TEE-1 SEPT.

: 2021
GRADE- XII-i (IGCSE)

ACCOUNTING 9706 A-LEVEL 150 MARKS

Paper 3 Structured Questions SEPT./ 2021
3 hours
READ THESE INSTRUCTIONS FIRST

An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of
the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Answer all questions.

All accounting statements are to be presented in good style.
International accounting terms and formats should be used as appropriate.
Workings should be shown.
You may use a calculator.

The number of marks is given in brackets [ ] at the end of each question or part question.
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Section A: Financial Accounting

Question 1 International Dancing is a dance club charging an annual subscription of $500 per member.
A summary of its subscriptions account for the year ended 31 December 2015 was as follows:

International Dancing
Subscriptions account

2015 $ 2015 $
Jan 1 Balance b/d 2 000 Jan 1 Balance b/d 1 500
Dec 31 Income and expenditure account 106 500 Dec 31 Bank 105 500
Balance c/d 2 500 Balance c/d 4 000
111 000 111 000

Additional information

1 The club’s only other receipts came from the sale of music CDs to members. These receipts
amounted to $5800 for the year.

2 Payments for the year were as follows:

$
Rent 15 000
Staff costs 61 000
Insurance and administration 4 200
Purchase of music CDs for resale 2 600
Purchase of equipment 11 700
Purchase of CDs for club use 4 000

3 The bank balance at 1 January 2015 was $13 500 debit. All receipts and payments are made through
the bank.

4 CDs purchased for club use are not considered to have a useful life of more than 12 months.

5 The club maintains an inventory of CDs for resale. This amounted to $180 at 1 January 2015 and $280
at 31 December 2015.

6 Equipment was valued at $17 200 at 1 January 2015 and $21 300 at the end of the year.

7 At 31 December 2015 prepaid insurance was $300 and accrued administration costs were
$50.

REQUIRED

(a) Prepare the club’s income and expenditure account for the year ended 31 December 2015.
[9]
 3

Additional information

In 2016 the club is given the opportunity to buy its premises for $142 000. If it is agreed that this purchase
should go ahead, three sources of finance would be used.

1 Half the balance at bank on 31 December 2015 would be used.

2 Life membership of the club would be introduced. The life membership fee would be $5000 per
person and this would be credited to the income and expenditure account in equal instalments over a
10-year period. It is expected that 10 existing members of the club would take up life membership, and
the funds raised would be used in the purchase.

3 A 5-year bank loan, at 10% interest per annum, would finance the balance of the purchase price.

REQUIRED

(b) (i) Calculate the bank balance at 31 December 2015. [2]

(ii) Calculate the amount of the loan which would be taken out. [3]

(c) Assess the effect the purchase of the premises would have on annual cash flows in future years.
[4]

(d) Recommend to the managing committee of the club whether or not they should proceed with the
purchase of the premises. Justify your answer by discussing both advantages and disadvantages of the
purchase.
[7]

[Total: 25]

[Turn over
 4

Question 2 The directors of Hank Limited provide the following statements of financial position at 31 March:

2016 2015
$000 $000
Assets
Non-current assets (net book value) 259 224
Current assets
Inventories 128 102
Trade receivables 132 118
Cash and cash equivalents – 14
260 234
Total assets 519 458

Equity and Liabilities

Equity
Share capital 210 180
Share premium 15 –
Retained earnings 107 131
332 311
Non-current liabilities
Bank loan (repayable 2020) 42 20
Current liabilities
Trade payables 102 109
Bank overdraft 23 –
Other payables – taxation 20 18
145 127
Total equity and liabilities 519 458

Additional information

The following information relates to the year ended 31 March 2016:

1 The profit from operations was $30 000.

2 During the year non-current assets with a cost of $24 000 and accumulated depreciation of
$19 000 were sold for $8000.

3 The depreciation charge for the year was $12 000. All non-current assets held at the end of the
financial year are depreciated over 25 years using the straight-line method.

4 Interest paid for the year was $9000.

5 Dividends paid during the year were $25 000. A dividend of $30 000 had been proposed at the end
of the year.

6 The taxation charge was $20 000.

 REQUIRED 3

(a) Explain the difference between a statement of cash flows and a cash budget. [2]

(b) Prepare a statement of cash flows for Hank Limited for the year ended 31 March 2016 in
accordance with IAS 7.
[10]

(c) Explain with reference to the statement of cash flows whether Hank Limited has a strong or a weak
cash position. [4]

(d) Prepare a summarised schedule of non-current assets as it would appear as a note in the
published accounts for the year ended 31 March 2016. [5]

(e) Advise the directors whether or not they should apply the International Accounting Standards
when preparing the published accounts. Justify your answer. [4]

[Total: 25]

[Turn over
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Question 3

Ahmed runs a manufacturing business in Singapore producing computer screens.

For the year ended 31 December 2017 his cost of production per screen was $80 and he operates on
a margin of 20%.

For the year ended 31 December 2018 he sent 500 screens to his friend, Rohan, who is a retailer in
India. The transfer value agreed between the friends was 10% less than the standard selling price.

Answer the following questions in the Question Paper. Questions are printed here for
reference only.

(a) Calculate the unit value at which the screens are transferred from Singapore to India. [2]

Additional information

The following relates to the year ended 31 December 2018.

1 Ahmed’s opening bank balance was $55 000 and the closing balance was $94 000. This
bank account was only used for the consignment.

2 Ahmed paid transportation costs of $1000.

3 Rohan sold all of the screens at a mark-up of 60%.

4 Customs duty of 5% was paid by Rohan.

5 Rohan earned a commission of 5% on all sales. Rohan made a remittance to Ahmed.

(b) Prepare in the books of Ahmed:

(i) a summarised bank account showing the entries relating to the consignment [3]

(ii) the consignment account [7]

(iii) the account of Rohan. [5]

Additional information

Demand for Ahmed’s screens is increasing. However, he is unable to increase production. Rohan
wishes to continue selling Ahmed’s computer screens in India for the year ending 31 December
2019.

(c) Advise Ahmed whether or not he should continue with the consignment arrangement with
Rohan. Justify your answer using relevant calculations and reference to non-financial factors.
[8]

[Total: 25]
 3
Question 4 Jenny and Thomas are two sole traders. Their statements of financial position at 31
March 2019 were as follows:

Jenny Thomas
$ $
Non-current assets 150 000 90 000
Current assets
Inventory 27 500 11 000
Trade receivables 17 500 6 500
Cash and cash equivalents 9 750 3 750
54 750 21 250
Total assets 204 750 111 250

Capital and liabilities

Capital accounts 170 000 100 000
Current liabilities 34 750 11 250
Total capital and liabilities 204 750 111 250

They agreed to merge their two businesses into a partnership with effect from 1 April 2019.

The terms of the merger were as follows:

1 The value of the non-current assets of both sole traders had increased by 10%.

2 Inventory was valued at $27 000 for Jenny and $10 000 for Thomas.

3 Both sole traders expected 5% of their trade receivables to be written off.

4 All other assets and liabilities, except cash and cash equivalents, were transferred to the
partnership at their book value.

Answer the following questions in the Question Paper. Questions are printed here for
reference only.

(a) Prepare the revised capital accounts of each sole trader at 31 March 2019 to show the
transfer to the partnership. [8]

Additional information

The new partnership commenced on 1 April 2019 with total opening capital of $360 000 in the
ratio of Jenny 2, Thomas 1. Each partner introduced cash to achieve this.

(b) Calculate the amounts of additional cash that each partner introduced. [2]

(c) Prepare the opening statement of financial position of the new partnership on 1 April 2019. [6]

[Turn over
Additional information

The partners agreed to take equal salaries of $10 000 per annum. The residual profits were to be
shared in the ratio of 2:1 respectively.

It is expected that the profit before appropriation for the first year’s trading will give a return of 13.5%
on the total opening capital balances.

The average profit of Jenny over the last three years as a sole trader was $35 000 per annum.

(d) (i) Calculate Jenny’s total share of the expected profit for the first year of trading. [3]

(ii) State one advantage and one disadvantage to Jenny of forming the partnership. [2]

Additional information

The partners are considering computerising their accounting system.

(e) State two advantages and two disadvantages to a business of using a computerised
accounting system. [4]

[Total: 25]
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Question 5
Richard Ang is a sole proprietor manufacturing one type of sofa bed. The following balances are
extracted from his books of account at 31 July 2016.
$
Revenue 986 000
Purchases of direct materials 207 600
Carriage inwards 6 800
Carriage outwards 17 500
Returns inwards 12 000
Factory wages:
Direct 168 000
Indirect 51 400
Overheads:
Factory 155 000
Office 194 000

Additional information-

1 Richard maintains a provision for unrealised profit account. Completed products aretransferred from
the factory at a mark-up of 20%.

2 Inventories at 31 July 2015 were:

$
Raw materials 14 800
Work in progress 23 500
Finished goods (at cost) 32 000

3 Inventories at 31 July 2016 were:

$
Raw materials 16 400
Work in progress 20 200
Finished goods (at transfer price) 54 000

4 Unpaid direct wages at 31 July 2016 amounted to $3500.

5 Rent had been allocated to factory overheads and office overheads at $24 000 and $16
000respectively.

The allocation should have been in the ratio of 3 : 1 respectively.

REQUIRED-
a. Prepare the manufacturing account for the year ended 31 July 2016. [15]
b. Explain why a business depreciates its non-current assets. [5]
c. Find the difference between manufacturing account and trading account. [5]

[Total: 25]
 Question 6 Ahmed and Bashmir have separate garage businesses and have agreed to form a joint
venture to buy and sell second hand cars.

They have agreed to share the profits and losses as two thirds to Ahmed and one third to Bashmir.

They record purchases and sales of cars in their own books of account.

The following financial information is available for the period of the joint venture.

Ahmed Bashmir
$ $
Credit purchases 24 500 17 600
Expenses 3 200 2 300
Commissions received 1 000
Discount received 500 100
Cash sales 6 000 4 800
Credit sales 32 000 50 700
Returns inwards 4 500
Irrecoverable debts 300

It was agreed that Bashmir would take over the inventory of unsold cars at the end of the venture. Bashmir
has advised that he has an inventory of unsold cars at the end of the venture valued at
$6500.

REQUIRED

(a) Prepare the memorandum joint venture account. [9]

(b) Prepare the joint venture account in the books of Ahmed and show the balance due to or from
Bashmir. [8]

(c) State the heading under which the balance due will be shown in Ahmed’s statement of
financial position. [1]

Additional information

Ahmed has discovered that Bashmir did not hold any inventory but had sold the closing inventory of cars
for $12 500.

REQUIRED

(d) Calculate:

(i) the correct total profit for the joint venture. Start your calculation with your answer from
(a). [3]

(ii) the extra profit due to Ahmed from the joint venture. [1]

(e) Evaluate whether or not Ahmed should have entered into the joint venture with Bashmir. Justify
your answer. [3]

[Total: 25]