 per share

30 June 2016 – Final payment $1.10 per share
Applications were received for 150 000 shares. All monies received were entered into a holding
account called ‘Application for Shares’. Transfers were made from this account to the relevant
ledger accounts.
The applicants were issued shares and all final payments were received on the due date. Excess
application monies were returned to applicants.
REQUIRED
(a) Prepare the relevant ledger accounts to record the issue of shares.
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[10]
(b) Explain two differences between ordinary shares and preference shares.
[4]
(c) Name one capital reserve.
[1]
[Total: 15]

16
4 Rajesh is a manufacturer with a trading year end of 31 December. He currently uses absorption
costing. The business operates two production cost centres and two service cost centres. Details
of these cost centres and the budgeted overhead costs for the whole business for the year ended
31 December 2015 are as follows:
Overhead $ Basis of apportionment

Depreciation 8 750 Non-current assets at cost
Machinery maintenance 27 000 Machine hours
Power 15 370 Kilowatt hours
Rent of premises 63 510 Floor area
Production cost centres Service cost centres

Kilowatt hours 3 750 2 500 750 250
Non-current asset at cost ($) 90 000 30 000 12 000 8 000
Stores requisitions 150 75 - -
Staff 20 30 3 -
Direct labour hours 2 300 13 900 - -
Machine hours 14 100 2 650 - -
REQUIRED
(a) Apportion the overhead costs to the four cost centres and re-apportion the service cost
centres costs to production cost centres using a suitable basis.
Production cost centres Service cost centres

Total
$ $ $ $ $
Depreciation
Power
Rent of premises
Re-apportionment of canteen
Re-apportionment of stores
Total overhead cost
[8]
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(b) Calculate suitable overhead absorption rates for each production cost centre correct to two
decimal places.
[4]
The following budgeted information is also available:
Product A Product B
Number of units 9400 6950
Direct costs per unit $5.75 $8.25
Machine hours per unit 1.5 0.3
Assembly hours per unit 0.5 2.0
REQUIRED
(c) Calculate the total cost per unit of Product A and Product B.
[4]

18
Machining Assembly
REQUIRED
(d) Calculate the over absorption or under absorption of overheads for each production cost
centre.
[4]
(e) State what is meant by allocation.
[1]
(f) State what is meant by overhead costs.
[2]
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(g) Explain why overhead costs are re-apportioned from service cost centres.
[2]
Rajesh has been advised to change to a marginal costing system.
REQUIRED
(h) Advise Rajesh whether or not he should change. Justify your answer.
[5]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB17 11_9706_21/6RP
2
1 Huan owns a business selling electrical goods. He was unable to count his inventory at his year
end of 31 March 2016. He counted his entire inventory on 6 April 2016, and valued it at cost,
$57 760.
1 Huan marks up the cost price of all goods by 25% to calculate the selling price.
2 Purchases of inventory between 1 April 2016 and 6 April 2016 amounted to $6100.
3 Sales between 1 April 2016 and 6 April 2016 amounted to $9600.
4 Goods with a selling price of $2100 had been sent to a customer on a sale or return basis on
30 March 2016. The goods had not been sold at 31 March 2016 and had not been included
when the inventory was counted.
5 On 4 April 2016, a customer returned goods sold to him on 26 March 2016. The goods had a
selling price of $650.
REQUIRED
(a) Prepare a statement to show Huan the value of inventory to include in the financial
statements at 31 March 2016.
[5]
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4
The following trial balance has been extracted from the books of account at 31 March 2016:
Debit Credit
$ $
6% Bank loan (repayable 2019) 12 000
Advertising expenses 3 480
Bank account 4 260
Capital account 145 190
Discount allowed 1 250
Drawings 32 700
Fixtures and fittings – cost 68 100
Fixtures and fittings – provision for depreciation 26 500
Insurance 1 090
Interest paid 950
Inventory at 1 April 2015 56 800
Motor vehicles – cost 49 600
Motor vehicles – provision for depreciation 18 800
Property rental 11 050
Provision for doubtful debts at 1 April 2015 580
Purchases 239 470
Returns outwards 410
Revenue 294 200
Other operating expenses 4 690
Wages 12 230
523 600 523 600
1 Interest on the bank loan had been paid up to 31 December 2015.
2 Huan’s depreciation policy is as follows:
Motor vehicles are to be depreciated at 25% per annum using the straight-line method.
Depreciation is to be charged on a month-by-month basis.
Fixtures and fittings are to be depreciated at 15% per annum using the reducing balance
method.
3 Huan sold a motor vehicle for $11 000 on 31 March 2016. The vehicle had cost $18 720 on
1 July 2014. No entries for this sale had been made in the books of account.
4 Property rental included a payment of $5850 covering the period 1 December 2015 to
31 August 2016.
5 Advertising expenses included a charge of $200 relating to advertising planned for

September 2016.
6 A customer who had owed Huan $420 at the year end had been declared bankrupt.
7 Huan wishes to maintain a provision for doubtful debts of 2% of trade receivables.
© UCLES 2017 9706/21/O/N/17

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REQUIRED
(b) Prepare an income statement for Huan for the year ended 31 March 2016.
Huan
Income statement for the year ended 31 March 2016

6
[13]
All of Huan’s sales and purchases are made on a credit basis. He feels that his accounting
records could be improved by preparation of control accounts.
REQUIRED
(c) State three benefits and one limitation of preparing a sales ledger control account.
Benefits
Limitation
[4]
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7
(d) Calculate the following ratios at 31 March 2016:
(i) operating expenses to revenue (to two decimal places)
(ii) inventory turnover (days)
[4]
Huan’s sister Carla operates a bakery business. Both operating expenses to revenue ratio and
inventory turnover (days) ratio are lower for Carla’s business.
REQUIRED
(e) Suggest one possible reason for the difference in each ratio:
(i) operating expenses to revenue
(ii) inventory turnover (days)
[4]
[Total: 30]

8
2 The directors of W Limited have provided the following balances at 1 August 2016:
Accumulated Net book

Cost depreciation value
$ $ $
Motor vehicles 125 000 43 750 81 250
The company policy is to provide depreciation on motor vehicles at 20% per annum using the
reducing balance method. Depreciation is charged on a month-by-month basis.
During the year ended 31 July 2017, the following transactions took place:
1 A motor vehicle was purchased on 31 January 2017 at a cost of $28 230.
2 A motor vehicle was sold on 28 February 2017 for $14 600. It had originally been purchased
on 30 April 2015 at a cost of $19 500.
3 There were no other additions or disposals of motor vehicles during the year.
REQUIRED
(a) State the double entry required to record the disposal of a non-current asset before the profit
or loss on disposal is transferred to the income statement (amounts are not required).
accounts to be debited accounts to be credited
[6]
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9
(b) Prepare the provision for depreciation on motor vehicles account for W Limited for the year
ended 31 July 2017 (dates are not required).
[7]
(c) Calculate the effect on profit for the year of each of transactions 1 and 2.
[2]
[Total: 15]

10
3 P Limited was formed on 1 June 2015. The company’s share capital comprised of ordinary
shares.
(a) (i) Identify two differences between ordinary shares and cumulative preference shares.
[2]
(ii) State three differences between a rights issue and a bonus issue.
[3]
P Limited prepares financial statements to 31 May.
The following transactions, all of which were entered in the appropriate accounts in the ledger,
occurred in relation to the ordinary shares.
2015
1 June 100 000 ordinary shares, with a nominal value of $1 each, were issued at a
price of $1.45 each. Of this, $1.15 was received which included the full par
value.
30 September The balance outstanding was received in full.
2016
1 October P Limited made a 1 for 4 rights issue at a discount of 15% of the most recent
share valuation of $1.40 per ordinary share. All shareholders took up their
rights in full.
© UCLES 2017 9706/21/O/N/17

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REQUIRED
(b) Complete the following table for the two years ended 31 May 2017 to record these
transactions.
Name of account to be Amount Name of account to be Amount

Date debited $ credited $
[6]

12
Shareholders have not received any dividend since the company was formed. However, the
financial statements show the following:
1 Profit for the years ended
31 May 2016 $15 000

31 May 2017 $30 000
2 Cash and cash equivalents at 31 May 2017 $90 000
On 1 June 2017 several major shareholders demanded that the directors pay a dividend of
$0.48 per share.
REQUIRED
(c) Advise the directors how they should respond to the shareholders’ demand. Support your
answer with calculations.
[4]
[Total: 15]
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14
4 Anna has a manufacturing business with two production departments and two service
departments. She makes circuit boards for electronic games using batch costing.
REQUIRED
(a) Explain what is meant by ‘batch costing’.
[2]
The following budgeted annual data for Anna is available:

Assembly Machining Stores Canteen
Overheads $36 000 $50 000 $6 250 $2 500
Machine hours 2 500 5 500 – –
Assembly Machining Stores

Number of orders 800 1200 –
Use of canteen 65% 25% 10%
© UCLES 2017 9706/21/O/N/17

15
REQUIRED
(b) Re-apportion the service departments’ costs to the production departments using a suitable
basis for each.
Assembly Machining Stores Canteen

$ $ $ $
Allocated overheads 36 000 50 000 6250 2500
Re-apportionment of
canteen
Subtotal
Re-apportionment of
stores
Total
[3]
(c) Calculate a suitable overhead absorption rate for each production department to two
decimal places.
[4]

16
A typical order for a batch of 1000 circuit boards requires the following:
Direct materials $48 000

Direct labour
Assembly department 500 hours at $12 per hour
Machining department 300 hours at $8 per hour
Machine hours
Assembly department 210 hours
Machining department 500 hours
Selling and administration costs $7000
REQUIRED
(d) Calculate, to two decimal places, the total cost per circuit board based on a batch of 1000
units.
[6]
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17
Sally, a customer, asked for a quote for an order for 75 circuit boards. Anna calculates the selling
price to give a profit margin of 60%.
REQUIRED
(e) Prepare a quote showing the total selling price.
[3]
Sally considered the quoted price and has asked for a discount of 5%.
REQUIRED
(f) Advise Anna whether or not she should allow Sally the discount. Justify your answer.
[5]

18
Anna has recently opened another factory making cases for the electronic games. She is
considering closing this factory as she believes it is unprofitable.
The following estimated data is available based on orders for the next six months:
Per unit $
Selling price 12
Variable costs 5
Total fixed costs 21 000

Estimated demand 2800 units
REQUIRED
(g) Calculate the break-even point in units.
[3]
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(h) Advise Anna whether or not she should close this factory giving both financial and
non-financial reasons for your answer.
[4]
[Total: 30]
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB17 11_9706_22/5RP
2
1 Ross, a sole trader, owns a business selling computer equipment. He prepared the following
income statement for the year ended 31 March 2017, which contained errors.
Ross
Income Statement for the year ended 31 March 2017
$ $
Revenue 96 520
Add: Returns outwards 440
96 960
Cost of sales
Inventory at 31 March 2017 23 400
Purchases 38 950
63 440
Inventory at 1 April 2016 (21 640) 41 800
Gross profit 55 160
Less expenses:
Property rental paid 16 240
Drawings 8 600
Travel expenses 2 060
Shop fittings – accumulated depreciation at 31 March 2017 3 320
40 090
The following notes also need to be taken into account when correcting the income statement.
1 Revenue includes goods sent on a sale or return basis to a customer who has not yet
accepted the goods. The goods cost $2500 and had been invoiced for $4000.
2 Depreciation on shop fittings for the year ended 31 March 2017, $1490, had been entered in
3 A prepayment of $1160 for property rental paid at 31 March 2017 had been incorrectly
entered in the books of account as an accrual.
4 A customer owing Ross $1250 has been declared bankrupt. This debt should have been
written off in these accounts, but no entry has yet been made.
© UCLES 2017 9706/22/O/N/17

3
REQUIRED
(a) Prepare the corrected income statement for the year ended 31 March 2017.
Ross
Income Statement for the year ended 31 March 2017
[13]

4
Ross provided the following information about his assets and liabilities at 31 March 2017:
$
Accruals 1 960
Bank loan 8 580
Capital at 1 April 2016 10 950
Shop fittings – cost at 31 March 2017 11 930
Prepayments 2 080
No adjustment had been made to any of these balances in respect of errors discovered in the
income statement or notes 1 to 4 on page 2.
Ross introduced capital of $3000 into the business bank account on 31 March 2017. No entries
for this have yet been made in the books of account.
One half of the bank loan is repayable in the year ending 31 March 2018. The remainder is due
for repayment after that date.
REQUIRED
(b) Prepare the statement of financial position at 31 March 2017 taking account of all relevant
information and information from part (a).
Ross
Statement of Financial Position at 31 March 2017
© UCLES 2017 9706/22/O/N/17

5
[13]
At present Ross does not make any provision for doubtful debts.
REQUIRED
(c) Advise Ross whether or not he should create a provision for doubtful debts. Justify your
answer.
[4]
[Total: 30]

6
2 Trott provided the following information for the year ended 30 April 2017:
$
Sales ledger balances 78 370
The following errors were identified:
1 The sales journal total had been overcast by $30 420.
2 A dishonoured cheque for $9745 had not been entered in the customer’s account.
3 Interest charged on an overdue amount, $720, had been completely omitted from the books
of account.
4 The sales returns journal had been overcast by $4560.
5 Discount allowed of $1520 had been completely omitted from the books of account.
6 Receipts from credit customers entered in the cash book had been overcast by $18 965.
7 An irrecoverable debt of $1825 had been written off in the sales ledger control account but
no entry had been made in the customer’s account.
REQUIRED
(a) Complete the following tables to update the sales ledger control account balance and the
sales ledger balances at 30 April 2017.
© UCLES 2017 9706/22/O/N/17

7
Sales ledger balances
[11]
(b) State four advantages to a business of preparing a sales ledger control account.
[4]
[Total: 15]

8
3 K Limited has been trading for many years and prepares financial statements annually to 30 April.
It had the following balances at 1 May 2016:
$ $
Plant and equipment
at cost 84 695
provision for depreciation 32 855
On 1 February 2017, the company bought new equipment, $12 785, and the cost of installing this
equipment was $1595.
On 31 December 2016 the company sold a motor vehicle which had cost $14 850 on
1 August 2015. The proceeds of $8900 were paid by cheque.
The company’s depreciation policy is as follows:
Plant and equipment 20% on cost per annum

Motor vehicles 25% reducing balance per annum
Depreciation is charged on a month-by-month basis.
REQUIRED
(a) (i) Calculate the depreciation charge for plant and equipment for the year ended
30 April 2017. Workings must be shown.
[2]
(ii) Prepare the motor vehicle disposal account for the year ended 30 April 2017. Workings
must be shown.
© UCLES 2017 9706/22/O/N/17

9
[4]
(b) Explain two accounting concepts which are being applied when depreciation is provided.
[4]
K Limited is considering purchasing additional plant and equipment costing $30 000. This could
be financed by one of the following:
Bank loan
Issue of ordinary shares
REQUIRED
(c) Advise the directors which method of finance they should choose. Justify your answer.
[5]
[Total: 15]

10
4 J Limited manufactures a single product, a leather suitcase. The following forecast information is
available.
Costs per unit $

Direct materials 15
Direct labour 8
Variable production overheads 2
Fixed costs per month $

Salaries 1450
Rent and rates 650
Advertising 1000
Other fixed costs 1100
The directors calculate the selling price by adding a mark-up of 80% on to the variable costs.
The company has orders to supply 240 suitcases per month. This involves working at 75%
capacity.
REQUIRED
(a) State two benefits and two limitations of break-even analysis.
Benefits
Limitations
[4]
(b) Calculate the break-even point in units per month.
[3]
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11
(c) Calculate the monthly margin of safety
(i) in units;
(ii) in revenue.
[2]
(d) Calculate the maximum monthly profit if the company is working at 100% capacity.
[3]

12
The directors have been approached by Bart, a retailer, who requires a regular monthly order of
150 suitcases. Bart is offering to pay $42 per suitcase.
The directors are aware that this order will take production over the current capacity and the
following would result:
1 All suitcases over the current maximum production capacity would incur an additional $2 per
unit direct labour cost to allow for overtime payments.
2 Additional storage facilities would have to be found at a monthly rental of $200.
The directors are also concerned that the target annual profit set by them of $30 000 is not being
achieved.
They have decided to increase by 10% the selling price of all production except the new contract.
They also plan to increase the advertising expenditure by $500 per month and are confident that
monthly sales to existing customers will remain at 240 suitcases per month.
REQUIRED
(e) Prepare a statement, in marginal cost format, to show J Limited’s maximum forecast total
profit per month if the directors accept the new contract.
[8]
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13
(f) Advise the directors whether or not they should accept the new contract with Bart and
increase the selling price. Justify your answer by explaining two benefits and two limitations.
Advice
Benefits
Limitations
[7]
(g) State three financial benefits of a system of budgetary control.
[3]
[Total: 30]
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB17 11_9706_23/6RP
2
1 F Limited is a large retail company. On 1 February 2016, the company invited applications for
50 000 ordinary shares of $1 each at an issue price of $1.20. The following terms applied:
Payable on application $0.50

Payable on allotment $0.70
Applications were received for 65 000 shares.
All monies received in respect of the share issue were posted to the bank account and a share
issue holding account until the shares were allotted.
At the time of allotment, transfers were made to the share capital account and the share premium
account and monies were returned to the unsuccessful applicants.
REQUIRED
(a) Prepare the following ledger accounts to show all transactions relating to the share issue.
Dates are not required.
Share issue holding account
$ $
Bank account
$ $
© UCLES 2017 9706/23/O/N/17

3
Share capital account
$ $
Share premium account
$ $
[10]

4
F Limited’s year end is 30 June. The following balances have been extracted from the books of
account at 30 June 2016:
$
Ordinary share capital ($1 each) 400 000
Share premium account 40 000
8% debentures (2020–2022) 280 000
Bank loan (repayable 2021) 100 000
1 The balance of retained earnings at 1 July 2015 was $210 000.
2 On 30 November 2015 a final ordinary share dividend of 2% was paid on all shares in issue
at that date.
3 On 31 May 2016 an interim ordinary share dividend of 3% was paid on all shares in issue at
that date.
4 The profit for the year ended 30 June 2016 was $65 000.
5 On 30 June 2016 the directors revalued land and buildings from $820 000 to $850 000.
© UCLES 2017 9706/23/O/N/17

5
REQUIRED
(b) Prepare the statement of changes in equity for F Limited for the year ended 30 June 2016.
F Limited
Statement of Changes in Equity for the year ended 30 June 2016

shares premium reserve earnings Total
$000 $000 $000 $000 $000
[8]
The directors of F Limited wish to purchase a new retail store for $400 000. They are considering
two different ways to raise the finance for this investment.
1 Issue a further $400 000 8% debentures (2026–2028).
2 Make a rights issue of 320 000 ordinary shares of $1 each at a price of $1.25.

6
REQUIRED
(c) Explain one difference between debentures and ordinary shares.
[2]
(d) Advise the directors which method of raising the finance you would recommend. Give
reasons for your answer.
[4]
© UCLES 2017 9706/23/O/N/17

7
F Limited also operates a manufacturing business. In the last financial year they extended the
factory premises. Expenditure included the following:
$
Building contractor charges to construct extension 28 000
Structural repairs to existing roof 4 600
Wages to own employees to construct new loading bay 4 000
Materials for new loading bay 2 400
Legal fees for planning permission 2 200
REQUIRED
(e) Define the term ‘revenue expenditure’.
[2]
(f) Prepare a statement to show the total amount of capital expenditure to appear in the financial
statements of the business in respect of the extension of the factory premises.
[4]
[Total: 30]

8
2 Rowsell does not keep full accounting records. However, the following information is available for
the year ended 31 May 2017:
$
Inventory at cost
1 June 2016 19 600
31 May 2017 16 300
Trade payables
1 June 2016 14 350
31 May 2017 17 220
Rent paid 19 500

Telephone charges paid 2 750
Non-current assets net book value at 1 June 2016 24 600
Cheque payments to trade payables 144 715
1 All goods were sold with a 20% mark-up on cost.
2 A non-current asset with a net book value of $9380 was sold during the year for $10 175.
3 Non-current assets are depreciated using the reducing balance method at a rate of 25% per
annum. It is the policy to provide depreciation for the full year in the year of addition and
none in the year of disposal.
4 The charge for rent is $1500 per month.
5 Telephone charges paid cover the period up to 31 March 2017. An amount for the quarter to
30 June 2017 of $840 was paid in July 2017.
6 All purchases were made on a credit basis.
© UCLES 2017 9706/23/O/N/17

9
REQUIRED
(a) Prepare the income statement for the year ended 31 May 2017.
Rowsell
Income Statement for the year ended 31 May 2017
[12]

10
(b) State three benefits of keeping full double entry accounting records for a business.
[3]
[Total: 15]
© UCLES 2017 9706/23/O/N/17

11

12
3 Rahman, Silva and Thierry have been in partnership for a number of years sharing profits and
losses in the ratio 3 : 2 : 1 respectively. The following draft statement of financial position was drawn
up at 30 June 2017:
$ $
Freehold property 120 000
Motor vehicles 38 000 214 000
Current assets
Inventory 42 000

Capital accounts
Rahman 90 000
Silva 60 000
Thierry 30 000 180 000
Current accounts
Rahman 42 300
Silva 18 600
Thierry (4 400) 56 500
Loan account - Thierry 30 000
Current liabilities
Thierry decided to retire from the partnership on 30 June 2017 and the following information was
available:
1 Rahman and Silva were to continue in partnership sharing profits and losses in the ratio
3 : 2 respectively.
2 Goodwill was to be valued at $48 000. No goodwill account was to be maintained in the
books of account.
3 Thierry was to take over one of the motor vehicles at an agreed value of $12 000. The
remaining motor vehicles were to be valued at $22 000.
4 The value of inventory was to be written down by $3000.
5 An irrecoverable debt of $200 was to be written off.
6 Thierry agreed not to ask for repayment of his loan to the partnership when he retired.
© UCLES 2017 9706/23/O/N/17

13
REQUIRED
(a) Prepare the revaluation account at 30 June 2017.
[4]
(b) Prepare the journal entry to account for goodwill at 30 June 2017. A narrative is not required.
[2]

14
(c) Prepare a statement to show the total amount due to Thierry on his retirement from the
partnership.
[4]
(d) State three items that may appear in a partnership agreement.
[3]
(e) Explain the difference between a realisation account and a revaluation account.
[2]
[Total: 15]
© UCLES 2017 9706/23/O/N/17

15

16
4 S Limited manufactures three different products.

The following budgeted information is available:
Products A B C
$ $ $
Monthly sales revenue 72 000 27 000 165 000
Unit costs
Direct materials ($1 per kilo) 6 9 3
Direct labour 2 7 8
Selling price per unit 18 27 33
Total monthly fixed overheads are expected to be $138 000.

The directors of S Limited have been informed that only $39 000 worth of direct materials would
be available in December 2017.
All products use the same type of direct material and no price increase would occur due to the
shortage. No changes are anticipated in selling prices, fixed overheads or unit variable costs.
Due to an increased demand, the directors do not want to discontinue any of the products and
wish to produce a minimum of 1000 units of each.
REQUIRED
(a) Prepare a statement to show the maximum budgeted profit the company will make in
December 2017 taking into account the shortage in materials and minimum production
requirement.
Product A Product B Product C
Contribution per unit ($)
Contribution per limiting factor ($)
Ranking
Budgeted profit statement for December 2017
Contribution per
unit Total
Production (units)
$ $
Product A
Product B
Product C
Total contribution
Less: Fixed overheads
Budgeted profit / loss

[11]
© UCLES 2017 9706/23/O/N/17

17
(b) Prepare a statement to show the maximum budgeted profit the company will make in
December 2017 taking into account the shortage in materials but without the minimum
production requirement.
Budgeted profit statement for December 2017
Contribution
per unit Total
Production (units)
$ $
Product A
Product B
Product C
Total contribution
Less: Fixed overheads
Budgeted profit / loss

[6]
(c) Advise the directors of S Limited whether or not they should produce a minimum of 1000
units of each product. Justify your answer.
[7]

18
(d) Define the term ‘margin of safety’.
[2]
(e) Explain the usefulness of margin of safety to a company.
[4]
[Total: 30]
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20
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
ACCOUNTING 9706/21
1 hour 30 minutes

IB18 11_9706_21/5RP
2
1 Francesco is a sole trader who runs a small bicycle distribution business. He does not keep full
accounting records.
REQUIRED
(a) State two benefits to a sole trader of keeping full accounting records.
[2]
(b) Explain the accounting treatment at the year-end in the income statement and statement of
financial position of:
Prepayments
Accruals
[4]
© UCLES 2018 9706/21/O/N/18

3
Francesco provided the following information for the year ended 30 April 2017.
$
Total sales 82 500
Total purchases 62 750
Mark-up is 25%.
The normal rate of inventory turnover is 5 times. However, it was discovered at the year-end that
some inventory had been stolen. No insurance claim has yet been made for this loss.
REQUIRED
(c) Prepare an extract from the income statement to show gross profit for the year ended
30 April 2017. Show clearly the value of inventory stolen.
Workings:
[5]

4
The following information has also been provided.
1 at 1 May at 30 April
2016 2017
$ $

Expenses prepaid 625 775
Expenses owing 350 425
2 Expenses paid from the bank account amounted to $9925.
3 Rental income received by credit transfer amounted to $15 700.
4 Balance per bank statement at 30 April 2017 of $4150 was overdrawn.
5 Unpresented cheques amounted to $850.
6 Uncredited bankings amounted to $1975.
7 There were no cash transactions. All sales and purchases were on a credit basis.
© UCLES 2018 9706/21/O/N/18

5
REQUIRED
(d) Prepare the bank account for the year ended 30 April 2017. Clearly show the opening
balance.
Bank account
$ $
Workings:
[8]
(e) Calculate the charge for total expenses which appeared in the income statement for the year
[2]

6
Francesco’s brother, Marco, runs a similar business. He has calculated the following ratios for his
own business:
30 April 30 April
2016 2017
Current ratio 2.6 : 1 1.2 : 1
Liquid (acid test) ratio 1.4 : 1 0.8 : 1
REQUIRED
(f) Discuss the liquidity position of Marco’s business using only the current and liquid (acid test)
ratios.
[4]
(g) Advise a potential new supplier whether or not to sell goods to Marco on a credit basis.
Justify your answer.
[5]
[Total: 30]
© UCLES 2018 9706/21/O/N/18

7
PLEASE TURN OVER

8
2 A business depreciates its non-current assets.
REQUIRED
(a) Explain why a business should comply with the following concepts when accounting for
non-current assets.
Prudence
Accruals (matching)
[4]
T Limited prepares accounts to 30 June.
The following balances are available at 30 June 2017:
$
Plant and machinery at cost 174 300
On 1 July 2017 the company disposed of a machine which had a net book value of $20 000. The
machine had been purchased on 1 July 2015.
On 1 October 2017 a new machine was purchased for $68 600 paid by cheque.
The company depreciates plant and machinery at 20% using the reducing balance method
calculated on a month-by-month basis. No depreciation is charged in the year of disposal.
© UCLES 2018 9706/21/O/N/18

9
REQUIRED
(b) Prepare the provision for depreciation on plant and machinery account for the year ended
30 June 2018. Dates are required.
Provision for depreciation on plant and machinery
$ $
Workings:
[8]

10
Rather than paying immediately, the company had the option to pay in full for the new machine
15 months from the date of purchase.
REQUIRED
(c) Explain the impact on the financial statements for the year ended 30 June 2018 of paying for
the new machine 15 months from the date of purchase.
[3]
[Total: 15]
© UCLES 2018 9706/21/O/N/18

11
PLEASE TURN OVER

12
3 Aisha, Bilal and Cao have been in partnership for many years sharing profits and losses in the
ratio 2 : 2 : 1.
Bilal decided to retire from the partnership at 31 January 2018.
Their statement of financial position at 31 January 2018 before any adjustments was as follows:
Aisha, Bilal and Cao

Statement of financial position at 31 January 2018
$ $
Assets
Non-current assets
Premises 85 000
Fixtures and fittings 7 500 124 500
Current assets
Inventory 16 200
Trade and other receivables 4 800 21 000

Capital accounts
Aisha 48 000
Bilal 48 000
Cao 24 000 120 000
Current accounts
Aisha 8 400
Bilal (1 200)
Cao 6 400 13 600
Current liabilities
1 The partners agreed that the value of goodwill at that date was $85 000.
2 It was also agreed that certain assets should be revalued to the following amounts.
$
Premises 114 000
Inventory 15 000
3 As part of the final settlement, Bilal was entitled to retain one of the motor vehicles at its net
book value of $11 400.
4 It was agreed that of the final settlement due to Bilal, $20 000 would be paid immediately by
cheque and the balance would remain in the business as a loan.
© UCLES 2018 9706/21/O/N/18

13
REQUIRED
(a) Prepare a statement to calculate the profit or loss on revaluation at 31 January 2018.
[3]
(b) Prepare Bilal’s capital account on his retirement from the partnership.
[6]
(c) Identify three ways, other than using bank finance, in which a partnership could raise funds
to purchase a non-current asset.
3 [3]

14
(d) State three items that may be included in the appropriation account before the division of
residual profit.
3 [3]
[Total: 15]
© UCLES 2018 9706/21/O/N/18

15
4 DH Limited manufactures a single product. The following information is available for one unit of
that product:
$
Selling price 20
Direct material 8
Direct labour 5
Variable overhead 3
Fixed overhead 2
Budgeted production is 200 000 units per annum.
REQUIRED
(a) Calculate the annual break-even point in units.
[2]
(b) Calculate the total budgeted annual contribution and total budgeted annual profit.
[2]
The directors are considering reducing the selling price of the product by 10%. The new selling
price would be lower than that of competitors. The directors are confident that as a result of this,
sales volume would increase by 50%.
In order to produce the budgeted units, the company’s labour force is currently working at 80%
capacity. Workers will be paid an overtime premium of 25% for all production over 100%
capacity.
The additional production would enable the company to qualify for 12.5% discount on all direct
materials.
The revised production would result in the fixed overhead cost per unit reducing by 30% for all
units produced.

16
REQUIRED
(c) Calculate the total budgeted annual profit if the directors proceed with their plans.
[8]
(d) Calculate the revised break-even point in units if the directors proceed with their plans.
[2]
(e) Calculate the margin of safety in units and as a percentage if the directors proceed with their
plans.
[2]
© UCLES 2018 9706/21/O/N/18

17
(f) Advise the directors whether or not they should proceed with their plans to reduce the selling
price. Give reasons for your answer.
[5]
The company has used the same direct material supplier for many years, but the directors have
now been informed that there will possibly be a shortfall of available material in the next six
months. They have sourced an alternative material from a new supplier at the same price.
REQUIRED
(g) State three issues the directors should consider before changing a supplier.
[3]

18
The directors of DH Limited also use absorption costing.
REQUIRED
(h) State the meaning of each of the following terms.
(i) Allocation
[2]
(ii) Apportionment
[2]
(iii) Absorption
[2]
[Total: 30]
© UCLES 2018 9706/21/O/N/18

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20
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
ACCOUNTING 9706/22
1 hour 30 minutes

IB18 11_9706_22/5RP
2
1 Finn started business on 1 January 2017. He did not keep full accounting records.
A summary of his bank statements for the year ended 31 December 2017 was as follows.
Receipts $
Capital introduced 15 000
From credit customers 98 600
Loan taken out 4 000
117 600
Payments
Rent 12 000
Cash 35 600
Purchase of fixtures and fittings 14 000
126 700
The following information was available.
1 Receipts from customers paid into the bank but not yet showing on the bank
statement were $1800.
2 Cheques paid to suppliers not yet presented to the bank amounted to $1600.
REQUIRED
(a) Calculate the balance at bank which would appear in the statement of financial position at
31 December 2017.
[3]
1 All sales were made on a credit basis. There were no sales returns during the year.
2 The total value of sales invoices issued during the year was $144 200.
3 Finn had allowed one customer to pay $100 less than the invoice amount because he had
paid promptly.
© UCLES 2018 9706/22/O/N/18

3
REQUIRED
(b) Prepare a total trade receivables account for the year ended 31 December 2017 to show the
amount owed to Finn at the year end.
Total trade receivables account
$ $
[4]
1 All purchases were made on a credit basis. There were no purchases returns during the year.
2 The total value of purchases invoices received was $79 300. Of these, $12 100 had not been
paid by the year end.
3 Finn knew that he had sometimes taken a cash discount but had kept no record of the
amounts involved.
REQUIRED
(c) Prepare a total trade payables account for the year ended 31 December 2017 to show the
total discount Finn had taken.
Total trade payables account
$ $
[4]

4
1 Finn paid wages of $1200 in cash each month. He also took cash drawings of $500 every
month.
2 Other operating expenses were all paid in cash.
3 Cash in hand was $100 at the year end.
REQUIRED
(d) Prepare a cash account for the year ended 31 December 2017 to show the amount paid for
other operating expenses.
Cash account
$ $
[4]
1 The loan carried an interest rate of 10%. The loan had been received on 1 July 2017 and no
interest had been paid by the year end.
2 The fixtures and fittings were expected to last for 10 years and have no scrap value. They
are to be depreciated using the straight-line method. The policy is to provide for a full year’s
depreciation in the year of purchase.
3 At the year end other operating expenses, $1000, were accrued.
4 At the year end inventory was valued at cost, $6200.
© UCLES 2018 9706/22/O/N/18

5
REQUIRED
(e) Prepare the income statement for the year ended 31 December 2017.
[9]

6
(f) Advise Finn whether or not he should employ a book-keeper at a cost of $500 a month.
[4]
(g) State two reasons why a trader might maintain a provision for doubtful debts.
[2]
[Total: 30]
© UCLES 2018 9706/22/O/N/18

7
PLEASE TURN OVER

8
2 Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively.
The partners decided to admit Liam as a partner with effect from 1 July 2018.
The partnership’s statement of financial position immediately prior to Liam’s admission was as
follows.
Jack and Kelly

Summarised statement of financial position
at 30 June 2018
$
Assets
Current assets 21 700
Capital accounts
Jack 33 000
Kelly 71 000
Current liabilities 9 100
The partners do not maintain separate current accounts.
The following was agreed.
1 Assets were revalued upwards by $21 000.
2 Goodwill was valued at $52 500. No goodwill account was to be maintained in the
partnership’s books of account.
3 In the future profits and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3
respectively.
4 The balances of the partners’ capital accounts immediately after Liam’s admission should
total $120 000 and be in the same ratio as the profit sharing ratio.
Each partner would either pay funds into, or withdraw funds from, the business bank account
in order to achieve this requirement.
REQUIRED
(a) Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next
page.
© UCLES 2018 9706/22/O/N/18

Partners’ Capital Accounts
© UCLES 2018
Jack Kelly Liam Jack Kelly Liam
$ $ $ $ $ $
9
9706/22/O/N/18
[6]
[Turn over
10
(b) State what is meant by the term ‘goodwill’.
[1]
(c) Explain why a partnership may make an adjustment for goodwill when they admit a new
partner.
[2]
(d) Explain why partners may agree not to maintain a goodwill account in the books of the
partnership on the admission of a new partner.
[2]
© UCLES 2018 9706/22/O/N/18

11
The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an
increase of 25% on the current year’s profit. The partners believe that Liam’s admission will result
in an improved return on capital employed.
REQUIRED
(e) Advise the partners whether or not they are correct in believing that Liam’s admission will
result in an improved return on capital employed in the year ending 30 June 2019.
Support your answer with calculations.
[4]
[Total: 15]

12
3 Part of the equity of a limited company consists of ordinary shares.
REQUIRED
(a) (i) Explain two reasons why a company may make a bonus share issue.
[4]
(ii) State three uses of the share premium account, other than the issue of bonus shares.
[3]
© UCLES 2018 9706/22/O/N/18

13
On 1 January 2017 the issued share capital of S Limited consists of ordinary shares of $0.40
each.
The following information is available for the year ended 31 December 2017:
1 On 1 April 2017 the company issued a 6% debenture of $300 000.
2 On 1 May 2017 the company paid a final dividend of $0.04 per ordinary share.
3 On 1 October 2017 the company made a rights issue of 1 ordinary share for every 4 held.
The shares were offered at a 20% discount on the market price of $1.45. The rights issue
4 On 15 October 2017 the company paid an interim dividend of $0.015 per share to the
shareholders who were on the share register at 1 August 2017.
5 The company’s profit from operations for the year was $268 500.
REQUIRED
(b) Prepare the statement of changes in equity for the year ended 31 December 2017.
S Limited
Statement of changes in equity
for the year ended 31 December 2017
Ordinary Share General Retained

Total
share premium reserve earnings
capital
$
$ $ $ $
Brought forward
at 1 January 2017 1 250 000 – 130 000 65 000 1 445 000
Workings:
[6]

14
(c) State the journal entry required to record a revaluation increase in the value of a non-current
asset.
[2]
[Total: 15]
© UCLES 2018 9706/22/O/N/18

15
4 G Limited produces a single product and uses break-even analysis.
REQUIRED
(a) State what is meant by the term ‘break-even point’.
[1]
(b) State three uses of marginal costing.
[3]
The company’s factory is operating at full capacity and produces 5000 units a year. All units
produced are sold. Its break-even point has been calculated as 2400 units.
Budgeted information for current production is as follows.
Per unit
direct materials 4 kilos at $6 per kilo
direct labour 8 hours at $10 per hour
variable overheads $12 per unit
$
Annual revenue 1 000 000
Total annual fixed costs 201 600
The company has the opportunity to buy some land so that the factory could be extended. The
directors believe the company could sell 8000 units a year if the selling price was reduced.
If the factory was extended and production increased, the directors estimate the following
changes would take place.
The selling price would be reduced by $5 per unit.

The price of direct materials would fall to $5.80 per kilo.
The direct labour rate would rise to $10.80 per hour.
Total fixed costs would increase by 50%.

16
REQUIRED
(c) Suggest a reason for:
(i) the decrease in the direct material price
[1]
(ii) the increase in the direct labour rate.
[1]
(d) Explain why fixed costs might increase by 50%.
[3]
(e) Calculate:
(i) the profit for the year if the expansion went ahead
[6]
© UCLES 2018 9706/22/O/N/18

17
(ii) the profit per unit if the expansion went ahead
[1]
(iii) the contribution to sales ratio if the expansion went ahead.
[2]
(f) Calculate the revised break-even point. Express your answer in terms of both revenue and
units.
[3]
The purchase of land and site development would be financed with a long-term loan.
REQUIRED
(g) Explain how the proposed expansion of the factory might affect the shareholders’ view of the
safety of their investment.
[4]

18
(h) Advise the directors whether or not they should proceed with the expansion of the factory.
[5]
[Total: 30]
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19
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
ACCOUNTING 9706/23
1 hour 30 minutes

IB18 11_9706_23/6RP
2
1 From time to time M Limited issues shares.
REQUIRED
(a) State the double entry required to record a rights issue of shares at a premium.
[3]
The directors of M Limited have a policy of not paying interim dividends. The statement of
changes in equity of the company for the year ended 31 December 2016 was as follows.
M Limited
Ordinary Share General Retained Total

share premium reserve earnings
capital
2016 $ $ $ $ $
Jan 1 Balance 400 000 150 000 – 120 000 670 000
Feb 10 ? 100 000 (100 000) –
Jun 25 Dividend (60 000) (60 000)
Dec 31 Transfer 50 000 (50 000) –
Dec 31 Profit for the year 90 000 90 000
Dec 31 Balance 500 000 50 000 50 000 100 000 700 000
REQUIRED
(b) (i) State which event was recorded by the entry on 10 February 2016.
[1]
(ii) Explain why the entry made on 10 February 2016 was made to the share premium
account rather than the retained earnings account.
[2]
© UCLES 2018 9706/23/O/N/18

3
(iii) State which dividend was recorded by the entry on 25 June 2016.
[1]
(iv) State why the directors decided to create a general reserve.
[1]
(v) Explain why a long-term bank loan received by the company on 1 July 2016 was not
recorded in the statement of changes in equity.
[2]
1 Balances at 1 January 2017 included the following.
$
Buildings
cost 400 000
Equipment
cost 256 000
Motor vehicles
cost 188 000
2 During the year ended 31 December 2017 the following took place:
new equipment costing $37 000 was bought
a motor vehicle with an original cost of $10 000, bought during 2016, was sold.
buildings at a rate of 2% per annum using the straight-line method
equipment at a rate of 10% per annum using the straight-line method
motor vehicles at a rate of 20% per annum using the reducing balance method.
A full year’s depreciation is charged in the year of acquisition and none in the year of
disposal.
4 On 31 December 2017 the buildings were revalued at $650 000.

4
REQUIRED
(c) Calculate the net book value of non-current assets which will appear in the statement of
financial position at 31 December 2017.
[6]
$
At 1 January 2017
10% Bank loan (2025) 100 000

Dividend paid 66 000
Profit for the year before charging
depreciation and loan interest 163 000
There was no change to issued share capital
At 31 December 2017
Current assets 290 300
Current liabilities (including accrued loan interest) 96 300
© UCLES 2018 9706/23/O/N/18

5
REQUIRED
(d) Prepare the statement of financial position at 31 December 2017. Use the space on the next

6
[10]
The directors are considering the rates of depreciation applied to the company’s non-current
assets.
REQUIRED
(e) Advise the directors whether or not they should decrease the depreciation rates.
[4]
[Total: 30]
© UCLES 2018 9706/23/O/N/18

7
PLEASE TURN OVER

8
2 Angela, Beena and Cai were in partnership sharing profits and losses in the ratio of 4 : 3 : 1. They
dissolved their partnership on 30 September 2017.
1 At that date their statement of financial position was as follows:
Assets $ $ $ $
Non-current assets
Machinery 60 000
250 000
Current assets
Inventory 35 000
Bank 4 500
84 500

Angela Beena Cai
Capital account 100 000 75 000 25 000 200 000
Current account 5 000 4 000 (1 000) 8 000
Total 105 000 79 000 24 000 208 000
10% loan from Beena 100 000
Current liabilities
2 The following assets were sold for cash.
$
Machinery 55 150
Inventory 33 750
3 Angela took a motor vehicle at an agreed valuation of $20 000.

Beena took the remaining motor vehicle at an agreed valuation of $13 000.
4 An amount of $40 500 was received from trade receivables in full settlement of their
accounts.
5 An amount of $25 000 was paid to trade payables in full settlement of their accounts.
6 Dissolution costs of $2300 were paid from the bank.
© UCLES 2018 9706/23/O/N/18

9
REQUIRED
(a) Prepare the realisation account on dissolution of the partnership.
Realisation account
$ $
[6]

10
(b) Calculate the amount to be paid to Beena on dissolution of the partnership.
[3]
(c) State two items which may be included in a partnership agreement.
[2]
© UCLES 2018 9706/23/O/N/18

11
(d) Explain why partners may each have a separate capital account and current account.
[4]
[Total: 15]

12
3 H Limited provided the following information for its most recent year of trading.
$
Cash sales 10 600
Credit sales 81 900
Purchases (all credit) 77 800
Administrative and
distribution expenses 14 800
H Limited calculates a number of different ratios to analyse its results each year.
REQUIRED
(a) Explain the difference between gross margin and mark-up.
[2]
(b) (i) Name one cost recorded in an income statement which would not be included in the
calculation of the expenses to revenue ratio.
[1]
(ii) Name two costs which might be included in the administrative expenses of a limited
company.
2 [2]
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13
(c) Calculate the following ratios for the year.
(i) gross margin
[3]
(ii) expenses to revenue
[2]
(iii) profit margin
[2]
(d) State how the three ratios calculated in (c) are related.
[1]
(e) Suggest two reasons why H Limited’s gross margin may have been higher than the previous
year.
[2]
[Total: 15]

14
4 J Limited produces and sells a single product. The budgeted operating statement of the company
for the year ending 31 March 2019 is as follows:
$000 $000
Sales income (20 000 units) 2 900
Direct labour 300
Production overheads 680
(1 480)
Gross profit 1 420
Selling overheads (898)
Profit for the year 522
The variable production overheads will be $5 per unit.
The variable selling overheads will be $10 per unit.
REQUIRED
(a) (i) Calculate the budgeted contribution per unit.
[4]
(ii) Calculate the budgeted margin of safety in units.
[5]
(iii) Calculate the budgeted margin of safety as a percentage.
[1]
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15
The sales manager believes that production and sales can be increased to 25 000 units per year
based on the following plan.
1 The company spends $250 000 on an advertising campaign which will last for one year only.
2 The unit selling price is reduced by 15%.
3 The direct material unit cost is reduced by 5%.
REQUIRED
(b) Prepare statements to calculate the following in the first year if the directors decide to
proceed with this plan.
(i) the revised budgeted contribution
[6]
(ii) the revised budgeted total profit
[2]

16
If the directors decide to proceed with the sales manager’s plan they would do so for a period of
3 years.
If the directors decide not to proceed with the sales manager’s plan they estimate that profit for
the years ending 31 March 2019, 31 March 2020 and 31 March 2021 will be $522 000, $322 000
and $220 000 respectively.
REQUIRED
(c) Advise the directors whether or not they should accept the sales manager’s plan. Justify your
answer using both financial and non-financial factors and any relevant calculations.
[7]
© UCLES 2018 9706/23/O/N/18

17
(d) State three assumptions made when using costvolumeprofit (CVP) analysis.
[3]
(e) State two advantages of using CVP analysis.
[2]
[Total: 30]
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
ACCOUNTING 9706/21
1 hour 30 minutes

IIB19 11_9706_21/11RP
2
1 AB Limited is a wholesaler of household goods. The following information has been extracted
from the books of account at 31 December 2018.
$
6% debenture (2023–25) 80 000
Buildings
Cost 80 000
Provision for depreciation at 1 January 2018 28 800
Land at cost 65 000
Motor vehicles
Cost 46 000
Warehouse fixtures and fittings
Cost 12 900
Cash and cash equivalents (credit balance) 5 300
Finance costs 2 200
Ordinary share dividend paid 1 700
Purchases 310 600
Revenue 670 400
Share capital ordinary shares of $1 each 80 000
Trade and other receivables 92 400
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3
1 Inventory at 31 December 2018 was valued at $62 000.
2 Trade and other receivables include prepaid insurance of $2000.
3 An irrecoverable debt of $400 should be written off to administrative expenses.
4 The directors wish to create a provision for doubtful debts of 5% of trade receivables.
This should be charged to administrative expenses.
5 The debenture was issued on 1 March 2018. No interest has yet been paid.
6 The buildings owned by the company are used 75% as warehouse space and 25% as
office space.
7 All of the company’s motor vehicles are used only for deliveries.

Buildings 2% per annum straight-line method
Motor vehicles 20% per annum straight-line method
Warehouse fixtures and fittings 10% per annum reducing balance method.

4
REQUIRED
AB Limited
Income Statement for the year ended 31 December 2018
Revenue
Cost of sales
Gross profit for the year
Distribution costs
Finance costs
Profit for the year
Workings:
[10]
© UCLES 2019 9706/21/O/N/19

5
(b) Prepare the statement of financial position at 31 December 2018. Use the space provided on the
AB Limited

6
Workings:
[9]
The directors of AB Limited wish to raise an additional $100 000 capital for expansion. They are
considering either a rights issue of ordinary shares or an issue of a further debenture.
REQUIRED
(c) Advise the directors which option they should choose. Give reasons for your answer.
[5]
© UCLES 2019 9706/21/O/N/19

7
(d) Identify two internal stakeholders with an interest in the financial statements of a limited
company.
2 [2]
The directors of AB Limited use ratio analysis to assess the performance of the business.
REQUIRED
(e) Name two ratios that a business may use to assess:
(i) profitability
2 [2]
(ii) liquidity.
2 [2]
[Total: 30]

8
2 Jacques is a sole trader.
On 31 January 2019, the balance on the bank statement was $1875 debit. This did not agree with
Jacques’s cash book balance of $4327 credit.
The following transactions were included only on the bank statement.
1 A payment for wages of $850.
2 A transfer of $3500 from Smith, a credit customer.
The following transactions were included only in the cash book.
1 A cheque payment to a supplier for $340.
2 A receipt of $560 from a customer.
The following errors have also been identified.
1 A direct debit payment for insurance of $180 had been incorrectly recorded on the bank
statement as $108.
2 A standing order for electricity of $175 had been incorrectly recorded in the cash book as
$275.
3 Bank interest paid of $75 had been recorded as interest received in the cash book.
REQUIRED
(a) Prepare the updated cash book at 31January 2019. Dates are not required.
[5]
© UCLES 2019 9706/21/O/N/19

9
(b) Prepare the bank reconciliation statement at 31 January 2019.
[4]
(c) State two reasons why a business would prepare a bank reconciliation statement.
[2]

10
Jacques calculated a draft profit for the year ended 31 January 2019 of $10 340. He has identified
the following.
1 An item of inventory had been included at cost, $800. It was found to be damaged. It could
be sold for $900 if repairs costing $150 were carried out.
2 On 25 January 2019 Jacques had sent goods to a customer on a sale or return basis. These
had been invoiced to the customer at $2800. Jacques marks up his goods at 40%. The
customer had not decided whether to keep the goods.
3 On 4 February 2019 Jacques received an invoice for $3600 relating to rental of storage
space for three months ending 31 March 2019.
REQUIRED
(d) Prepare a statement to show the revised profit for the year ended 31 January 2019, after
adjusting for items 1, 2 and 3.
[4]
[Total: 15]
© UCLES 2019 9706/21/O/N/19

11
3 Adam, Bilal and Chan operate a partnership providing secretarial services. The partners have no
formal partnership agreement.
The following balances are extracted from the trial balance at 31 December 2018.
Debit Credit
$ $
Fees revenue received 152 000
Business operating costs 76 000
Capital accounts
Adam 30 000
Bilal 20 000
Chan 10 000
Current accounts
Adam 36 000
Bilal 4 000
Chan 12 000
Loan account: Bilal 80 000
Motor vehicles at net book value 96 000
REQUIRED
(a) Calculate the profit for the year ended 31 December 2018 before appropriation.
[1]
(b) Calculate the share of profit appropriated to Bilal for the year ended 31 December 2018.
[1]

12
On 1 January 2019, Bilal decided to retire from the partnership. The partners agreed the
following.
1 Bilal was to retain one motor vehicle. The net book value of the motor vehicle was $36 000
but it was agreed to transfer it to Bilal at a value of $30 000.
2 The remaining motor vehicles were to be revalued upwards by 5%.
3 An irrecoverable debt of $2000 was to be written off and a provision for doubtful debts of 4%
was to be made.
4 Goodwill was to be valued at $24 000.
5 Bilal agreed to leave $45 000 in the partnership as a loan at 8% per annum interest. The
remaining balance due to Bilal was to be paid from the partnership bank account.
REQUIRED
(c) Prepare the revaluation account at 1 January 2019.
[4]
© UCLES 2019 9706/21/O/N/19

13
(d) Prepare a statement showing the amount to be paid to Bilal from the partnership bank
account on his retirement.
[3]

14
Adam and Chan are to continue in partnership after Bilal’s retirement and plan to draw up a
formal partnership agreement to include the following:
profit-sharing ratio
rate of interest on capital
rate of interest on drawings.
REQUIRED
(e) State two reasons why partners may agree to provide interest on capital.
[2]
(f) State two reasons why partners may agree to charge interest on drawings.
[2]
(g) State two further terms that may appear in a partnership agreement.
[2]
[Total: 15]
© UCLES 2019 9706/21/O/N/19

15
PLEASE TURN OVER

16
4 D Limited is a large company and operates from several sites. It uses different systems of costing
for its different sites.
REQUIRED
(a) State three advantages to a business of using a system of absorption costing.
[3]
At one of its sites the company specialises in printing brochures and leaflets for local
organisations. At this site it uses a system of absorption costing.
There are two production departments: Assembly and Printing and two service departments:
Technical support and Personnel.

Technical
Assembly Printing Personnel
support
Power (kilowatt-hours) 120 320 40 20
Replacement cost of machinery
and equipment ($) 105 000 30 000 12 000 3 000
Technical support hours 400 60
The following budgeted overhead costs for August 2019 are still to be apportioned.
$
Electricity 20 500
Insurance of machinery 7 500
Insurance of buildings 11 880
© UCLES 2019 9706/21/O/N/19

17
REQUIRED
(b) Complete the following table to show the apportionment of budgeted overhead costs for
August 2019.
Apportionment of overheads
Technical
Total Assembly Printing support Personnel
$ $ $ $ $
Overheads already apportioned 40 210 17 530 11 360 5020 6300
Electricity
Insurance of machinery
Insurance of buildings
Total overheads apportioned
Reapportionment of personnel
overheads
Reapportionment of technical
support overheads
[7]

18
The following budgeted information is also available for August 2019.
Assembly Printing
Direct machine hours 1400 5500
REQUIRED
(c) Calculate an overhead absorption rate for each production department using an
appropriate basis.
[4]
The company received an order for a set of brochures to be produced in August 2019. It was
budgeted that this order would require the following:
Direct material and labour cost $1330

Direct labour hours
Printing department 7.2 hours
Machine hours
Printing department 6.0 hours
The company requires a profit margin of 25% on all orders.
© UCLES 2019 9706/21/O/N/19

19
REQUIRED
(d) Calculate the budgeted profit on this order.
[4]
The actual time taken in each production department for this order was as follows:
Assembly department Printing department

Direct labour hours 11 6.5
Machine hours 6 8
REQUIRED
(e) Calculate the total over or under-absorption of overheads for this order. Clearly show in
your workings over-absorption or under-absorption of overheads in each department.
[5]

20
At a second site, D Limited manufactures garden chairs and uses a system of marginal costing.
There are three models: basic, super and deluxe. Total budgeted fixed costs per annum are
$234 000. Budgeted direct labour hours are 156 000 per annum. Fixed overhead costs are
absorbed on the basis of direct labour hours.
The following forecast figures are available for September 2018.
Basic Super Deluxe

Contribution per chair $3 $9 $12
Direct labour hours per chair 3 4.5 5.5
A director has suggested that production of the model which provides the least profit should be
discontinued and resources switched to the production of the other models.
REQUIRED
(f) Recommend whether or not production of the model which provides the least profit should
be discontinued. Justify your answer using both financial and non-financial factors.
[7]
[Total: 30]
© UCLES 2019 9706/21/O/N/19


ACCOUNTING 9706/22
1 hour 30 minutes

IB19 11_9706_22/5RP
2
1 R Limited provided the following information at 30 June 2018.
An extract from the statement of financial position
$
10% Debenture 75 000
Inventory 45 000
Other receivables (insurance) 1000
Other payables (electricity expenses) 500
An extract from the schedule of non-current assets
Land and buildings Fixtures and fittings Motor vehicles

Details
$ $ $
Cost 350 000 75 000 200 000
Revaluation 100 000 - -
30 June 2018 - (35 000) (50 000)
Net book value 30 June 2018 450 000 40 000 150 000
The company lost all its accounting records as a result of a computer virus but was able to
provide the following summary of its receipts and payments for the year ended 30 June 2019.
$ $
Takings banked 286 000 Purchases 135 000
Insurance 12 000
Motor vehicle expenses 10 000
Electricity expenses 2 700
Debenture interest 3 750
All the receipts and payments were through the bank.

All sales and purchases were on cash basis.
The company’s depreciation policy is as follows:
10% per annum reducing Charged to administrative

balance method expenses
20% per annum reducing
Motor vehicles Charged to distribution costs
balance method
Land and buidings No depreciation
© UCLES 2019 9706/22/O/N/19

3
The following information is available at 30 June 2019.
1 Inventory was valued at cost $42 000 including damaged inventory costing $5000. This could
be repaired at a cost of $450 and sold for $5100.
2 Insurance of $750 for the three months ended 31 July 2019 was outstanding.
3 Electricity expenses included $600 for the three months ended 31 August 2019.
4 Expenses are split as follows:
Insurance Charged to administrative expenses

Motor vehicle expenses Charged to distribution costs
Wages and salaries Split between distribution costs and
administrative expenses in the ratio of 4 : 1
Electricity expenses Charged to administrative expenses
REQUIRED
(a) Prepare the income statement for the year ended 30 June 2019. Use the space on the next
page to show your workings.
R Limited
Income statement for the year ended 30 June 2019
Revenue
Cost of sales
Gross profit
Distribution costs
Finance cost
Profit for the year

4
Workings:
Cost of sales
Distribution costs
Finance cost
[17]
© UCLES 2019 9706/22/O/N/19

5
(b) State two differences between capital reserves and revenue reserves.
[4]
R Limited is planning to acquire a new building at a cost of $500 000 to expand its business. The
directors are considering two options to finance this acquisition.
Option 1: issue of shares

Option 2: issue of a further debenture
REQUIRED
(c) Advise the directors which option should be chosen to raise finance to acquire the building.
[5]

6
(d) State one advantage and one disadvantage to a business:
(i) of making all sales on a cash basis only
Advantage
Disadvantage
[2]
(ii) of making all purchases on a cash basis only.
Advantage
Disadvantage
[2]
[Total: 30]
© UCLES 2019 9706/22/O/N/19

7
PLEASE TURN OVER

8
2 Nibali has provided the following information for the year ended 31 July 2019.
$
Revenue 750 000
Cash sales are 10% of total revenue.
Cash purchases are 25% of total purchases.
Gross margin is 20%.
Nibali’s standard credit terms with both customers and suppliers are 30 days.
Industry average inventory turnover is 15 days.
REQUIRED
(a) Calculate:
(i) inventory turnover in days
[2]
(ii) trade receivables turnover in days
[2]
© UCLES 2019 9706/22/O/N/19

9
(iii) trade payables turnover in days.
[3]
(b) Discuss the liquidity of Nibali’s business based on the available information.
[5]
(c) Identify three drawbacks for a business of holding too much inventory.
[3]
[Total: 15]

10
3 Miguel and Bernard are in partnership, sharing profits and losses in the ratio 2 : 3 respectively.
The statement of financial position for the business at 31 May 2018 has been provided.
$
Current assets
Inventory 60 000
108 000
Capital accounts
Miguel 100 000
Bernard 145 000
245 000
Current liabilities
38 000
The partners admitted Eddy to the business on 1 June 2018. The following information is also
available.
1 Eddy introduced non-current assets valued at $40 000 and cash of $50 000.
2 The new profit-sharing ratio will be 5 : 3 : 2 for Miguel, Bernard and Eddy respectively.
3 Goodwill was valued at $40 000 and will not be retained in the books of account.
4 Non-current assets at 31 May 2018 were revalued at $210 000.
5 Inventory at 31 May 2018 had a net realisable value of $45 000.
6 A provision for irrecoverable debts of 5% of trade receivables at 31 May 2018 was made.
REQUIRED
(a) Prepare, on the next page, the partners’ capital accounts on 1 June 2018 following the
admission of Eddy.
© UCLES 2019 9706/22/O/N/19

Capital accounts
Miguel Bernard Eddy Miguel Bernard Eddy
© UCLES 2019
$ $ $ $ $ $
11
9706/22/O/N/19
Workings:
[6]
[Turn over
12
On 1 October 2018 the following changes in the terms of the partnership were agreed by the
partners.
1 All the cash introduced by Eddy was converted to a loan at an interest rate of 6% per annum.
2 Eddy would also receive a salary of $12 000 per annum.
3 The profit-sharing ratio was changed to 2 : 2 : 1 for Miguel, Bernard and Eddy respectively.
It was agreed that no adjustment for goodwill was required.
The draft profit for the year ended 31 May 2019, before interest on loan, was $39 000. This had
accrued evenly throughout the year.
REQUIRED
(b) Prepare the appropriation account for the year ended 31 May 2019.
[5]
© UCLES 2019 9706/22/O/N/19

13
(c) Explain two reasons why a partnership might keep separate current and capital accounts.
[4]
[Total: 15]

14
4 Aramis operates a manufacturing business. He has been advised that he should use absorption
costing in his factory.
REQUIRED
(a) Explain two drawbacks for a business of using a budgeted overhead absorption rate.
[4]
Aramis’s factory comprises three departments  drilling, finishing and maintenance. The
maintenance department costs consist of maintenance engineers’ wages. The manufacturing
process is machine intensive. The overheads of the drilling and finishing departments are made
up of allocated costs and an apportioned share of the maintenance department.
The following budgeted information for the six months ended 31 March is available.
Drilling Finishing Maintenance
Allocated costs $435 720 $748 900 $208 000

Use of maintenance 38% 62%
REQUIRED
(b) (i) Allocate the maintenance department overhead costs to the drilling and finishing
departments.
[2]
© UCLES 2019 9706/22/O/N/19

15
(ii) Calculate, to two decimal places, a budgeted overhead absorption rate for the drilling
and finishing departments.
[2]
The following information relates to maintenance engineers’ wages during the six-month period.
Total hours worked 7500

Total basic hours worked 6800
Workers are paid a basic rate of $30 per hour. Overtime is paid at 1.5 times the basic rate.
REQUIRED
(c) Calculate the total actual wages for the maintenance engineers for the six-month period.
[3]

16
In addition to the actual maintenance wages, the following actual information for the six months
ended 31 March has been made available.
Drilling Finishing
Total overhead costs $427 360 $713 630
REQUIRED
(d) Calculate the over or under-absorption of production overheads for each department for the
six-month period.
[8]
© UCLES 2019 9706/22/O/N/19

17
Aramis’s accountant has suggested that he uses marginal costing. He has provided the following
analysis for one product:
$
Direct labour Drilling 225
Finishing 85
Overhead absorbed Drilling 115
Finishing 45
Selling and administration costs 280
Half of the selling and administration costs are variable.
Aramis requires that all products achieve a profit margin of at least 15%.
A new customer has approached Aramis and offered to pay him $1300 for his product. The
normal selling price for this product is $1750.
REQUIRED
(e) Advise Aramis whether or not he should accept the order. Justify your answer using both
[7]

18
(f) State four factors that a business should consider before changing its supplier.
[4]
[Total: 30]
© UCLES 2019 9706/22/O/N/19

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20
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© UCLES 2019 9706/22/O/N/19


ACCOUNTING 9706/23
1 hour 30 minutes

IB19 11_9706_23/5RP
2
1 S Limited is a private limited company. The directors have extracted the following information at
30 September 2019.
$ $
6% debentures (2021 – 2022) 68 000
Accrued expenses 2 480
Interest paid 8 160
Freehold property 220 000
Motor vehicles
Cost 84 600
Provision for depreciation at 1 October 2018 38 760
Office equipment
Cost 68 700
Prepaid expenses 4 400
Purchases 392 340
Revenue 764 570
1 The value of inventory at 30 September 2019 was $73 100 at cost. The directors now wish to
write off $2000 in respect of damaged items.
2 Purchase of new office equipment of $6000 had been posted to distribution costs in error.
3 Motor vehicles are to be depreciated at 20% per annum using the straight-line method. The
estimated residual value of the motor vehicles is $20 000. Depreciation is to be charged to
distribution costs.
4 Office equipment is to be depreciated at 15% per annum using the reducing balance method.
Depreciation is to be charged to administrative expenses.
5 At 30 September 2019 there was an additional accrual for wages and salaries of $1700.
Wages and salaries are to be charged as 70% to administrative expenses and 30% to
distribution costs.
6 Interest paid included debenture interest paid to 30 June 2019.
7 At 30 September 2019 there was an additional prepayment of $4800 for administrative

expenses.
8 The directors wish to create a provision for doubtful debts equal to 2% of trade receivables at
30 September 2019 and include it in administrative expenses.
© UCLES 2019 9706/23/O/N/19

3
REQUIRED
(a) Prepare the income statement for the year ended 30 September 2019. Use the space on the
next page to show your workings.
S Limited
$ $
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Profit for the year

4
Workings:
Cost of sales
Distribution costs
Finance costs
[12]
© UCLES 2019 9706/23/O/N/19

5
(b) Prepare the statement of financial position at 30 September 2019. Use the space provided
on the next page for your workings.

6
Workings:
[10]
(c) Explain the term ‘6% debentures (2021 – 2022)’, which appears in S Limited’s financial
statements.
[3]
© UCLES 2019 9706/23/O/N/19

7
Despite having made substantial profit for the year, the directors are concerned that the
shareholders have not received any dividends.
They are considering two options:
option 1: paying the shareholders a dividend of $0.50 per share
option 2: making a bonus issue of 1 ordinary share for every 2 shares held.
REQUIRED
(d) Advise the directors on which option they should choose. Justify your answer.
[5]
[Total: 30]

8
2 Moser has provided the following information about his non-current assets for the year ended
30 November 2018.
1 Motor vehicles $
Cost at 1 December 2017 185 000
Accumulated depreciation at 1 December 2017 64 750
Purchased during the year 27 745
2 A motor vehicle was sold during the year for $12 450. It had originally cost $18 500 and had
a net book value of $13 875.
3 The motor vehicles depreciation policy is as follows:
Motor vehicles are depreciated at a rate of 25% per annum using the reducing balance
method.
A full year’s depreciation is charged in the year of purchase and no depreciation is charged
in the year of disposal.
REQUIRED
(a) State how a disposal of a non-current asset would affect the income statement and the
statement of financial position. Calculations are not required.
Income statement
Statement of financial position
[3]
© UCLES 2019 9706/23/O/N/19

9
(b) Prepare the non-current assets section of Moser’s statement of financial position at
30 November 2018.
Cost Accumulated Net book value

depreciation
$ $ $
Workings:
[6]

10
(c) (i) Explain why the reducing balance method of depreciation is more appropriate than the
straight-line method for assets such as computer equipment.
[4]
(ii) Explain why the revaluation method of depreciation is appropriate for assets such as
loose tools.
[2]
[Total: 15]
© UCLES 2019 9706/23/O/N/19

11
PLEASE TURN OVER

12
3 Maria is a sole trader. Her financial statements for the year ended 31 December 2018 included
the following:
$
Revenue 163 000
Gross profit 42 700
Inventory 1 January 2018 17 800
Inventory 31 December 2018 19 600
Capital 130 000
REQUIRED
(a) Calculate the following ratios to two decimal places:
(i) gross margin
[1]
(ii) profit margin
[1]
(iii) rate of inventory turnover (in times)
[2]
© UCLES 2019 9706/23/O/N/19

13
(iv) current ratio
[1]
(v) liquid (acid test) ratio
[1]
(vi) return on capital employed (ROCE).
[1]

14
Maria’s ratios for 2017 were as follows:

1 Gross margin 23.63%
2 Profit margin 12.05%
3 Rate of inventory turnover 7.36 times
4 Current ratio 3.85 : 1
5 Liquid (acid test) ratio 2.04 : 1
6 ROCE 14.65%
REQUIRED
(b) Suggest possible reasons for the changes in Maria’s business between 2017 and 2018 in
respect of:
(i) profitability
[2]
(ii) liquidity.
[2]
© UCLES 2019 9706/23/O/N/19

15
(c) Identify two external stakeholders.
Explain why they may be interested in the financial statements of a business.
Stakeholder 1
Interest
Stakeholder 2
Interest
[4]
[Total: 15]

16
4 D Limited manufactures a single product. The company has two production departments:
machining and finishing. There are two service departments: stores and maintenance.
The accountant has allocated and apportioned total factory overheads to the four departments.
REQUIRED
(a) Explain the difference between allocation and apportionment of overheads.
[4]
The directors of D Limited have provided the following information:
Machining Finishing Stores Maintenance

Issues from stores 60% 30% - 10%
Maintenance 75% 25% - –
Budgeted direct labour hours 22 000 52 000 - –
Budgeted machine hours 84 000 12 000 - –
REQUIRED
(b) Re-apportion the service departments’ costs to the production departments.
Machining Finishing Stores Maintenance

$ $ $ $
Total apportioned
177 255 101 150 26 585 33 010
overheads
Re-apportionment
of stores
Subtotal
Re-apportionment
of maintenance
Total
[4]
© UCLES 2019 9706/23/O/N/19

17
(c) Calculate a suitable overhead absorption rate to two decimal places for each production
department.
[4]
(d) Explain why a business calculates separate overhead absorption rates for each production
department rather than a single rate for the whole factory.
[4]

18
The company accountant has been asked to provide a quotation for a customer who requires
200 units of the company’s product. The directors wish to quote a selling price which will achieve
a 25% gross margin.
Budgeted cost per unit of product
Direct material $16.00

Direct labour hours
Machining 10 minutes at $9.60 per hour
Finishing 45 minutes at $10.80 per hour
Machine hours
Machining 90 minutes
Finishing 20 minutes
REQUIRED
(e) Prepare a statement to show the quoted selling price of one unit of the product.
[6]
(f) Calculate the total amount the company would receive if the customer accepted the quoted
price and then took a cash discount of 7 ½ %.
[1]
© UCLES 2019 9706/23/O/N/19

19
Although the business is successful and expanding, the directors feel that the four departments
do not always appear to be working well together. The directors are planning to introduce a
system of budgetary control which would initially reduce annual profits by 5%.
REQUIRED
(g) Advise the directors whether or not they should proceed with their plans. Justify your answer.
[7]
[Total: 30]
© UCLES 2019 9706/23/O/N/19

20
BLANK PAGE
© UCLES 2019 9706/23/O/N/19

* 0 6 8 9 0 3 6 1 8 6 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RCL/GO) 188099/5
2
1 Ismail opened a retail business on 1 January 2019 with the following assets and liabilities.
$
Bank 7 500 Debit
Bank loan (repayable 2022) 4 200
Ismail prepared a draft income statement for the year ended 31 December 2019. However, this
contained errors.
Draft income statement for the year ended 31 December 2019

$ $
Revenue 274 500
Cost of sales (182 360)
92 140
Add discounts received 820
Gross profit 92 960
Add bank loan 4 200
97 160
Less expenses
Drawings 18 740
Insurance 1 730
Rent 20 250
Loan interest 210
(64 230)
The following had not been accounted for.
1 Ismail had taken goods for his own use. These goods cost $420 and had a selling price of
$630.
2 Carriage inwards included capital expenditure of $400 on non-current assets which had been
paid on 18 January 2019.
3 Depreciation on all non-current assets is to be provided at 20% per annum on cost. A full
year’s depreciation is charged in the year of purchase.
4 The amount shown for insurance included $720 for the six-month period ending 30 April 2020.
5 At 31 December 2019 trade receivables totalled $14 800. A customer who owed $600 had
been declared bankrupt. Ismail decided to write off this account. He also decided to create a
provision for doubtful debts of 5% of trade receivables at the year end.
6 Interest on the bank loan is charged at 10% per annum.
© UCLES 2020 9706/21/O/N/20

3
REQUIRED
(a) Prepare the corrected income statement for the year ended 31 December 2019.
Ismail
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
Workings:
[15]

4
(b) Calculate the balance on Ismail’s capital account at 31 December 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
Ismail would like to expand his business. He will need additional finance of $25 000. He is
considering two options to raise this amount:
option 1: apply for a bank loan
option 2: form a partnership with Seema, a friend. Seema would expect profits and losses to be
shared equally.
© UCLES 2020 9706/21/O/N/20

5
REQUIRED
(c) Advise Ismail which of these options he should choose. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [7]
Ismail sees benefits in keeping a full set of accounting records.
REQUIRED
(d) State four benefits to a business of keeping a full set of accounting records.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
4 ................................................................................................................................................
...................................................................................................................................................
[4]
[Total: 30]
6
2 Noor, a sole trader, prepares bank reconciliation statements at the end of each month.
REQUIRED
(a) State four benefits to a business of preparing a bank reconciliation statement.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
4 ................................................................................................................................................
...................................................................................................................................................
[4]
(b) State two differences between a bank standing order and a direct debit.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
On 31 October 2019 Noor received the following bank statement for her business account.
Date Details Dr Cr Balance

$ $ $
1 Oct Balance b/d 292.22 Cr
3 Oct Credit 927.40 1 219.62 Cr
6 Oct Direct debit: P Ltd 334.80 884.82 Cr
7 Oct Cheque 626344 118.48 766.34 Cr
9 Oct Cheque 626346 723.21 43.13 Cr
18 Oct Credit transfer: Tahir 184.95 228.08 Cr
21 Oct Bank charges 59.60 168.48 Cr
22 Oct Direct debit: Ayesha 172.80 4.32 Dr
24 Oct Credit 841.67 837.35 Cr
27 Oct Cheque 626347 1 206.22 368.87 Dr
29 Oct Credit transfer: H Ltd 229.48 139.39 Dr
© UCLES 2020 9706/21/O/N/20
7
Noor’s cash book (bank columns) for October 2019 was as follows.
Cash Book (bank columns)

$ $
Oct Oct 2 Z Ltd (cheque 626344) 118.48
1 Balance b/d 292.22 4 J Ltd (cheque 626345) 276.93
1 Sales 927.40 5 Ayan (cheque 626346) 723.21
22 Tahir (credit transfer) 184.95 6 P Ltd (direct debit) 334.80
23 Sales 841.67 22 Huma (cheque 626347) 1206.22
29 Sales 773.25 26 Usman (cheque 626348) 985.33
31 Balance c/d 625.48
3644.97 3644.97
Nov 1 Balance b/d 625.48
REQUIRED
(c) Prepare Noor’s updated cash book.
Cash Book (bank columns)

$ $
Balance b/d 625.48
[4]
(d) Prepare a bank reconciliation statement at 31 October 2019.
Start with the balance per the bank statement.
Bank reconciliation statement at 31 October 2019

$
Balance per bank statement
[5]
[Total: 15]
8
3 M Limited was formed five years ago.
On 1 January 2019 the company’s statement of financial position included the following details.
$000
Equity
Share capital – ordinary shares of $0.25 each 1200
Share premium 480
1975
On 1 July 2019 shareholders were paid a dividend of $0.05 per share.
REQUIRED
(a) Calculate the total dividend paid.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
On 1 September 2019 the directors made a rights issue of two ordinary shares for every three
shares held at a price of $0.40 per share. The issue was fully subscribed.
REQUIRED
(b) Describe one way in which a shareholder can benefit from taking up a rights issue.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(c) Calculate the amount raised by the rights issue.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
© UCLES 2020 9706/21/O/N/20

9
The company made a profit for the year ended 31 December 2019 of $324 000.
REQUIRED
(d) Prepare the statement of changes in equity for the year ended 31 December 2019.
M Limited
Share Share Retained Total

$000 $000 $000 $000
[5]
(e) Describe two factors directors should take into account when deciding on a dividend to be
paid to the shareholders.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
[Total: 15]

10
4 Y Limited is a furniture manufacturer. One of the company’s factories operates a system of

absorption costing.
REQUIRED
(a) State two limitations of absorption costing.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
The factory makes kitchen tables.
There are two production departments: cutting and assembly.
The following forecast information is available for the year:
Cutting department Assembly department

Overheads $68 400 $49 200
Total labour hours 13 720 15 820
Total machine hours 24 810 7 290
REQUIRED
(b) Calculate, to two decimal places, appropriate overhead absorption rates for each department.
Cutting department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Assembly department
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2020 9706/21/O/N/20

11
Each kitchen table requires the following.
Materials 4.2 kg at $4.90 per kg

Labour hours:
cutting department 3.8 hours
assembly department 2.2 hours
Machine hours:
cutting department 2.1 hours
assembly department 1.3 hours
All direct labour is paid at the rate of $10.50 per hour.
The selling price of a table is calculated to achieve a gross margin of 40%.
REQUIRED
(c) Calculate the selling price of a kitchen table.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [6]

12
At the end of the year on 31 December 2019 it was discovered that overheads had been
over absorbed.
REQUIRED
(d) State two reasons why overheads may be over absorbed in a business.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
At another factory the company manufactures bookcases. The following information is available.

Materials per unit $10
Direct labour per unit $21
Factory capacity per month 3800 units
Recently demand for the product has fallen due to increased competition and the target profit of
$12 500 per month has not been met.
The directors are considering the following options.
Option A
1 Reduce the selling price of each bookcase by $3 per unit.
2 Introduce a sales commission of 5% of selling price.
3 It is expected that demand will be 3800 units.
Option B
1 Change the design to improve quality resulting in an increase of 20% in the material cost per
unit.
2 Labour hours per unit will increase by 10%.
3 The revised selling price of each bookcase will be $59.
4 Start an advertising campaign at a cost of $24 000 per annum.
5 It is expected that demand will be 3040 units.
© UCLES 2020 9706/21/O/N/20

13
REQUIRED
(e) Calculate the forecast profit per month for:
(i) Option A
...........................................................................................................................................
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...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
(ii) Option B
...........................................................................................................................................
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[11]
14
(f) Recommend which option the directors should choose. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [7]
[Total: 30]
© UCLES 2020 9706/21/O/N/20

15
BLANK PAGE
© UCLES 2020 9706/21/O/N/20

16
BLANK PAGE
© UCLES 2020 9706/21/O/N/20

* 4 1 2 1 7 0 0 4 9 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RCL/GO) 188100/2
2
1 Anjali is a sole trader. She does not maintain a full set of accounting records.
At 1 October 2019 the assets and liabilities of Anjali were as follows:
Cash at bank 4 600 debit

Inventory 14 500
During the year ended 30 September 2020 the following transactions were recorded.
General expenses paid 11 480

Rental income received 9 000
Anjali made drawings of $600 per month throughout the year.

All receipts and payments were processed through the bank account.
Irrecoverable debts of $2300 were written off.
At 30 September 2020 the assets and liabilities were as follows:
Inventory 18 000
Prepaid general expenses 600
REQUIRED
(a) Calculate the bank balance at 30 September 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [3]
© UCLES 2020 9706/22/O/N/20

3
(b) Prepare the income statement for the year ended 30 September 2020. Use the space on the
Anjali
...................................................................................................................................................
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...................................................................................................................................................

4
Workings:
[17]
(c) Calculate the following, to two decimal places, for the year ended 30 September 2020.
(i) Gross margin
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Mark-up
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) Profit margin
...........................................................................................................................................
..................................................................................................................................... [1]
© UCLES 2020 9706/22/O/N/20

5
(d) (i) Explain how a business may increase its gross margin.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) Explain how a business may improve its profit margin.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(e) State one reason why each of the following may be interested in the financial statements of a
business.
1 Employees ............................................................................................................................
...................................................................................................................................................
2 Suppliers ...............................................................................................................................
...................................................................................................................................................
3 Government ..........................................................................................................................
...................................................................................................................................................
[3]
[Total: 30]

6
2 Khalid runs a business. His non-current assets with a total value of $200 000 consist of a motor
vehicle and a machine with a life expectancy of 5 years. He anticipates that the machine will make
products at a steady rate during that period.
REQUIRED
(a) State three methods of depreciation which may be used by a business.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
[3]
(b) Advise Khalid which method of depreciation he should use for each asset. Justify your advice.
Motor vehicle ............................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Machine ....................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
(c) State which accounting concept Khalid did not apply in each of the following scenarios.
Scenario Concept
Khalid used the business bank
account to pay for a deposit for a
family holiday. This was treated as
a business expense.
A stapler for $10 paid by Khalid
out of the business bank account
was added to the business office
equipment account balance.
Khalid became aware that a
customer owing $1500 was
bankrupt. He took no action when
preparing the financial statements.
[3]
© UCLES 2020 9706/22/O/N/20

7
(d) State the purpose of financial statements.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [3]
[Total: 15]

8
3 Roberto and Sangeeta have been in partnership for many years sharing profits and losses in the
ratio 3:2. They decided to dissolve the partnership on 31 August 2020.
Their summarised statement of financial position at that date was as follows:
$
Assets
Current assets
Inventory 45 000
60 000

Capital accounts
Roberto 110 000
Sangeeta 60 000
170 000
Current accounts
Roberto 25 000
Sangeeta (10 000)
15 000
Total capital and current accounts 185 000
Current liabilities
35 000
1 Non-current assets were sold for $175 000.
3 Trade receivables were settled after allowing a 20% discount.
4 Trade payables were settled after taking a 10% discount.
5 Dissolution expenses of $4000 were paid by cheque.
© UCLES 2020 9706/22/O/N/20

9
REQUIRED
Partnership realisation account
$ $
[5]
(b) Prepare the partners’ capital accounts on dissolution of the partnership.
Partners’ capital accounts
Roberto Sangeeta Roberto Sangeeta

$ $ $ $
[5]

10
(c) Prepare the bank account on dissolution of the partnership.
Bank account
$ $
[5]
[Total: 15]
© UCLES 2020 9706/22/O/N/20

11
4 Kevin runs a small manufacturing business. He is considering which method of inventory valuation
he should use.
REQUIRED
(a) State two advantages to a business of using each of the following methods of inventory
valuation.
(i) First in first out (FIFO)
1 ........................................................................................................................................
...........................................................................................................................................
2 ........................................................................................................................................
...........................................................................................................................................
(ii) Last in first out (LIFO)
1 ........................................................................................................................................
...........................................................................................................................................
2 ........................................................................................................................................
...........................................................................................................................................
(iii) Average cost (AVCO)
1 ........................................................................................................................................
...........................................................................................................................................
2 ........................................................................................................................................
...........................................................................................................................................
[6]

12
Kevin manufactures a single product and he intends to value his closing inventory at selling price
which includes a mark-up on cost.
REQUIRED
(b) Explain why Kevin should not value his inventory at this price.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
Kevin currently uses marginal costing but is considering changing to absorption costing.
The following budgeted information per unit is available.
$
Selling price 20
Direct material 6
Direct labour 3

Budgeted fixed overheads $100 000 per month.
At 1 January there was no inventory held.
The following actual results are available for January and February.
January February
Sales (units) 15 000 21 000
Fixed overheads $100 000 $100 000
© UCLES 2020 9706/22/O/N/20

13
REQUIRED
(c) Prepare the income statement for each of the months of January and February using marginal
costing.
Kevin
Marginal cost income statement
January February
$ $ $ $
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
[5]

14
(d) Prepare the income statement for each of the months of January and February using
absorption costing.
Kevin
Absorption cost income statement
January February
$ $ $ $
......................................................... .................. .................. .................. ..................
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......................................................... .................. .................. .................. ..................
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[6]
(e) Prepare a statement reconciling the marginal cost profit with the absorption cost profit for
January.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2020 9706/22/O/N/20

15
(f) Advise Kevin whether or not he should change from marginal costing to absorption costing.
...................................................................................................................................................
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............................................................................................................................................. [7]
[Total: 30]
© UCLES 2020 9706/22/O/N/20

16
BLANK PAGE
© UCLES 2020 9706/22/O/N/20

* 5 9 5 2 6 7 5 8 1 9 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (CJ) 190053/3
2
1 The directors of G Limited have provided a trial balance at 30 September 2020.
Debit Credit
$ $
Bank 10 316
Ordinary share capital ($1 shares) 200 000
Property plant and equipment
Cost 300 000
Provision for doubtful debts at 1 October 2019 1 528
Purchases 237 851
Revenue 498 430
873 470 873 470
1 Property plant and equipment
Cost Accumulated Depreciation Allocation of

depreciation method depreciation
$ $
Land 120 000 Nil – Nil
Other than 180 000 82 500 15% per annum 2/3
land straight-line administrative
expenses
1/3 distribution
costs
Total 300 000 82 500
There were no acquisitions or disposals during the year.
2 Inventory at 30 September 2020 cost $91 368 and had a net realisable value of $126 435.
3 The directors wish to maintain a provision for doubtful debts at 3% of trade receivables.
All expenses relating to doubtful debts are charged to administrative expenses.
4 At 30 September 2020
$
Administrative expenses accrued 3850
Bank interest accrued 250
Distribution costs prepaid 1460
© UCLES 2020 9706/23/O/N/20

3
REQUIRED
(a) Prepare the income statement for the year ended 30 September 2020.
G Limited
...................................................................................................................................................
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Workings:
[12]
4
(b) Prepare the statement of financial position at 30 September 2020.
G Limited
...................................................................................................................................................
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...................................................................................................................................................
© UCLES 2020 9706/23/O/N/20

5
Workings:
[7]
(c) State two differences between ordinary shares and preference shares.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(d) (i) Define a ‘capital reserve’.
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) State one use of a capital reserve.
...........................................................................................................................................
..................................................................................................................................... [1]

6
The directors are planning a major expansion. They wish to raise $100 000.
The directors are considering three options:
Option 1: Issue 6% debentures (2029) of $100 000.
Option 2: Make a rights issue of one ordinary share for every two ordinary shares held at $1 each.
Option 3: Make a new issue of 100 000 ordinary shares at a premium of $0.10 per share.
REQUIRED
(e) Advise the directors which option they should take. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2020 9706/23/O/N/20

7
PLEASE TURN OVER

8
2 Simone operates a double entry system of book-keeping.
REQUIRED
(a) Explain why a trial balance may be arithmetically correct even though errors have been
identified.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
Simone extracted a trial balance before preparing the financial statements for the year ended
30 June 2020. The totals of the trial balance did not agree.
The following errors were discovered.
1 A total of $5600 from the sales returns journal had been credited to the purchases returns
account.
2 A motor vehicle costing $15 000, acquired on 1 March 2020, had been posted to the motor
expenses account. Simone does not own any other vehicles.
3 Discount received of $750 had not been posted to the discount received account.
4 A payment of $300 for insurance had been entered correctly in the cash book. No other entry
had been made.
© UCLES 2020 9706/23/O/N/20

9
REQUIRED
(b) Prepare the journal entries to correct the errors. Narratives are not required.
Simone
General journal
Dr Cr
$ $
[4]

10
Simone’s policy is to depreciate motor vehicles at 25% using the straight-line method on a monthly
basis.
She prepared a draft income statement that showed a profit for the year of $47 835 before the
correction of errors.
REQUIRED
(c) Calculate the revised profit for the year after the correction of errors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
(d) State three uses of the general journal other than the correction of errors.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 15]
© UCLES 2020 9706/23/O/N/20

11
PLEASE TURN OVER

12
3 Giles, a sole trader, provided the following information for the year ended 31 March 2020.
1 Closing inventory was valued at $40 250 which was 15% higher than the opening inventory.
2 Rate of inventory turnover was 8 times.
3 Gross margin was 30%.
4 All sales and purchases were made on credit.
5 Trade receivables at 31 March 2020 were $38 000 before accounting for an irrecoverable
debt of $2000 and an allowance for doubtful debts which is maintained at 3.5% of trade
receivables.
6 Trade payables at 31 March 2020 were $22 000.
REQUIRED
(a) Calculate the sales for the year ended 31 March 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(b) Calculate the trade receivables turnover (days).
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2020 9706/23/O/N/20

13
(c) Calculate the trade payables turnover (days).
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(d) Explain the effect on the liquidity of Giles’s business of your answers to (b) and (c).
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
[Total: 15]

14
4 Connie manufactures three products: A, B and C. She has provided the following budgeted
information for one unit of each product for the year ending 31 December 2021.
Product A Product B Product C

$ $ $
Selling price 15.00 20.00 25.00
Direct Materials 5.00 5.50 6.00
Direct Labour 4.00 5.00 7.50
Variable Overheads 2.50 3.50 2.50
Total fixed costs for the year are expected to be $100 000.
Forecast annual demand for each product is 12 000 units.
REQUIRED
(a) Explain what is meant by contribution.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(b) Calculate the budgeted unit contribution for each product.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(c) Calculate the budgeted total profit for the year ending 31 December 2021 if the demand is
fully met.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2020 9706/23/O/N/20

15
Additional Information
Connie has now discovered that her landlord may limit the use of the premises resulting in a total
of only 78 000 machine hours being available.
The number of machine hours to make each product are:
Product A 2
Product B 4
Product C 4
Fixed costs will remain unchanged.
REQUIRED
(d) (i) Prepare the optimum production plan for the year ending 31 December 2021 based on
the available machine hours.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [5]

16
(ii) Calculate the budgeted total profit for the year ending 31 December 2021 based on the
optimum production plan.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [3]
If Connie pays her landlord $65 000 she will be able to have unlimited machine hours.
REQUIRED
(e) Advise Connie whether or not she should pay her landlord $65 000. Justify your advice.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
© UCLES 2020 9706/23/O/N/20

17
(f) Define the following terms:
(i) Variable cost
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Semi-variable cost
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) Fixed cost
...........................................................................................................................................
..................................................................................................................................... [1]
(g) State three assumptions made when using marginal costing.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 30]
© UCLES 2020 9706/23/O/N/20

18
BLANK PAGE
© UCLES 2020 9706/23/O/N/20

19
BLANK PAGE
© UCLES 2020 9706/23/O/N/20

20
BLANK PAGE
© UCLES 2020 9706/23/O/N/20

* 2 4 7 9 4 6 3 4 0 0 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 206627/3
2
1 Eleni owns a business selling computers. She does not maintain full accounting records.
At 30 June At 1 July
2021 2020
$ $
Equipment at valuation 3250 3460
Inventory 1940 2210
Provision for doubtful debts ? 360
Other receivables: rent prepaid 1080 500
Other payables: wages 110 190
Bank 1420 Credit 860 Credit
Cash in hand – 150
Bank loan – 1350
A summary of receipts and payments made through the bank for the year ended 30 June 2021
was as follows:
Receipts $
Sale of equipment 180
Payments $
Payments to credit suppliers 39 750
Purchase of equipment 610
General expenses 940
Rent 6 860
Bank loan repayments 1 390
Bank charges 50
Cash withdrawn 14 080
All cash sales are banked.
© UCLES 2021 9706/21/O/N/21

3
REQUIRED
(a) Calculate total revenue for the year ended 30 June 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
Of the cash withdrawn from the bank, Eleni took $450 each month for drawings and paid total
wages of $7620 for the year. The remaining cash from the cash till was used to pay for general
expenses.
REQUIRED
(b) Prepare the cash account to calculate the amount paid in cash for general expenses.
Cash account
$ $
[3]

4
1 Eleni wishes to write off an irrecoverable debt of $50 at 30 June 2021. She wishes to maintain
the provision for doubtful debts at the same percentage as the previous year.
2 Equipment sold during the year had a valuation of $140.
REQUIRED
(c) Prepare the income statement for the year ended 30 June 2021.
Eleni
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
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© UCLES 2021 9706/21/O/N/21

5
Workings:
[12]
(d) Prepare an extract from the statement of financial position at 30 June 2021 to show the capital
and liabilities section only.
Eleni
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]

6
Eleni is concerned that she is not earning enough profit. She is considering increasing her
prices by 5%.
REQUIRED
(e) Advise Eleni whether or not she should increase her prices by 5%. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
(f) State three factors that a business should consider when making a provision for doubtful
debts.
1 ................................................................................................................................................
2 ................................................................................................................................................
3 ................................................................................................................................................
[3]
[Total: 30]
© UCLES 2021 9706/21/O/N/21

7
PLEASE TURN OVER

8
2 The following balances have been extracted from the books of account of G Limited at
1 October 2020.
Account $
6% debentures (2022–23) 50 000
During the year ended 30 September 2021 the following took place.
Date Transaction
1 November 2020 Made a rights issue of one ordinary share of $1 each for every
ten shares held at a premium of 20%. The issue was fully
subscribed.
1 March 2021 Paid a dividend of $0.05 per share on all shares in issue at
that date.
1 May 2021 Made a bonus issue of one ordinary share of $1 each for every
four shares held. The directors decided to leave the reserves
in the most flexible form.
30 September 2021 Revalued property downwards by $35 000.
The profit for the year ended 30 September 2021 was $96 000.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 30 September 2021.
G Limited
Statement of changes in equity for the year ended 30 September 2021
Share Share Revaluation Retained

capital premium reserve earnings Total
$ $ $ $ $
At 1 October 2020 28 000 34 500
At 30 September 2021 440 000 4 600
© UCLES 2021 9706/21/O/N/21

9
Workings:
[8]
The directors of G Limited wish to raise $500 000 additional capital for expansion. They have
identified two options to raise the full amount.
Option 1: Issue ordinary shares of $1 each.
Option 2: Issue 8% preference shares.
REQUIRED
(b) Advise the directors which option they should choose. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]

10
The finance director has suggested that the company could issue further debentures.
REQUIRED
(c) State two characteristics of a debenture.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]
© UCLES 2021 9706/21/O/N/21

11
PLEASE TURN OVER

12
3 Martina has prepared the following sales ledger control account for the month of August 2021. All
sales are on credit.
Sales ledger control account for the month of August 2021
$ $
Balance b/d 14 280 Sales returns journal 210
Sales journal 9 540 Bank 11 860
Balance c/d 11 470
23 820 23 820
Balance b/d 11 470
Martina produced a list of all customer account balances at 31 August 2021 totalling $10 020.
She discovered that the following errors had been made in the records.
1 Discounts allowed of $1190 had been entered in customers’ accounts but had not been
entered in the control account.
2 A credit transfer from a customer of $420 had been correctly entered in the cash book but
had been credited to the customer’s account as $240.
3 A credit balance of $60 on a customer’s account had been recorded on the list of balances as
a debit balance.
4 A contra to the purchases ledger of $860 had been entered in the customer’s sales ledger
account but had not been entered in the control account.
5 A cheque received from a customer of $380 had been returned unpaid by the bank. No entries
had been made in Martina’s books of account in respect of the unpaid cheque.
6 Martina had sent a cheque for $20 to a customer who had overpaid his account. The payment
had been correctly processed in both the cash book and the customer’s account but had
been posted to the purchases ledger control account in error.
© UCLES 2021 9706/21/O/N/21

13
REQUIRED
(a) Prepare an adjusted sales ledger control account.
$ $
Balance b/d 11 470
[6]
(b) Prepare an adjusted list of sales ledger balances to agree with the adjusted sales ledger
control account balance in part (a).
$
Original total of sales ledger balances 10 020
Adjusted total of sales ledger balances

[4]

14
(c) Explain how the preparation of a sales ledger control account assists in the prevention of
fraud.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(d) State three types of error that will not be identified by preparing a sales ledger control
account.
1 ........................................................................
2 ........................................................................
3 ........................................................................
[3]
[Total: 15]
© UCLES 2021 9706/21/O/N/21

15
4 B Limited is a manufacturing business. The business uses marginal costing techniques and
manufactures three products, Ess, Tee and Ewe.
The following budgeted monthly information is available.
Per unit Ess Tee Ewe

$ $ $
Direct labour at $8 per hour 4 6 14
Fixed overheads are budgeted to be $96 000 per annum.
REQUIRED
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

16
(b) Prepare a statement to show the maximum monthly contribution and maximum monthly profit
that B Limited can earn.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(c) Calculate the monthly direct labour hours that B Limited requires to meet the budgeted
maximum monthly demand.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................ [1]
© UCLES 2021 9706/21/O/N/21

17
Due to a shortage of skilled labour, the directors are aware that only 900 direct labour hours per
month will be available from 1 December 2021.
REQUIRED
(d) Calculate the maximum contribution and maximum profit for December 2021, taking into
account the limited direct labour hours available.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
........................................................................................................................................... [11]

18
In order to overcome the shortage of skilled labour and also be able to meet maximum demand,
the directors are considering paying an overtime premium of 25% and paying a total monthly
bonus of $200 to be shared between all workers.
REQUIRED
(e) Calculate the total contribution and total profit for the month of December 2021 if the directors
decide to carry out this proposal.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(f) Explain two disadvantages to a business of offering a bonus payment to its employees.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
© UCLES 2021 9706/21/O/N/21

19
(g) Explain two disadvantages to a business of operating a system of budgetary control.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
[Total: 30]
© UCLES 2021 9706/21/O/N/21

20
BLANK PAGE
© UCLES 2021 9706/21/O/N/21

* 2 4 3 5 4 1 3 4 4 7 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 206628/3
2
1 The following balances have been extracted from the books of P Limited at 31 August 2021.
$
5% Debentures (2022–2023) 36 000
Bank 4 770 Credit
Delivery vehicles
Cost 89 420
Provision for depreciation at 1 September 2020 42 200
Dividend paid 3 000
Freehold property at valuation at 31 August 2020 66 000
Interest paid 1 590
Inventory at 1 September 2020 22 880
Purchases 88 900
Revenue 216 600
Returns outwards 260
Share capital (ordinary shares of $0.50 each) 60 000
Share premium 8 500
The freehold property was revalued on 1 September 2020 at $58 000. The revaluation has not yet
been recorded in the books of account.
REQUIRED
(a) Prepare the journal entry to record the revaluation of the freehold property on
1 September 2020. A narrative is not required.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
© UCLES 2021 9706/22/O/N/21

3
1 Revenue includes goods sent to a credit customer on 23 August 2021 on a sale or return
basis. The directors were uncertain whether any of these goods would be returned. The
selling price of the goods was $6400, and they had been sold at a gross margin of 25%.
2 Inventory in P Limited’s warehouse at 31 August 2021 was valued at cost, $18 600.
3 Debenture interest had been paid to 30 June 2021.
4 Delivery vehicle licences of $540 had been paid for the year ending 31 December 2021.
5 Wages and salaries of $620 were outstanding at 31 August 2021.
6 Wages and salaries are to be charged as follows:
Administrative expenses 25%

Distribution costs 75%
7 On 31 August 2021, a delivery vehicle was sold for $7000. The vehicle had been purchased
on 1 September 2018 for $13 000. No entries for the sale had been made in the books of
account and the sale proceeds had not yet been received.
8 The freehold property is used only as a distribution warehouse. Its remaining useful life at
1 September 2020 was estimated to be 40 years.
Non-current asset Depreciation method

Freehold property Written off over the remaining useful life
Delivery vehicles 20% per annum reducing balance
A full year’s depreciation is charged in the year of purchase, but none in the year of disposal.

4
REQUIRED
(b) Prepare the income statement for the year ended 31 August 2021. Use the space on the
P Limited
Income statement for the year ended 31 August 2021
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Profit for the year
© UCLES 2021 9706/22/O/N/21

5
Workings
Revenue
Cost of sales
Depreciation
Distribution costs
Finance costs
[15]

6
(c) Prepare a statement to show the balance of retained earnings at 31 August 2021 after the
preparation of the income statement.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
The directors wish to reduce the level of trade receivables.
REQUIRED
(d) State two ways in which the level of trade receivables of a business could be reduced.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2021 9706/22/O/N/21

7
The directors have plans to expand the business and they are considering two options.
Option 1: Make a rights issue of 80 000 ordinary shares of $0.50 each at a premium of 25%.
Option 2: Issue 8% debentures (2027–2028) to raise $50 000.
REQUIRED
(e) Advise the directors which option they should choose. Justify your decision.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]

8
2 Shamal maintains a full set of accounting records. He has extracted a trial balance at
30 September 2021 that does not balance and he has opened a suspense account for the
difference.
Shamal has now identified the following six errors. There were no other errors.
1 A payment of $169 for motor repairs had been correctly entered in the cash book but had
been debited to the motor repairs account as $196.
2 The purchase of new machinery, $670, had been debited to general expenses.
3 Discount allowed of $175 had been entered correctly in the cash book but had not been
posted to the discount allowed account.
4 The sales journal was totalled at $86 961. The total should have been $86 741.
5 A cheque for $425 received from McCann, a credit customer, had been correctly entered in
the cash book but had been debited to the sales ledger control account.
6 The total of the discount received column in the cash book, $490, had been entered twice on
the correct side of the discount received account.
REQUIRED
(a) Prepare the suspense account at 30 September 2021, clearly identifying the opening balance.
Suspense Account
Details $ Details $
[6]
© UCLES 2021 9706/22/O/N/21

9
(b) Complete the table to name the type of error in each of the errors 1, 2 and 3 identified by
Shamal.
Error Type of error
3
[3]
(c) Explain two benefits to a business of preparing a purchases ledger control account.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
(d) State two items that would appear on the credit side of a purchases ledger control account.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
[Total: 15]

10
3 The following information has been extracted from the financial statements of D Limited at
30 June 2020.
$
Transactions during the year ended 30 June 2021.
1 August 2020 Made a rights issue of one ordinary share for every five shares held at
$0.70 per share. The issue was fully subscribed.
1 December 2020 Paid a dividend of $0.02 per share on all shares in issue at that date.
1 March 2021 Made a bonus issue of two ordinary shares for every nine shares held.
Reserves were left in the most flexible form.
30 June 2021 Proposed a final dividend of 2%.
The profit for the year ended 30 June 2021 was $76 520.
REQUIRED
(a) Prepare the following ledger accounts.
Ordinary share capital
Date Details $ Date Details $
© UCLES 2021 9706/22/O/N/21

11
Share premium
Retained earnings
[11]
(b) State two differences between capital reserves and revenue reserves.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(c) Explain one reason why a company might make a bonus issue of shares.
...................................................................................................................................................
............................................................................................................................................. [2]
[Total: 15]

12
4 Hayden manufactures two products, Aye and Bee. The business operates two production
departments, Machining and Finishing, and two service departments, Stores and Maintenance.
REQUIRED
(a) Identify one possible basis of apportionment that a business could use in respect of:
(i) rent and rates
...........................................................................................................................................
(ii) machinery depreciation
...........................................................................................................................................
(iii) electricity for machinery.
...........................................................................................................................................
[3]
Machining Finishing
Number of orders from Stores 3 200 1 800
Maintenance call-outs 160 32
REQUIRED
(b) Complete the following table to show the apportionment of budgeted overhead costs for the
year ended 30 September 2021.
Production Service departments

departments
Total Machining Finishing Stores Maintenance
$ $ $ $ $
Total apportioned overheads 449 800 188 850 172 850 53 325 34 775
Re-apportion Stores
Subtotal
Re-apportion Maintenance
Total overheads cost
[4]
© UCLES 2021 9706/22/O/N/21

13
(c) Calculate, to two decimal places, an overhead absorption rate for each production
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
The actual results for the year ended 30 September 2021 were as follows:
Machining Finishing
REQUIRED
(d) Calculate the over-absorption or under-absorption of overheads for each department for the
year ended 30 September 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

14
The following information is available for one unit of product Aye.
Direct material $36.20

Direct labour hours
Machining ($8 per hour) 45 minutes
Finishing ($10 per hour) 60 minutes
Machine hours
Machining 20 minutes
Finishing 30 minutes
During September 2021, a customer requested a quotation for supplying 200 units of Aye. Hayden
required a 30% gross profit margin on the order.
REQUIRED
(e) Prepare a statement to show the total selling price that Hayden quoted to the customer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
© UCLES 2021 9706/22/O/N/21

15
Hayden is considering using one factory-wide overhead absorption rate rather than separate
departmental overhead absorption rates.
REQUIRED
(f) Advise Hayden whether or not he should use one factory-wide absorption rate. Justify your
answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
(g) Explain two effects that the over-absorption of overheads may have on a business.
1 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[4]
[Total: 30]
© UCLES 2021 9706/22/O/N/21

16
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© UCLES 2021 9706/22/O/N/21

* 2 7 9 2 3 3 0 8 6 3 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 206629/3
2
1 The following information has been extracted from the accounting records of T Limited at
30 June 2021.
1 Inventory at 1 July 2020 was valued at $46 800.
2 Inventory at 30 June 2021 was valued at $54 200.
3 The rate of inventory turnover was 8.8 times.
4 The gross profit margin was 45%.
REQUIRED
(a) Calculate for the year ended 30 June 2021:
(i) cost of sales
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
(ii) revenue.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
© UCLES 2021 9706/23/O/N/21

3
The following balances were extracted from the books of account at 30 June 2021.
$
8% debentures (2026–2027) 96 000
Directors’ remuneration 62 400
Finance costs 6 350
Provision for doubtful debts at 1 July 2020 1 235
1 The 8% debentures (2026–2027) were taken out on 1 November 2020. Interest was paid
every three months in arrears, starting on 1 February 2021.
2 Wages and salaries of $3800 were owing at 30 June 2021.
3 At 30 June 2021, a bonus was due to be paid to the sales director of $12 000.
4 Expenses were to be allocated as follows:
Administrative Distribution
expenses costs
Wages and salaries 30% 70%
Directors’ remuneration 75% 25%
Motor vehicles for office staff $26 400

Delivery vehicles $32 800
6 A credit customer owing $2360 from 12 April 2021 has been declared bankrupt and the debt
is to be written off to administrative expenses.
7 Aged analysis of net trade receivables at 30 June 2021:
0–60 61–90 Over 90

days days days
Percentage of total net trade receivables 75% 15% 10%
8 The directors wish to make a provision for doubtful debts as follows:

Debts 61–90 days 2.5%
Debts over 90 days 10%
The movement in the provision is to be charged to administrative expenses.

4
REQUIRED
(b) Calculate the balance of the provision for doubtful debts at 30 June 2021.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(c) Prepare the income statement for the year ended 30 June 2021. Use the space on the
T Limited
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Profit for the year
© UCLES 2021 9706/23/O/N/21

5
Workings
Distribution costs
Finance costs
Other workings
[11]

6
The following transactions had also taken place during the year ended 30 June 2021.
Date Transaction
1 July 2020 Freehold property was revalued downwards by $10 000.
1 July 2020 Made a rights issue of one ordinary share of $2 each for every two
shares held. This was offered at a premium of $0.75. The issue was
fully subscribed.
1 March 2021 Made a bonus issue of one ordinary share of $2 each for every ten
shares held. Reserves were left in the most flexible form.
31 March 2021 Paid a dividend of $0.05 per share on all shares in issue at that date.
REQUIRED
(d) Prepare the statement of changes in equity for the year ended 30 June 2021.
T Limited
Statement of Changes in Equity for the year ended 30 June 2021

share capital premium reserve earnings Total
$ $ $ $ $
At 1 July 2020 440 000 – 7500 86 320 533 820
At 30 June 2021
[6]
© UCLES 2021 9706/23/O/N/21

7
The directors make use of accounting ratios to interpret the information contained within the
financial statements.
REQUIRED
(e) (i) State the formula for calculating the non-current asset turnover.
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) State what information the directors would obtain from calculating the non-current asset
turnover.
...........................................................................................................................................
..................................................................................................................................... [1]
(f) State three limitations of ratio analysis when comparing the performance of businesses in the
same industry.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 30]

8
2 Abbie, Ben and Cain have been in partnership for many years sharing profits and losses in the
ratio 3 : 2 : 1.
The partnership’s draft statement of financial position at 30 June 2021 is shown below.
Abbie, Ben and Cain

$
Non-current assets
Property 65 000
117 000
Current assets
Inventory 18 200
Bank 800
32 700

Capital accounts
Abbie 60 000
Ben 40 000
Cain 20 000
120 000
Current accounts
Abbie 18 520
Ben (3 250)
Cain 6 230
21 500
Current liabilities
Ben retired from the partnership on 30 June 2021 and the following was agreed.
1 Ben should retain one of the motor vehicles at the net book value $14 500.
2 The remaining motor vehicles should be revalued at $33 000.
3 Property should be revalued at $77 000.
4 Inventory should be revalued at $17 000.
5 The value of goodwill was $39 000 and it was not to be retained in the books of account.
Any amounts due to Ben were to be transferred to a short-term loan to be repaid from the
partnership bank account within one month.
Abbie and Cain decided to continue in partnership sharing profits and losses in the ratio 3 : 2.
Cain agreed to pay sufficient funds into the partnership bank account so that the partners’ capital
account balances reflected the new profit-sharing ratio.
© UCLES 2021 9706/23/O/N/21
9
REQUIRED
(a) State one reason why a partnership may revalue assets on the retirement of a partner.
...................................................................................................................................................
............................................................................................................................................. [1]
(b) Prepare the revaluation account at 30 June 2021.
Revaluation Account
$ $
[3]
(c) Prepare the partners’ capital accounts at 30 June 2021 on the next page.

Capital Accounts
Abbie Ben Cain Abbie Ben Cain
© UCLES 2021
$ $ $ $ $ $
10
9706/23/O/N/21
[6]
11
Ben has indicated that he may be willing to leave $10 000 as an interest-free loan, but he requires
any other amount due to be paid within one month.
In order to maintain sufficient working capital, Abbie and Cain are considering two options to
finance the settlement due to Ben.
Option 1: Request an overdraft facility from the bank.
Option 2: Ask Ben to consider leaving the whole amount due as a 5% loan repayable over ten
years in equal annual instalments.
REQUIRED
(d) Advise Abbie and Cain which option they should choose to finance the amount due to Ben.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 15]

12
3 Petra owns a small manufacturing business. Her depreciation policy is as follows:
Non-current asset Depreciation policy

Plant and machinery 20% per annum reducing balance method
A full year’s depreciation is charged in the year of purchase but none in the year of sale.
The following information in respect of plant and machinery has been extracted from the books of
account for the year ended 31 July 2021.
Date Details
1 August 2020 Cost, $26 800; Provision for Depreciation, $12 200.
1 January 2021 Purchased new machinery, cost $4200. This was settled by a cheque
payment of $2450 and part exchange of machinery that had originally cost
$2500 in September 2018.
31 July 2021 Machinery with an original cost of $850 and a net book value of $60 was
scrapped with no proceeds.
REQUIRED
(a) Prepare the provision for depreciation account for plant and machinery for the year ended
31 July 2021.
Provision for Depreciation – Plant and Machinery

2020
Aug 1 Balance b/d 12 200
[5]
Workings:
© UCLES 2021 9706/23/O/N/21

13
(b) Prepare the disposal account for the year ended 31 July 2021.
Disposal Account
[7]
(c) Discuss the reasons why a business may choose to depreciate plant and machinery using
the reducing balance method.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
[Total: 15]

14
4 EMM is a manufacturing business producing one product, a wooden desk.
The business is contracted to supply 220 desks each week to H Co, a large retailer, at a
selling price of $44 per unit.
The costs incurred by EMM are as follows:
$
Direct material 36.00 per unit
Production labour
Bonus 0.50 per unit
Finishing labour
Bonus 0.30 per unit
Machine hire 120.00 per week
Administration costs 400.00 per week
Rent and rates 240.00 per week
REQUIRED
(a) Calculate the weekly break-even point in units.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(b) (i) Define the term ‘margin of safety’.
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Explain the usefulness of the margin of safety to a business.
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [2]
© UCLES 2021 9706/23/O/N/21

15
(c) Prepare a weekly profit statement using marginal cost principles.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
EMM is concerned about future prospects. It has spare direct labour capacity and the machinery
is not being fully utilised.
EMM has been approached by K Limited, a large furniture company, requesting a quotation to
supply 80 desks each week. K Limited would require a small design change to the desks, and this
would add $5.40 to the direct material cost. Workers on these desks would receive an additional
finishing labour bonus of $0.20 per unit.
REQUIRED
(d) Calculate the selling price per unit that EMM should quote to K Limited in order to achieve a
20% contribution to sales ratio.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

16
It has been decided to quote a price of $48 per unit to K Limited.
This work would involve employing extra finishing labour at a weekly salary of $120 and hiring an
additional machine at $30 per week.
The contract with H Co to produce 220 desks each week would still be continued at a price of
$44 per unit.
EMM has decided to set an annual target profit of $17 000.
REQUIRED
(e) Prepare a profit statement for EMM to show the total weekly contribution and total weekly
profit if K Limited accepts the quotation.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
K Limited have advised EMM that they will only proceed with the order if they are given
5% settlement discount for paying the account within seven days.
REQUIRED
(f) Calculate the total weekly profit of EMM if EMM agrees to giving the settlement discount.
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [1]
© UCLES 2021 9706/23/O/N/21

17
(g) Advise EMM whether or not the terms proposed by K Limited should be accepted. Justify
your answer using both financial and non-financial factors.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
(h) State two advantages of cost–volume–profit analysis to management.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
(i) State three limitations of cost–volume–profit analysis.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
[Total: 30]
© UCLES 2021 9706/23/O/N/21

18
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© UCLES 2021 9706/23/O/N/21

19
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© UCLES 2021 9706/23/O/N/21

20
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© UCLES 2021 9706/23/O/N/21

* 6 6 6 8 4 4 5 0 1 2 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 302482/3
2
1 The directors of Y Limited have provided the following balances at 30 June 2022.
$
6% debentures (2025–2026) 60 000
Delivery vehicles – valuation 74 000
Finance costs 1 800
Office equipment – cost 54 600
Office equipment – provision for depreciation 22 300
Purchases 338 200
Revenue 615 300
1 Inventory at 30 June 2022 was valued at $126 800.
2 Inventory at 30 June 2022 included damaged goods costing $3200 that could be sold for
$3950 after repairs costing $910.
3 The delivery vehicles have an estimated value at 30 June 2022 of $62 000.
4 Office equipment is to be depreciated at 10% per annum using the reducing balance method.
5 Administrative expenses included $1800 office rent for the three months ending
31 August 2022.
6 Distribution costs of $850 were owing at 30 June 2022.
7 The 6% debentures (2025–2026) were issued in 2017.
8 An irrecoverable debt of $490 is to be written off to administrative expenses.
10 There is no interest charged on the bank overdraft.
© UCLES 2022 9706/21/O/N/22

3
REQUIRED
(a) Prepare the income statement for the year ended 30 June 2022.
Y Limited
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Profit for the year
Workings:
Cost of sales
Distribution costs
[15]
4
(b) Prepare the statement of financial position at 30 June 2022.
Y Limited
Statement of Financial Position at 30 June 2022
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
........................................................................................................................................... [10]
© UCLES 2022 9706/21/O/N/22

5
The directors of Y Limited wish to repay the 6% debentures (2025–2026) early. They are
considering making a rights issue of one ordinary share for every two shares held at a premium of
50%.
REQUIRED
(c) Advise the directors whether or not they should make a rights issue of ordinary shares to
repay the debentures. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]

6
2 Bharti owns a small business. The following information was extracted from her accounting
records.
Balances at 1 July 2021
$
Delivery vehicles
cost 52 000
Extract from asset register
Cost
Date of purchase Vehicle
$
1 July 2019 DV1 18 000
1 July 2020 DV2 34 000
On 1 October 2021, Bharti purchased a new delivery vehicle (DV3) costing $26 000. She paid
$14 500 by cheque and the balance was settled by part-exchange of the old delivery vehicle, DV1.
Bharti depreciates delivery vehicles using the straight-line method on a month-by-month basis.
The estimated useful life of all delivery vehicles is five years with no residual value.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 30 June 2022.
Delivery Vehicles – Cost
© UCLES 2022 9706/21/O/N/22

7
Delivery Vehicles – Provision for depreciation
Disposal account
Workings:
[9]

8
(b) State one reason why non-current assets are depreciated, with reference to an appropriate
accounting concept.
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(c) Explain one difference between capital expenditure and revenue expenditure.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(d) State one example of a:
(i) capital receipt
..................................................................................................................................... [1]
(ii) revenue receipt
..................................................................................................................................... [1]
[Total: 15]
© UCLES 2022 9706/21/O/N/22

9
3 The directors of H Limited provided the following details from the statement of financial position at
30 September 2021.
$
Equity and reserves
During the year ended 30 September 2022, the following transactions took place.
Date Transaction
1 1 November 2021 Paid a final dividend of $0.06 per ordinary share.
2 1 January 2022 Made a rights issue of two ordinary shares for every five shares
held at a price of $0.60. The issue was fully subscribed.
3 1 July 2022 Paid an interim dividend of $0.02 per ordinary share.
4 31 August 2022 Made a bonus issue of one ordinary share for every four shares
held. The directors decided to leave the reserves in the most
flexible form.
REQUIRED
(a) Prepare journal entries to record transactions 1 – 4. Dates and narratives are not required.
Workings:

10
Journal
Item Account Debit Credit

$ $
[10]
© UCLES 2022 9706/21/O/N/22

11
(b) State three reasons why a company may make a bonus issue of shares.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
(c) State two features of preference shares.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]

12
4 Mandeep owns two manufacturing businesses.
REQUIRED
(a) State what is meant by:
(i) Variable costs
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Fixed costs
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) Semi-variable costs
...........................................................................................................................................
...........................................................................................................................................
..................................................................................................................................... [1]
© UCLES 2022 9706/21/O/N/22

13
One of Mandeep’s businesses manufactures three products, Ess, Tee and Ewe. The following
monthly budgeted information is available for December 2022.

Selling price $90 $105 $150
Contribution $41.50 $45.00 $55.20
Budgeted fixed overheads are absorbed at $14 per unit based on maximum monthly demand.
REQUIRED
(b) Calculate the total maximum contribution and also total maximum profit that Mandeep can
earn in December 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
The business uses the same material to manufacture Ess, Tee and Ewe. The following information
is available for direct material.

Direct material ($6 per metre) 5 metres 6 metres 8 metres
REQUIRED
(c) Calculate the total material (in metres) required to meet the maximum demand in
December 2022.
...................................................................................................................................................
............................................................................................................................................. [1]

14
Mandeep has been told that due to a national shortage of material, he will only be able to obtain
1000 metres of material each month for the next three months.
REQUIRED
(d) Prepare a statement to show the maximum contribution and also maximum profit that
Mandeep can earn in December 2022 taking account of the shortage of material.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
© UCLES 2022 9706/21/O/N/22

15
Mandeep made enquiries and found an overseas supplier who would be able to provide enough
material to meet his requirements each month. Mandeep has never used this supplier before. He
has been assured that the material will be of a similar quality to his current supply and that the
price would be $5 per metre.
REQUIRED
(e) Advise Mandeep whether or not he should purchase all future supplies of material from the
overseas supplier. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]

16
Mandeep is currently preparing budgets for his other business for the next year.
He operates a system of absorption costing and provides the following information for one unit of
product.
Direct material 6 kg at $4.80 per kg
Direct labour Machining department

2 hours at $9 per hour
Assembly department
3 hours at $8 per hour

2 direct labour hours
3 machine hours
Assembly department
0.5 machine hours
Overhead absorption rates

Machining department $6.75 per machine hour
Assembly department $4.60 per direct labour hour
REQUIRED
(f) Calculate the price per unit that Mandeep should charge customers in order to obtain a
20% profit margin.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
© UCLES 2022 9706/21/O/N/22

17
(g) State three benefits to a business of preparing budgets.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
[3]
(h) State two limitations of budgetary control.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 30]
© UCLES 2022 9706/21/O/N/22

18
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© UCLES 2022 9706/21/O/N/22

19
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© UCLES 2022 9706/21/O/N/22

20
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© UCLES 2022 9706/21/O/N/22

* 9 1 4 4 0 8 4 6 7 3 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RW) 303869/3
2
1 The following balances have been extracted from the draft financial statements of H Limited at
30 September 2022.
$
8% bank loan (2028–2029) 28 000
Inventory 48 900
Plant and machinery at net book value 52 000
Property at valuation 65 000
The directors discovered that the following had not been accounted for.
1 Plant and machinery had been purchased for $16 500. This was settled by the part‑exchange
of machinery with a net book value of $11 800 and a bank payment of $4700.
2 No depreciation for the year had been charged. Plant and machinery is depreciated at 10%
per annum using the reducing balance method. A full year’s depreciation is charged in the
year of purchase and none in the year of disposal.
3 A bonus issue of one ordinary share for every four shares held had been made on 1 June 2022.
The directors had decided to keep the reserves in the most flexible form.
4 An interim dividend of $0.03 per share had been paid on 1 September 2022 on all shares in
issue at that date.
5 Property had been revalued downwards by $4000.
6 One half of the 8% bank loan (2028–2029) had been repaid on 30 September 2022.
7 A provision for doubtful debts of 5% was to be made.
© UCLES 2022 9706/22/O/N/22

3
REQUIRED
(a) Prepare the journal entry to record the bonus issue of shares. Dates and narrative are not
required.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(b) Calculate the net book value of plant and machinery at 30 September 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
(c) Calculate the adjusted balance of cash and cash equivalents at 30 September 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

4
(d) Calculate the adjusted balance of retained earnings at 30 September 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
© UCLES 2022 9706/22/O/N/22

5
(e) Prepare the statement of financial position at 30 September 2022.
H Limited
Statement of Financial Position at 30 September 2022
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............................................................................................................................................. [8]

6
(f) Explain two differences between capital reserves and revenue reserves.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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[4]
(g) Explain one accounting concept applied when making a provision for doubtful debts.
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............................................................................................................................................. [2]
[Total: 30]
© UCLES 2022 9706/22/O/N/22

7
PLEASE TURN OVER

8
2 Usman has extracted the following information from his books of account in order to update the
sales ledger control account for the month of August 2022.
$
Balance brought down at 1 August 2022 34 210
Cheque receipts from credit customers 32 840
Customers’ dishonoured cheques 1 020
Sales journal totals 29 760
Sales returns journal totals 980
Usman has produced a list of all customer account balances at 31 August 2022 totalling $30 477.
He has discovered the following:
1 The total of the sales journal had been overcast by $600.
2 Discounts allowed of $218 had been entered in customers’ accounts but no entries had been
made in the control account.
3 A contra for $325 had been correctly entered in both the customer’s account and the supplier’s
account.
4 A customer’s overpayment of $65 had been repaid by cheque but no entries had been made
in the books of account.
5 A cheque received from Musa for $250 had been posted to the account of Hussein.
6 An irrecoverable debt of $180 had been correctly written off in a customer’s account but had
not been entered in the control account.
7 A credit balance of $315 on a customer’s account had been incorrectly entered as a debit
balance in the list of customer account balances at 31 August 2022.
© UCLES 2022 9706/22/O/N/22

9
REQUIRED
(a) Prepare the updated sales ledger control account for the month of August 2022.
$ $
Balance b/d 34 210
[9]
(b) Prepare an amended total of customer account balances to agree with the sales ledger
control account balance in (a).
Original total of customer account balances 30 477
[3]

10
(c) State one limitation of preparing a control account.
...................................................................................................................................................
............................................................................................................................................. [1]
(d) Explain why a sales ledger control account would help in the prevention of fraud.
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............................................................................................................................................. [2]
[Total: 15]
© UCLES 2022 9706/22/O/N/22

11
PLEASE TURN OVER

12
3 N Limited provided the following information for the year ended 31 August 2022.
$
6% debentures (2022) 20 000
Cash in hand 650
Finance costs 1 400
Purchases 172 000
Revenue 292 000
Cash sales accounted for 20% of revenue.
Cash purchases accounted for 25% of purchases.
REQUIRED
(a) Calculate the following efficiency ratios, showing the formula used.
Ratio Formula Workings
Trade receivables
turnover (days)
Answer:
Trade payables
turnover (days)
Answer:
[4]
© UCLES 2022 9706/22/O/N/22

13
(b) Calculate the following liquidity ratios to two decimal places, showing the formula used.
Ratio Formula Workings
Current ratio
Answer:
Liquid (acid test)

ratio
Answer:
[4]

14
The directors have reported a 5% increase in profit for the year ended 31 August 2022 and are
satisfied with the results.
REQUIRED
(c) Advise the directors whether or not they are correct to be satisfied. Justify your answer and
support it by considering the efficiency ratios and liquidity ratios in (a) and (b).
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............................................................................................................................................. [5]
(d) State two limitations of using accounting ratios to compare the results of two businesses.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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[2]
[Total: 15]
© UCLES 2022 9706/22/O/N/22

15
4 Brady manufactures one product which is sold through agents who receive a 10% commission
based on the selling price.
The following budgeted information is available for December 2022.
$
Sales revenue (12 000 units) 78 000
Variable production overheads 4 800
Fixed administrative overheads 6 100
Selling expenses including sales commission 13 200
All selling expenses with the exception of sales commission are fixed.
REQUIRED
(a) Calculate for December 2022:
(i) budgeted total contribution
...........................................................................................................................................
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..................................................................................................................................... [2]
(ii) budgeted total profit
...........................................................................................................................................
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...........................................................................................................................................
..................................................................................................................................... [2]
(iii) break‑even point in units.
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..................................................................................................................................... [2]

16
(b) State the formula for calculating the margin of safety.
...................................................................................................................................................
............................................................................................................................................. [1]
Brady has a monthly target profit of $10 800.
REQUIRED
(c) Calculate how many units Brady would have to sell in December 2022 in order to achieve the
target profit.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
Brady is aware that he needs to make changes in order to achieve his monthly target profit and he
is proposing the following:
1 Improve the specification of the product and increase the selling price by $0.30 per unit.
2 The new materials will increase the direct material price by $0.40 per unit.
3 Reduce the direct labour rate by 5% per unit.
4 Reduce the sales commission to 8%.
5 Reduce the administrative overheads by $18 000 per annum by making one member of staff
redundant.
6 Increase the advertising budget by $2500 per month.
Brady is confident that these measures will produce additional sales of 1000 units each month.
© UCLES 2022 9706/22/O/N/22

17
REQUIRED
(d) Prepare a budgeted marginal cost statement for December 2022 if Brady makes the proposed
changes.
Brady
Budgeted marginal cost statement for December 2022
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Workings:
[10]

18
(e) Advise Brady whether or not he should make the proposed changes. Justify your advice by
discussing the issues that he should consider.
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............................................................................................................................................. [7]
(f) State two advantages of cost–volume–profit analysis.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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[2]
© UCLES 2022 9706/22/O/N/22

19
(g) State two limitations of cost–volume–profit analysis.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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[2]
[Total: 30]
© UCLES 2022 9706/22/O/N/22

20
BLANK PAGE
© UCLES 2022 9706/22/O/N/22

* 0 4 3 5 9 3 9 1 9 5 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (CJ) 303163/3
2
1 Reece, a sole trader, does not maintain a full set of accounting records. He has provided the
following information for the year ended 30 June 2022.
30 June 2022 1 July 2021

$ $
Cash 110 240
Electricity accrued 380 420
Inventory 21 400 23 600
Machinery
Cost ? 18 480
Accumulated depreciation ? 9 685
Rent paid in advance 1 100 950
Bank account summary
Balance b/d 1 860 Credit suppliers 80 140
Credit customers 149 810 Rent 12 250
Cash sales banked 7 170 Wages 36 240
Sale of machinery 4 000 Electricity 3 680
New machinery 9 200
Balance c/d 2 740
162 840 162 840
1 Total cash sales for the year were $15 280.
2 Reece had also paid cash for wages during the year but had not recorded this.
3 Reece took $450 per month drawings before the cash sales were banked. He had also taken
goods for his own use with a selling price of $350 after a mark-up of 25%.
4 During the year, machinery that had cost $6000 on 1 July 2019 was sold.
5 Machinery is to be depreciated at 15% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase, but none in the year of disposal.
© UCLES 2022 9706/23/O/N/22

3
REQUIRED
(a) Calculate the total credit sales for the year ended 30 June 2022.
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(b) Calculate the total credit purchases for the year ended 30 June 2022.
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(c) Calculate the total cash paid for wages during the year ended 30 June 2022.
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(d) Calculate the depreciation charge for the year ended 30 June 2022.
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............................................................................................................................................. [3]

4
Inventory at 30 June 2022 included damaged goods which had cost $1800, but needed repairs
costing $350. The goods could then be sold for 30% less than the normal selling price of $2250.
REQUIRED
(e) Prepare the income statement for the year ended 30 June 2022.
Reece
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Workings:
[10]
© UCLES 2022 9706/23/O/N/22
5
(f) State two causes of depreciation of non-current assets.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
(g) Explain, with reference to an accounting concept in each case, why:
(i) a business should make a provision for depreciation of non-current assets
Accounting concept
...........................................................................................................................................
Explanation
...........................................................................................................................................
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..................................................................................................................................... [2]
(ii) a business should make an adjustment for damaged inventory.
Accounting concept
...........................................................................................................................................
Explanation
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..................................................................................................................................... [2]

6
Reece has been thinking of maintaining a full set of accounting records.
REQUIRED
(h) Advise Reece whether or not he should maintain a full set of accounting records. Justify your
answer.
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[Total: 30]
© UCLES 2022 9706/23/O/N/22

7
PLEASE TURN OVER

8
2 Darius and Ewan are in partnership sharing profits and losses in the ratio 5 : 3.
The following balances were extracted from the partnership books of account at 31 July 2022.
$
Capital accounts
Darius 94 300
Ewan 68 300
Inventory 36 200
Property at valuation 127 000
Bank loan (2025) 24 000
On 1 August 2022, the partners agreed to admit Karim into the partnership on the following terms.
1 Karim was to introduce total capital of $48 000. This consisted of fixtures and fittings valued at
$9500 with the balance to be introduced into the partnership bank account.
2 Future profits and losses were to be shared between Darius, Ewan and Karim in the ratio
5 : 3 : 2.
3 Goodwill was to be valued at $36 800. Goodwill was not to be retained in the books of account.
4 Property was to be revalued to $135 000.
5 Obsolete inventory of $2000 was to be written off.
REQUIRED
(a) Prepare, on page 9, the partners’ capital accounts on 1 August 2022 following the admission
of Karim.
© UCLES 2022 9706/23/O/N/22

Capital accounts
Darius Ewan Karim Darius Ewan Karim
© UCLES 2022
$ $ $ $ $ $
9
9706/23/O/N/22
Workings:
[5]
[Turn over
10
(b) Prepare the partnership statement of financial position at 1 August 2022 following the
admission of Karim. Use the space provided on page 11 for your workings.
Darius, Ewan and Karim
Statement of financial position at 1 August 2022
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© UCLES 2022 9706/23/O/N/22

11
Workings:
[6]
Partners may allow interest on capital and charge interest on drawings.
REQUIRED
(c) State one advantage of allowing interest on capital to a:
partner ......................................................................................................................................
...................................................................................................................................................
partnership ................................................................................................................................
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[2]
(d) Explain one reason why a partnership may charge interest on drawings.
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[Total: 15]

12
3 R Limited is a retail company.
REQUIRED
(a) Explain the meaning of 8% debentures (2025–2026).
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............................................................................................................................................. [3]
The directors of R Limited provided the following information at 1 October 2021.
$000
Building at valuation 120
Revaluation reserve 40
Share premium 145
The following transactions took place during the year ended 30 September 2022.
31 December 2021 Paid a final dividend of $0.06 per share.
31 March 2022 Made a rights issue of one ordinary share for every four shares held at a
price of $0.65. The issue was fully subscribed.
31 July 2022 Made a bonus issue of one ordinary share for every six shares held. The
directors decided to leave the reserves in the most flexible form.
31 August 2022 Paid an interim dividend of $0.04 per share.
30 September 2022 The building, which had originally cost $80 000, was revalued to $115 000.
The profit for the year ended 30 September 2022 was $87 000.
© UCLES 2022 9706/23/O/N/22

13
REQUIRED
R Limited
Statement of changes in equity for the year ended 30 September 2022

$000 $000 $000 $000 $000
At 1 October 2021 1 200 145 40 315 1 700
At 30 September 2022
Workings:
[10]
(c) Explain why dividends proposed at the end of a financial year are not shown in a company’s
statement of financial position.
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............................................................................................................................................. [2]
[Total: 15]

14
4 X Limited is a manufacturing business operating two production departments, Machining and

Finishing and two service departments, Stores and Maintenance.
All overhead costs have already been allocated to the departments. The service department costs
are to be apportioned to production departments as follows:
Stores department: in proportion to the number of parts orders
Maintenance department: in proportion to the number of maintenance call-outs.
The following budgeted information was available for the year ended 30 September 2022.
Machining Finishing Maintenance

department department department
Direct labour hours 11 500 54 600 –
Machine hours 48 000 12 000 –
Number of parts orders 6 400 1 800 300
Number of maintenance call-outs 120 30 –
REQUIRED
(a) Complete the table to apportion the service department costs to production departments.
Total Machining Finishing Stores Maintenance

$ $ $ $ $
Allocated
803 900 288 500 515 400 – –
overheads
Indirect labour 459 000 106 000 52 000 70 000 231 000
Other indirect costs 360 000 114 000 56 000 78 000 112 000
Total overheads 1 622 900 508 500 623 400 148 000 343 000
[4]
© UCLES 2022 9706/23/O/N/22

15
(b) Calculate, to two decimal places, a suitable overhead absorption rate for each production
department.
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............................................................................................................................................. [4]
The actual results for the year ended 30 September 2022 were as follows:
Machining Finishing
Total overheads $910 000 $705 000
REQUIRED
(c) Calculate the over-absorption or under-absorption of overheads for each production

department.
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(d) State two possible reasons why a business may under absorb overheads.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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[2]
The total budgeted direct labour cost for the production departments for the year ended
30 September 2022 was $594 900.
REQUIRED
(e) Calculate the budgeted hourly direct labour rate for the production departments.
............................................................................................................................................. [1]

16
X Limited have been asked to supply a quotation for a customer who requires 50 units of a product.
Each unit would require the following:
Direct material 4 kilos at $2.45 per kilo

Direct labour Machining department – 3 hours
Finishing department – 4.5 hours
1.25 machine hours
Finishing department
1.75 machine hours
The machining department is working at full capacity, so an overtime premium of 25% would be
required to complete this work.
X Limited would require a profit margin of 25% on this work.
REQUIRED
(f) Prepare a statement to show the total selling price that X Limited will quote to the customer.
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............................................................................................................................................. [6]
(g) Explain why a business apportions service department costs to production departments.
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............................................................................................................................................. [2]
© UCLES 2022 9706/23/O/N/22
17
The directors of X Limited have been advised that they should change from a departmental
overhead absorption rate to one factory-wide rate. They are concerned that this may affect the
profits of the business.
REQUIRED
(h) Advise the directors whether or not they should make this change. Justify your answer.
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[Total: 30]
© UCLES 2022 9706/23/O/N/22

18
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© UCLES 2022 9706/23/O/N/22

19
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© UCLES 2022 9706/23/O/N/22

20
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© UCLES 2022 9706/23/O/N/22

* 2 1 6 8 6 0 6 4 0 6 *
ACCOUNTING 9706/21
Paper 2 Fundamentals of Accounting October/November 2023
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (LK) 316871/4
2
1 Laila, a retailer, did not maintain a full set of accounting records for her business. She has provided
the following information for the year ended 30 September 2023.
Balances at 1 October 2022
$
Inventory 12 030
Non-current assets at carrying value 22 180
Other payables: light and heat 210
Other receivables: insurance 480
Summary of bank account for the year ended 30 September 2023
$ $
Receipts: trade receivables 55 390 Balance b/d 1 220
Sale of non-current assets 860 Payments: trade payables 46 280
Balance c/d 1 170 Insurance 2 560
Drawings 3 850
57 420 57 420
Balance b/d 1 170
The following information is also available at 30 September 2023.
1 Laila has started to prepare her financial statements for the year ended 30 September 2023.
The following figures are available to transfer to the statement of profit or loss with no
adjustment.
$
Insurance 2 720
Loss on disposal of non-current asset 120
2 All sales are made at a mark-up of 25%.
3 All sales and purchases are made on credit.
4 The balance of trade receivables at 30 September 2023 was $3650.
5 There were no additions to non-current assets during the year.
6 All non-current assets are to be depreciated at 10% per annum using the reducing balance
method.
7 Laila was unable to physically count the inventory at 30 September 2023. The inventory was
valued at $14 400 on 4 October 2023.
8 Between 1 October 2023 and 4 October 2023, Sales were $3400 and Purchases were $1850.
© UCLES 2023 9706/21/O/N/23

3
(a) Calculate the value of closing inventory at 30 September 2023.
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............................................................................................................................................. [3]
(b) Prepare the statement of profit or loss for the year ended 30 September 2023. Use the space
provided on page 4 to show your workings.
Laila
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...................................................................................................................................................

4
Workings:
[8]
(c) Prepare the statement of financial position at 30 September 2023.
Workings:
Equity at 1 October 2022
Other receivables
Trade payables
Other payables
© UCLES 2023 9706/21/O/N/23

5
Laila
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........................................................................................................................................... [12]

6
Laila wishes to expand the business and is considering forming a partnership with her friend.
(d) State four provisions of the Partnership Act 1890 that would apply in the absence of a
partnership agreement.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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3 ................................................................................................................................................
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4 ................................................................................................................................................
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[4]
(e) State three possible disadvantages to a business of maintaining a full set of accounting
records.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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3 ................................................................................................................................................
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[3]
[Total: 30]
© UCLES 2023 9706/21/O/N/23

7
2 Q Limited has been in business for a number of years. One of the directors is unsure of the
difference between a capital reserve and a revenue reserve.
(a) Explain one difference between a capital reserve and a revenue reserve.
...................................................................................................................................................
...................................................................................................................................................
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............................................................................................................................................. [2]
The directors of Q Limited provided the following information for the year ended 30 June 2023.
Balances at 1 July 2022 $

Share capital: ordinary shares of $0.50 each 30 000
Share premium 4 500
Total equity 90 740
8% debenture (2024) 40 000
At 1 July 2022, land, original cost $80 000, had a valuation of $86 000. No other non-current assets
had been revalued.
The following transactions took place during the year ended 30 June 2023.
Date
1 August 2022 Made a bonus issue of one ordinary share for every six shares held. The
directors maintained the reserves in the most flexible form.
1 October 2022 Paid a final dividend of $0.04 per share on all shares in issue at that date.
1 January 2023 Made a rights issue of two ordinary shares for every seven shares held at
a price of $0.65 per share. The issue was fully subscribed.
1 April 2023 Paid an interim dividend of $0.02 per share on all shares in issue at that
date.
30 June 2023 Land was revalued at $75 000.
The draft profit for the year ended 30 June 2023 was $43 600.

8
(b) Prepare the statement of changes in equity for the year ended 30 June 2023.
Q Limited
Statement of changes in equity for the year ended 30 June 2023

$ $ $ $ $
At 1 July 2022
[8]
© UCLES 2023 9706/21/O/N/23

9
The directors of Q Limited have plans to expand the business at a total cost of $54 000 and are
considering two options to raise finance.
Option 1:
Make a rights issue of four ordinary shares for every five shares held at a price of $0.75 per share.
Option 2:
Issue a 10% debenture (2026–2027) of $54 000.
(c) Advise the directors which option, if either, they should choose. Justify your decision.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 15]

10
3 Yasmine has a retail business. She extracted a trial balance at 30 June 2023, the totals of which
did not agree.
(a) State two types of error that will be revealed by a trial balance.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
(b) Explain the meaning of each of the following types of error.
(i) Error of original entry
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) Error of principle
...........................................................................................................................................
..................................................................................................................................... [1]
(iii) Error of commission
...........................................................................................................................................
..................................................................................................................................... [1]
The difference in the trial balance was posted to a suspense account to enable the financial
statements to be produced.
Yasmine discovered the following errors, correction of which would clear the difference.
1 The sales journal total had been overstated by $300.
2 The total of the purchases returns journal, $2450, had not been posted to the general ledger.
3 Discounts allowed, $1660, had been posted to the credit of the discounts received account.
4 The balance of the carriage inwards account at 30 June 2023, $3570, had been brought
down as $3750.
© UCLES 2023 9706/21/O/N/23

11
(c) Prepare the suspense account to show the correction of the errors, clearly identifying the
difference that was present in the trial balance before the errors were corrected.
Suspense account
$ $
[5]
Before discovering the errors, Yasmine had prepared a draft statement of profit or loss showing
a profit for the year of $36 165. The suspense account balance was not included in the profit
calculation.
(d) Calculate the revised profit for the year after correction of the errors.
Increase Decrease
$ $ $
Draft profit for the year 36 165
Error 1
Error 2
Error 3
Error 4
Revised profit for the year
[5]
[Total: 15]

12
4 Javid manufactures a single product. He currently uses a system of absorption costing but is
considering changing to marginal costing.
The following budgeted information is available for one unit of the product.
$
Selling price 18
Direct material 7
Direct labour 5

Budgeted fixed overheads $36 000 per month
At 1 August, Javid held no inventory.
The following actual results are available.
August September
Sales (units) 8 000 12 000
Fixed overheads $36 000 $36 000
(a) Prepare a profit statement for each of the months August and September using absorption
costing.
Javid
Absorption cost profit statement
August September
$ $ $ $
[6]
© UCLES 2023 9706/21/O/N/23

13
(b) Prepare a profit statement for each of the months August and September using marginal
costing.
Javid
Marginal cost profit statement
August September
$ $ $ $
[6]
(c) Prepare a statement reconciling the absorption cost profit for August with the marginal cost
profit for August.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

14
(d) Advise Javid whether or not he should change from absorption costing to marginal costing.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
(e) State two possible causes of over-absorption of overheads.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
© UCLES 2023 9706/21/O/N/23

15
(f) Explain one difference between a cost centre and a cost unit.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(g) State how closing inventory is valued using each method of inventory valuation:
(i) first in first out (FIFO)
...........................................................................................................................................
..................................................................................................................................... [1]
(ii) weighted average cost (AVCO).
...........................................................................................................................................
..................................................................................................................................... [1]
Javid is investigating the just in time (JIT) method of inventory management.
(h) Explain a principle of the JIT method of inventory management.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
[Total: 30]
© UCLES 2023 9706/21/O/N/23

16
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© UCLES 2023 9706/21/O/N/23

* 9 0 4 9 2 7 5 2 8 5 *
ACCOUNTING 9706/22
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (RW) 316872/3
2
1 P Limited sells electronic goods online.
The directors provided the following information.
At At
Balances 31 July 2023 1 August 2022
$ $
8% debenture (2026) 36 000 –
Inventory 43 190 36 800
Other payables: administrative expenses – 960
Other receivables: administrative expenses 160 1 820
Other receivables: distribution costs 1 490 –
Bank account extract for the year ended 31 July 2023
$
Payments
Receipts
From customers 284 200
1 All goods are despatched to customers immediately on receipt of payment.
2 Inventory at 31 July 2023 included damaged items that had cost $3600. One half of these
items will be scrapped and have no value. The remaining items will be sold for $900 after
repairs costing $420.
3 The 8% debenture (2026) was issued on 1 April 2023.
4 The charge for taxation was estimated to be $10 700.
© UCLES 2023 9706/22/O/N/23

3
(a) Prepare the statement of profit or loss for the year ended 31 July 2023. Use the space
provided to show your workings.
P Limited
Statement of profit or loss for the year ended 31 July 2023
Workings:
Cost of sales
Distribution costs
[15]

4
1 Balances at 1 August 2022
$
2 On 1 September 2022, a bonus issue of shares was made of one ordinary share for every six
shares held. Reserves were maintained in their most flexible form.
3 On 1 January 2023, a final dividend of $0.07 per share was paid on all shares in issue at
1 August 2022.
4 On 31 March 2023, a rights issue of one ordinary share for every four shares held was made
at a premium of $0.15 per share. The issue was fully subscribed.
(b) Prepare the statement of changes in equity for the year ended 31 July 2023.
P Limited
Statement of changes in equity for the year ended 31 July 2023
Share Share Retained

capital premium earnings Total
$ $ $ $
At 1 August 2022 120 000 19 000 23 560 162 560
[6]
(c) State two examples of revenue reserves of a limited company.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
© UCLES 2023 9706/22/O/N/23

5
(d) Advise the directors whether or not they were correct to make a bonus issue of shares rather
than make a new issue of shares. Justify your answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]

6
2 Simon formed a parcel delivery business on 1 July 2021.
On 1 July 2021, he purchased a delivery vehicle for $29 000 from his business bank account.
He decided to depreciate delivery vehicles on a monthly basis using the straight‑line method. He
estimated that the delivery vehicle would have a useful working life of four years and would have a
residual value of $5000.
On 1 November 2022, a new delivery vehicle was purchased at a cost of $44 000. The old delivery
vehicle was part exchanged at a value of $16 800. The balance was settled by a bank loan
repayable over two years.
He estimated that the new delivery vehicle would have a useful working life of five years and
would have a residual value of $8000.
(a) State two factors that cause the value of non‑current assets to depreciate.
1 ................................................................................................................................................
2 ................................................................................................................................................
[2]
© UCLES 2023 9706/22/O/N/23

7
(b) Prepare the following accounts for the year ended 30 June 2023. Use the space provided to
show your workings.
Delivery vehicles at cost
Delivery vehicles provision for depreciation
Workings:
[8]

8
(c) Calculate the profit or loss on disposal of the delivery vehicle sold on 1 November 2022.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [2]
(d) Explain why it may be more appropriate to depreciate motor vehicles using the reducing
balance method rather than the straight‑line method.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
[Total: 15]
© UCLES 2023 9706/22/O/N/23

9
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10
3 Malik prepared a sales ledger control account for July 2023. However, the balance of the control
account did not agree with the total of customers’ account balances in the sales ledger.
He provided the following information.
$
At 1 July 2023
For the month of July 2023
Contra purchases ledger 420
Sales journal 69 634
Cash book: customer cheques dishonoured 22
Cash book: discounts allowed 892
Journal: irrecoverable debts 410
Cash book: receipts from credit customers 74 118
Sales returns journal 2 090
1 The balance of a sales ledger customer’s account had been undercast by $300.
2 The total of the sales returns journal had been overcast by $580.
3 A journal entry to write off a customer account balance of $95 as irrecoverable had been
correctly entered in the general ledger but had been posted to the debit side of the customer’s
account.
4 A cheque received from a customer, $320, had been correctly entered in the cash book but
had been posted to the debit side of the customer’s account as $230.
5 A further dishonoured cheque from a customer, $215, had not been entered in the cash book
but had been correctly entered in the customer’s account.
The list of customer account balances extracted from the sales ledger totalled $69 211.
© UCLES 2023 9706/22/O/N/23

11
(a) Prepare the sales ledger control account for the month of July 2023, taking into account the
errors discovered. Dates are not required.
Details $ Details $
[9]
(b) Prepare a schedule of the corrected sales ledger account balances.
Increase Decrease Total

$ $ $
Per original list 69 211
Corrected balances
[4]

12
(c) State two limitations of preparing a control account.
1 ................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
[2]
[Total: 15]
© UCLES 2023 9706/22/O/N/23

13
4 Andreas owns a business manufacturing bicycles. The business operates two production
departments, Machining and Assembly, and two service departments, Stores and Maintenance.
The following information is available for one bicycle.
Direct materials $45.60

Direct labour: Machining ($10 per hour) 30 minutes
Direct labour: Assembly ($12 per hour) 105 minutes
Machine hours: Machining 20 minutes
Machine hours: Assembly 15 minutes
Total budgeted overheads for the year ended 31 August 2023 are as follows:
$
Factory rent and rates 30 000
Machine overheads 22 000

Machining Assembly Stores Maintenance
Floor space (square metres) 4 000 5 600 1 800 600
Number of orders from stores 2 100 1 600 500
Maintenance call outs 210 40
Number of indirect employees 4 12 2 2
Machine overheads are apportioned on the basis of machine hours.

14
(a) Complete the table to show the apportionment of the budgeted overheads for the year ended
31 August 2023.

Total Machining Assembly Stores Maintenance
$ $ $ $ $
Factory rent and rates 30 000
Machine overheads 22 000
Apportion Stores
Subtotal
Apportion Maintenance
Total overhead costs
[6]
(b) Calculate, to two decimal places, an overhead absorption rate for each production
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
© UCLES 2023 9706/22/O/N/23

15
The actual results for the year ended 31 August 2023 were as follows:
Machining Assembly
Total overheads $226 952 $267 465
(c) Calculate the over‑absorption or under‑absorption of overheads for each production

department.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
Andreas has been approached by a new customer wishing to make a special order for 120 bicycles
with modifications to the customer’s own specification. In order to complete the order, the following
would apply for the manufacture of one bicycle.
1 The total material cost would increase by 30%.
2 The direct labour hours in the machinery department would increase by 50% and an additional
15 minutes of direct labour hours would be required in the assembly department.
3 Due to workers in the assembly department already working at full capacity, these workers
would have to work overtime to complete the order at a premium of 25% on the usual direct
labour rate.
(d) Calculate the direct cost of producing one bicycle for the special order.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]

16
In order to remain competitive, Andreas wishes to achieve a 30% gross profit margin on all work.
(e) Prepare a statement to show the total selling price that Andreas should quote to the customer
in order to achieve a 30% gross profit margin on the order.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
© UCLES 2023 9706/22/O/N/23

17
Having received the quotation from Andreas, the customer has stated that he will commit to a
regular monthly order of 100 of the special bicycles if Andreas will offer a 10% discount on the
quoted price and allow 2 months’ credit.
Andreas’s business is successful, though managing cash flow is often difficult.
(f) Advise Andreas whether he should accept the terms offered by the customer. Justify your
answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2023 9706/22/O/N/23

18
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© UCLES 2023 9706/22/O/N/23

19
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© UCLES 2023 9706/22/O/N/23

20
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© UCLES 2023 9706/22/O/N/23

* 2 5 4 2 2 1 3 6 5 1 *
ACCOUNTING 9706/23
1 hour 45 minutes
INSTRUCTIONS
INFORMATION
DC (DE) 321962/3
2
1 B Limited provided the following information for the year ended 30 September 2023.
$
8% debenture (2025) 60 000
Allowance for irrecoverable debts at 1 October 2022 3 820
Dividend paid 4 000
Finance costs 3 950
Inventory 74 000
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
The revaluation reserve relates to land only.
The gross profit for the year ended 30 September 2023 was $321 070.
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.
© UCLES 2023 9706/23/O/N/23

3
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.

4
(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
Gross profit for the year
Distribution costs
Finance costs
Profit before taxation
Taxation
Profit for the year
Workings:
Distribution costs
[10]
© UCLES 2023 9706/23/O/N/23

5
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6
(b) Prepare the statement of financial position at 30 September 2023. Use the space provided on
page 7 to show your workings.
B Limited
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
© UCLES 2023 9706/23/O/N/23

7
Workings:
Non-current assets
Trade and other receivables
Retained earnings
Trade and other payables
[15]

8
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]
© UCLES 2023 9706/23/O/N/23

9
2 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]

10
(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]
© UCLES 2023 9706/23/O/N/23

11
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]

12
3 The directors of J Limited provided the following information at 1 September 2022.
$
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.
© UCLES 2023 9706/23/O/N/23

13
(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]

14
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]
© UCLES 2023 9706/23/O/N/23

15
4 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]

16
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]
© UCLES 2023 9706/23/O/N/23

17
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]

18
(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]
© UCLES 2023 9706/23/O/N/23

19
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© UCLES 2023 9706/23/O/N/23

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© UCLES 2023 9706/23/O/N/23

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Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level

READ THESE INSTRUCTIONS FIRST

Answer all questions.

This document consists of 19 printed pages and 1 blank page.

Revenue 526 000

1 Inventory on 30 June 2015 was valued at $29 400.

2 Depreciation is to be charged as follows:

Warehouse buildings 4% using straight line method

3 The provision for doubtful debts is to be maintained at 5% of the trade receivables.

4 An irrecoverable debt of $200 should be written off.

6 The directors have proposed a final dividend of $0.07 per share.

7 The debentures were issued in 2011.

8 The motor vehicles were used by the sales team.

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(b) Prepare the statement of financial position at 30 June 2015.

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(c) Explain the importance to a business of the current ratio.

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(d) Discuss the effect of this course of action on:

(i) working capital

(ii) the return on capital employed

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1 Profits and losses are to be shared equally.

2 Interest is to be charged at 5% on drawings.

3 Interest is to be allowed at 10% on capital.

The following also took place:

3 Non-current assets were revalued at $270 000.

4 The inventory value was to be reduced by $4000.

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(a) Prepare the revaluation account.

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(c) State the advantages of interest on capital and interest on drawings.

(i) Advantage of interest on capital

(ii) Advantage of interest on drawings

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February 1 Issued 200 000 ordinary shares at $0.70 each.

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(i) what point A 20 000 represents

(ii) what point B ($60 000) represents

(b) State what is meant by P / V ratio.

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(c) State two benefits and two drawbacks of CVP analysis.

Annual sales (units) 15 000 5 000 8 000

Annual allocated fixed costs 60 000 25 000 30 000

Lin is considering stopping production of X.

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(d) Calculate for the year ending 31 December 2016:

(i) the total contribution for each product

(ii) the total profit or loss for each product

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The details are as follows:

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(f) Calculate the contribution gained or lost on each order.

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© UCLES 2016 9706/22/F/M/16

READ THESE INSTRUCTIONS FIRST

Answer all questions.