2017 To 2020 Combined

Contents
1. Nov 2017 P12 Pg 1 29. June 2020 P21 Pg 266

2. Nov 2017 P22 Pg 12 30. June 2020 P22 Pg 278
3. Nov 2017 P32 Pg 32 31. June 2020 P23 Pg 288
4. Nov 2018 P12 Pg 1 32. June 2020 P31 Pg303
5. Nov 2018 P22 Pg 11 33. Nov 2020 P32 Pg 311
6. Nov 2018 P32 Pg 32 34. Nov 2020 P33Pg 320
7. June 2018 P11 Pg 29 35. Nov 2020 P11 Pg 331
8. June 2018 P22 Pg 40 36. Nov 2020 P12 Pg 342
9. June 2018 P32 Pg 51 37. Nov 2020 P13 Pg 352
10. Nov 2018 P12 Pg 58 38. Nov 2020 P21 Pg 361
11. Nov 2018 P22 Pg 68 39. Nov 2020 P22 Pg 372
12. Nov 2018 P32 Pg 79 40. Nov 2020 P23 Pg383
13. March 2019 P12 Pg 88
14. March 2019 P22 Pg 98
15. March 2019 P32 Pg 109
16. June 2019 P12 Pg 118
17. June 2019 P22 Pg 128
18. June 2019 P32 Pg 139
19. Nov 2019 P12 Pg150
20. Nov 2019 P22 Pg 161
21. Nov 2019 P32 Pg174
22. March 2020 P12 Pg 184
23. March 2020 P22 Pg 195
24. March 2020 P32 Pg 206
25. June 2020 P32 Pg 218
26. June 2020 P33Pg 231
27. June 2020 P12 Pg 244
28. June 2020 P13 Pg 255
Cambridge International Examinations
Cambridge International Advanced Subsidiary and Advanced Level
ACCOUNTING 9706/12
Paper 1 Multiple Choice October/November 2017
1 hour
Additional Materials: Multiple Choice Answer Sheet
Soft clean eraser
*5624311206*
Soft pencil (type B or HB is recommended)
READ THESE INSTRUCTIONS FIRST
Write in soft pencil.

Do not use staples, paper clips, glue or correction fluid.
Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided
unless this has been done for you.
DO NOT WRITE IN ANY BARCODES.
There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.
Read the instructions on the Answer Sheet very carefully.
Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.
Calculators may be used.
This document consists of 10 printed pages and 2 blank pages.
IB17 11_9706_12/3RP
© UCLES 2017 [Turn over
Page 1
2
1 Which item is classed as revenue expenditure?
A installation costs of machinery

B legal fees on the purchase of premises
C number plates on a new motor vehicle
D redecorating office premises
2 What is the purpose of depreciation?
A to allocate the cost of the assets over their lives

B to improve liquidity ratios of the business
C to provide sufficient funds to replace the assets
D to show the assets at their market values
3 A company’s year end is 30 April. It purchases a factory in May 2014 at a cost of $200 000. The
factory will be depreciated over 20 years. A full year’s depreciation is charged in the year of
purchase.
In May 2017 the factory is revalued at $300 000.
How much should be included in the revaluation reserve account?
A $100 000 B $120 000 C $130 000 D $140 000
4 A business has a year end of 31 December. It purchased a non-current asset on 1 January 2014
for $100 000. It was depreciated using the reducing balance method at 20% per annum. It was
sold for $40 000 on 1 January 2016.
What was the loss on disposal?
A $20 000 B $24 000 C $40 000 D $60 000
5 Why does a business keep a sales ledger control account?
1 It helps deter fraud.

2 It helps with the preparation of financial statements.
3 It identifies doubtful debt easily.
4 It predicts the sales for the coming year.
A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4
© UCLES 2017 9706/12/O/N/17
Page 2
3
6 A sales ledger control account had a debit balance of $38 600. The total of individual sales ledger
debit balances was $36 500. The only errors found were as follows.
An irrecoverable debt had been recorded in the ledger of Smith but not the control account.
The sales journal was undercast by $1500.
A contra of $1750 had been correctly recorded in the control account but only $1250
recorded in the ledgers.
What was the value of the irrecoverable debt?
A $100 B $1100 C $3100 D $4100
7 The following information is available.
provision for doubtful debts at the beginning of the year 6 250

trade receivables at the end of the year 93 750
Provision for doubtful debts is to be maintained at 6% of trade receivables.
Which effect will the provision for doubtful debts have on profit for the year in the income
statement?
A decrease by $625
B decrease by $5625
C increase by $625
D increase by $5625
8 At 31 December the following information is available about a company’s banking transactions.
balance at bank per bank statement 22 650

uncleared deposits 3 110
unpresented cheques 6 290
bank credit recorded twice by bank in error 650
Which value for bank should be recorded in the statement of financial position at 31 December?
A $18 820 B $20 120 C $25 180 D $26 480
© UCLES 2017 9706/12/O/N/17 [Turn over

Page 3
4
9 Hedley has 100 items of inventory in his warehouse and five more with a customer on a sale or
return basis. He provides the following information.
$ per unit
historic cost paid 60

selling price 85
current replacement cost 65
Which value should appear in the statement of financial position for inventory?
A $6000 B $6300 C $6825 D $8500
10 A business does not keep complete accounting records. The following information is known for
the year.
capital at start 52 000

capital at end 55 000
drawings 13 000
capital introduced 25 000
What is the profit or loss for the year?
A loss $9000
B profit $9000
C loss $15 000
D profit $15 000
11 A business has 500 items of inventory at a cost price of $3 each. The selling price per unit is
based on a mark-up of 20%. Before sale, the items need to be repaired at a total cost of $400.
What is the net realisable value of the inventory?
A $1400 B $1475 C $2200 D $2275
© UCLES 2017 9706/12/O/N/17
Page 4
5
12 The following information is available for the year ended 31 December 2016.
revenue 75 000
purchases 32 000
carriage inwards 5 400
carriage outwards 4 500
inventory at 1 January 2016 6 300
inventory at 31 December 2016 7 600
What was the gross profit for the year ended 31 December 2016?
A $36 300 B $37 200 C $38 900 D $39 800
13 A partnership maintains capital accounts and current accounts.
Which statements are correct?
1 The capital accounts show the total amount owed to each partner.
2 The capital accounts represent the retained earnings of the business.
3 The capital and current accounts equal the net assets.
A 1 and 2 B 1 and 3 C 2 only D 3 only
14 X, Y and Z had been in partnership, sharing profits and losses in the ratio of 2 : 2 : 1.
On 1 January 2017, Y retired. The balances of his capital and current accounts were as shown.
capital account current account
$50 000 $6400 debit
Y took over a motor van at an agreed value of $3800. The net book value of the motor van was
$4800.
Goodwill was valued at $30 000.
The value of all other assets at 1 January 2017 would remain unchanged.
How much cash was Y entitled to when he retired?
A $51 400 B $51 800 C $55 200 D $64 200

Page 5
6
15 S and T are in partnership, sharing profits and losses in the ratio 2 : 1. The balances on their
capital accounts at 31 March 2017 were:
capital account S 40 000

capital account T 20 000
60 000
On 1 April 2017 the partners decide to change the profit-sharing ratio to 3 : 2. Goodwill is to be
valued at $30 000 and is not to be retained in the books of account.
What is the new balance of T’s capital account?
A $18 000 B $20 000 C $22 000 D $30 000
16 A partnership provides the following financial information for the year ended 30 June 2017.
profit from operations 240 000

bank interest payable 21 000
interest on capital 15 000
drawings 50 000
partnership salaries 45 000
What is the residual balance of profits to be appropriated between the partners?
A $109 000 B $154 000 C $159 000 D $204 000
17 Which accounting entry could record the issue of bonus shares?
debit credit
A bank share capital

B general reserve share capital
C general reserve share premium
D share capital general reserve
© UCLES 2017 9706/12/O/N/17
Page 6
7
18 From which accounts can a company pay dividends?
1 general reserve
2 retained earnings
3 revaluation reserve
4 share capital
19 A company provides the following data on 1 January 2016.
10% debentures (2020) 200 000

bank loan (2017) 130 000
bank loan (2018) 10 000
bank overdraft 24 000
What is the total value of non-current liabilities at 31 December 2016?
A $154 000 B $210 000 C $340 000 D $364 000
20 Calculation of which ratio does not include revenue?
A gross margin
B mark-up
C non-current asset turnover
D profit margin

Page 7
8
21 Bradshaw does not keep proper books of account. The following information is available for the
year.
cost of sales $750 000

mark-up 20%
cash sales $300 000
trade receivables $46 000
What are total sales and trade receivables turnover?
trade
total sales
receivables
$
turnover (days)
A 900 000 19
B 900 000 28
C 937 500 18
D 937 500 27
22 The financial statements of a company showed the following.
current liabilities 15 000

non-current liabilities 40 000
ordinary shares 120 000
general reserve 10 000
retained earnings 46 000
interest paid 11 000
Profit for the year was $23 000.
What was the return on capital employed?
A 10.65% B 13.07% C 15.74% D 19.32%
23 Which item is an indirect cost?
A carriage inwards
B production materials
C wages of machine operators
D wages of stores staff
© UCLES 2017 9706/12/O/N/17
Page 8
9
24 The following information is forecast for next period.
units
opening inventory 54 275

closing inventory 60 120
$
profit using marginal costing 300 600

profit using absorption costing 390 780
What is the overhead absorption rate per unit?
A $5.00 B $6.50 C $7.20 D $15.43
25 A business has total fixed costs of $240 000. Products have a unit selling price of $25 and a unit
variable cost of $15.
How many units need to be sold to break even?
A 6000 B 9600 C 16 000 D 24 000
26 The table contains information provided by a company.
budgeted direct labour hours 8000

actual direct labour hours worked 7500
budgeted overhead expenditure $104 000
actual overhead expenditure $112 500
What is the over or under recovery of overheads?
A $8500 over recovered

B $8500 under recovered
C $15 000 over recovered
D $15 000 under recovered

Page 9
10
27 The diagram illustrates the cost behaviour of a typical telephone invoice.
total cost
$
0 level of activity
Which term best describes the behaviour of this cost?
A fixed
B semi-variable
C stepped
D variable
28 Which statements about the limitations of marginal costing are correct?
1 Finance costs are not included in the manufacturing overheads.

2 Variable cost per unit changes at different levels of activity.
3 Some costs may be semi-variable costs.
A 1 and 2 B 1 only C 2 and 3 D 3 only
29 A product has a variable cost of $31.32 per unit. Total fixed costs are $93 600.
When production is 13 000 units the margin of safety is 5000 units.
What is the selling price per unit?
A $36.52 B $38.52 C $43.02 D $50.04
30 Why is planning important to a business?
1 to ensure that the business always makes a profit

2 to employ the correct number of workers
3 to reduce the risk of running out of inventory
© UCLES 2017 9706/12/O/N/17
Page 10

ACCOUNTING 9706/22
Paper 2 Structured Questions October/November 2017
1 hour 30 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
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 any diagrams or graphs or for rough working.
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.
IB17 11_9706_22/5RP
Page 11
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
Carriage outwards 1 090
63 440
Inventory at 1 April 2016 (21 640) 41 800
Gross profit 55 160
Less expenses:
Property rental paid 16 240
Returns inwards 1 240
Drawings 8 600
Heating and lighting 1 940
Travel expenses 2 060
General expenses 6 690
Shop fittings – accumulated depreciation at 31 March 2017 3 320
40 090
Profit for the year 15 070
Additional information
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
the books of account.
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.
REQUIRED
(a) Prepare the corrected income statement for the year ended 31 March 2017.
© UCLES 2017 9706/22/O/N/17
Page 12
4
Ross provided the following information about his assets and liabilities at 31 March 2017:
$
Accruals 1 960
Bank loan 8 580
Bank overdraft 2 610
Capital at 1 April 2016 10 950
Shop fittings – cost at 31 March 2017 11 930
Prepayments 2 080
Trade payables 6 440
Trade receivables 12 870
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
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.
© UCLES 2017 9706/22/O/N/17
Page 13
6
2 Trott provided the following information for the year ended 30 April 2017:
$
Sales ledger control account balance 93 185
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 $1825 had been written off in the sales ledger control account but
no entry had been made in the customer’s account.
REQUIRED
(a) Complete the following tables to update the sales ledger control account balance and the
sales ledger balances at 30 April 2017.
Sales ledger control account
Description Add ($) Less ($) Total ($)
Opening balance 93 185
© UCLES 2017 9706/22/O/N/17
Page 14
7
Sales ledger balances
Description Add ($) Less ($) Total ($)
Opening balance 78 370
[11]
(b) State four advantages to a business of preparing a sales ledger control account.
[4]
[Total: 15]

Page 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.
(b) Explain two accounting concepts which are being applied when depreciation is provided.
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.
Page 16
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]
© UCLES 2017 9706/22/O/N/17
Page 17
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]

Page 18
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 marks
(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.
(g) State three financial benefits of a system of budgetary control.
© UCLES 2017 9706/22/O/N/17
Page 19
ACCOUNTING 9706/32
3 hours

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.

Workings should be shown.
This document consists of 9 printed pages, 3 blank pages and 1 Insert.
IB17 11_9706_32/4RP
Page 20
2
Section A: Financial Accounting
1 The GT Boating Club is a not-for-profit organisation which collects funds by subscriptions paid
annually.
At 1 January 2016 the following assets and liabilities were held by the club:
$
Boathouse 240 000
Fixtures and fittings
Cost 15 000
Accumulated depreciation 10 000
Total inventory 1 100
Bank 6 150 debit
Insurance paid in advance 1 100
Electricity owing 450
Subscriptions in arrears 600
Subscriptions in advance 400
1 The club runs a restaurant for the exclusive use of members and their guests. During the
year ended 31 December 2016 the revenue of the restaurant was $45 000.
2 The opening restaurant inventory was 75% of the total club inventory. The closing restaurant
inventory had doubled at 31 December 2016.
3 During the year ended 31 December 2016 the club paid $28 350 for restaurant purchases.
All the club’s trade payables at 1 January 2016 related to the restaurant suppliers. This had
risen by 20% at 31 December 2016.
4 The club paid insurance for the year of $4800 and electricity of $2000. Half of these costs are
charged to the restaurant.
At 31 December 2016 the club still owed $950 for insurance.
REQUIRED
(a) Prepare a statement to calculate the restaurant profit for the year ended 31 December 2016.
The statement should also clearly show the gross profit. [10]
Another local boating club runs a similar restaurant. Its latest accounts showed that the
restaurant had achieved a gross margin of 45%.
REQUIRED
(b) (i) Calculate the difference between the gross margins of both restaurants. [2]
(ii) Discuss three actions which the club could take to improve the gross margin. [6]
© UCLES 2017 9706/32/O/N/17
Page 21
3
The club is now considering the introduction of a life membership subscription.
The annual subscription is $100 and the proposed life subscription would be $1000.
Gurmukh, a retired gentleman, is considering joining the club and seeks your advice on whether
or not he should pay an annual subscription or the life membership.
REQUIRED
(c) Explain the accounting treatment of the life subscriptions. [2]
(d) Advise Gurmukh whether or not he should become a life member. Justify your advice. [5]
[Total: 25]

Page 22
4
2 FS plc’s statement of financial position on 1 January 2016 showed the following:
$000
Ordinary share capital (shares of $1 each) 1000
Share premium 300
General reserve 100
Retained earnings 220
During the year ended 31 December 2016 the following took place:
1 On 30 June 2016, an interim dividend of $55 000 was paid.
2 On 1 October 2016, an issue of 700 000 ordinary shares was made at $1.80 per share. All
the funds raised from this share issue were used to buy a second factory on 7 January 2017.
3 On 1 November 2016, a bonus issue of shares was made with 3 new shares being issued for
every 10 held. Reserves were maintained in their most flexible form.
4 For the year ended 31 December 2016, the company made a profit from operations of
$288 000. Finance charges of $52 000 had been paid. The directors provided $41 000 for the
tax liability for the year.
5 At 31 December 2016, $40 000 was transferred to general reserve and a final dividend of
$75 000 was proposed.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 31 December 2016 (a total
column is not required). [12]
(b) Explain how the proposed final dividend should be treated in the financial statements for the
year ended 31 December 2016. [2]
(c) Explain the treatment in the financial statements for the year ended 31 December 2016 of
the purchase of the second factory on 7 January 2017. [3]
A shareholder at the Annual General Meeting said that the purchase of the new factory would
cause non-current asset turnover to fall, with an adverse effect on shareholder confidence.
REQUIRED
(d) Advise the directors whether or not they should be concerned about the shareholder’s
comment. Justify your answer. [5]
(e) State how an upward revaluation of an existing non-current asset is recorded in the financial
statements of a company. [3]
[Total: 25]
© UCLES 2017 9706/32/O/N/17
Page 23
5
3 LS Limited has completed its first year of trading. The company has four directors, of whom two
are not shareholders. The auditors are currently carrying out the end of year audit.
REQUIRED
(a) (i) Explain the term ‘stewardship’. [2]
(ii) Explain how directors carry out their role of stewardship within a limited company. [2]
(iii) Explain the purpose of an end of year audit. [2]
The draft financial statements for the year showed the following:
$
Sales 182 000
Sales returns 8 000
Purchases 154 000
Purchases returns 12 000
All sales were at a mark-up of 150%.
During the audit the auditors discovered that included in the sales records was a sales invoice for
$6000 which had been prepared for a customer but not yet been sent. The customer had
received the inventory on a sale or return basis, but had yet to decide whether or not to keep the
inventory.
REQUIRED
(b) (i) Calculate what should have been the value of the closing inventory. [5]
(ii) Calculate the gross profit for the year. [1]
During the year the warehouse manager had been absent from work for a long period of time.
There had been little control over the movement of inventory. Staff had valued the inventory
actually in the warehouse at the end of the year at $24 000.
REQUIRED
(c) Calculate the percentage change in gross profit if the inventory valuation from the warehouse
had been used. [3]
(d) Discuss three possible reasons for the difference between the warehouse inventory
valuation and the calculated value of inventory. [6]
(e) Discuss whether the directors should use the warehouse inventory valuation or the amount
from the accounting records as the inventory figure in the financial statements. Justify your
answer. [4]
[Total: 25]

Page 24
6
4 Summarised financial information for E Limited for the year ended 31 August 2016 is as follows:
Summarised Income Statement
$000
Revenue 8 800
Cost of sales 5 045
Gross profit 3 755
Expenses 2 175
Profit from operations 1 580
Finance costs 235
Summarised Statement of Financial Position
Assets $000
Non-current assets 4 815
Current assets 3 210
Total assets 8 025
3 000 000 ordinary shares of $0.50 each 1 500

Share premium 500
Retained earnings 2 540
4 540
Non-current liabilities – 8% debentures repayable 2020 2 935

Current liabilities – trade payables 550
8 025
1 The market value of one ordinary share at 31 August 2016 was $1.55.
2 Dividends paid for the year ended 31 August 2016 were $325 000.
REQUIRED
(a) Calculate the following ratios to two decimal places:
(i) income gearing
(ii) gearing
(iii) dividend cover
(iv) price earnings [5]
© UCLES 2017 9706/32/O/N/17
Page 25
7
The directors of E Limited had expansion plans and on 1 September 2016 raised $2 000 000 by
issuing 10% debentures repayable in 2026. The profit from operations for the year ended
31 August 2017 was $1 600 000 and the market price of one ordinary share on that date was
$1.30. Dividends paid for the year were $275 000.
REQUIRED
(b) (i) Prepare an extract from the income statement for the year ended 31 August 2017,
starting with the profit from operations. [2]
(ii) Prepare the equity and non-current liabilities section of statement of financial position at
31 August 2017. [2]
(c) (i) Calculate the same ratios as in part (a) at 31 August 2017 to two decimal places. [4]
(ii) Assess the effect of the new debenture issue on these ratios. [8]
(d) Discuss two disadvantages to the company of the issue of the debentures. [4]
[Total: 25]

Page 26
8
Section B: Cost and Management Accounting
5 Wong Ho owns a small factory. A machine has started to break down regularly and needs to be
replaced.
A replacement machine is expected to cost $55 000. It is expected to last 5 years and will be
depreciated using the straight-line method of depreciation. At the end of the period the machine
will be scrapped with no residual value.
The following information is available for the replacement machine:
1 The selling price for each unit produced by the machine is expected to be $40 for years
1 and 2.
This is expected to increase by 25% for year 3.
There is no expected change for year 4.
However, the selling price is expected to increase by a further 10% for year 5.
2 The cost of production for each unit produced is expected to be $20 for years 1 and 2. This
will increase by 25% for year 3 and then remain unchanged.
3 The present value for the net cash flows for the years 1 to 5 have been calculated as follows:
Year Discount factor 14% Present value $

1 0.877 3 683.40
2 0.769 6 536.50
3 0.675 9 483.75
4 0.592 14 977.60
5 0.519 21 019.50
REQUIRED
(a) Distinguish between the payback method of investment appraisal and the net present value
method. [4]
(b) Calculate the expected net present value for the replacement machine. [1]
(c) (i) Calculate the annual net cash flows for years 1 to 5 for the replacement machine. [5]
(ii) Calculate the payback period for the replacement machine. [2]
(iii) Calculate the number of units for each year that Wong Ho expects to produce with the
replacement machine. [8]
(d) Recommend whether or not Wong Ho should purchase the replacement machine. Justify
your answer. [5]
[Total: 25]
© UCLES 2017 9706/32/O/N/17
Page 27
9
6 J Limited sells a single product at a mark-up of 25%. The following information is available:
1 Sales revenue:
$
2017
November 150 000
December 180 000
2018
January 200 000
February 210 000
March 225 000
April 240 000
2 All sales are on credit and customers have a credit period of 2 months.
3 All purchases are on credit and suppliers are paid in the month following purchases.
4 Inventory level at the end of each month will be maintained at 25% of the sales volume in the
following month.
5 Monthly operating costs are expected to be $18 000, which includes $3000 depreciation.
6 Balance at bank at 1 January 2018 is expected to be $4500.
REQUIRED
(a) Prepare the cash budget for each of the three months from January to March 2018. [9]
(b) Prepare a budgeted income statement for the three-month period ending 31 March 2018. [3]
(c) Prepare a reconciliation of the profit from operations for the three-month period ending
31 March 2018 to the net cash at 31 March 2018. [8]
The directors are considering investing $60 000 in a new computer system to improve inventory
control. According to the payment terms, 50% is payable in March 2018 and the remaining
50% in the following month.
REQUIRED
(d) Advise the directors whether or not they should purchase the new computer. Justify your
answer. [5]
[Total: 25]
© UCLES 2017 9706/32/O/N/17
Page 28
ACCOUNTING 9706/12
Paper 1 Multiple Choice May/June 2018
1 hour
Soft clean eraser
*4820752289*

This document consists of 11 printed pages and 1 blank page.
IB18 06_9706_12/2RP
Page 29
2
1 The owner of a business has been told that work completed for a customer should be recorded in
the books of account although the invoice has not yet been sent to the customer.
Which accounting concepts are being applied?
1 matching
2 materiality
3 realisation
A 1 and 2 B 1 and 3 C 2 only D 2 and 3
2 Adam’s financial year ends on 31 December 2017.
On 1 January 2017 the net book value of machinery was $20 000.
On 30 June 2017 he purchased a new machine for $6000. He paid 50% of the cost in cash and
the balance by part exchange of an old machine, which had a net book value of $2500 on that
date.
He depreciates his machinery by 20% per annum on the net book value calculated on a time
basis.
What is the net book value of the machinery shown in the statement of financial position on
31 December 2017?
A $18 400 B $18 800 C $19 150 D $20 800
3 A business has an accounting year-end of 31 March. It purchased a car on 1 April 2014 for
$15 000. The car was sold on 30 September 2017 for $5000.
Depreciation is charged at 20% per annum. A full year’s depreciation is charged in the year of
purchase. No depreciation is charged in the year of sale.
What was the profit or loss on disposal?
A loss of $500
B loss of $1000
C profit of $500
D profit of $1000
© UCLES 2018 9706/12/M/J/18
Page 30
3
4 The accounting year-end for a company is 31 October.
The table shows the company’s telephone invoice received on 2 December for the three months
ended 30 November.
telephone calls to 30 November 1041

rental of equipment for the period from 1 September to 30 November 156
Which accrual should the company make in the financial statements for the year ended
31 October?
A $399 B $798 C $1093 D $1197
5 A business created a provision for doubtful debts at 31 December 2016. The provision was
calculated as a percentage of the trade receivables at each year end as follows.
trade provision for

year ended receivables doubtful debts
$ %
31 December 2016 32 500 10

31 December 2017 34 300 5
Which entry in the provision for doubtful debts account for the year ended 31 December 2017
was required?
A $1535 credit
B $1535 debit
C $1715 credit
D $1715 debit
6 Errors can exist in the preparation of both the sales ledger and the sales ledger control account.
Which error would require an adjustment in the sales ledger control account only to correct it?
A sales journal being overcast

B sales transaction amount originally entered incorrectly
C sales transaction omitted completely
D sales transaction recorded in wrong customer account
© UCLES 2018 9706/12/M/J/18 [Turn over

Page 31
4
7 The trial balance of a business did not balance. The following errors were found.
1 The total of the purchases journal of $33 030 had been posted to the purchases
account in the general ledger as $33 000.
2 Discount received of $50 had been entered on the debit side of the discount
received account.
What was the original balance on the suspense account?
A $20 credit
B $20 debit
C $70 credit
D $70 debit
8 The bank column of a cash book showed a credit balance of $5000. There were unpresented
cheques amounting to $1500. The bank statement showed bank charges, $700, which were not
recorded in the cash book.
What is the balance on the bank statement?
A $4200 credit
B $4200 debit
C $5800 credit
D $5800 debit
9 During the financial year a business paid $295 000 to its trade payables, after taking a cash
discount of $15 000.
At the start of the year the trade payables balance was $25 000. At the end of the year $32 000
was owed to trade payables.
What was the amount of credit purchases made during the year?
A $288 000 B $302 000 C $303 000 D $317 000
10 What would not result in goodwill?
A good reputation of a business

B selling high quality products
C selling products above market value
D skill of the workforce
© UCLES 2018 9706/12/M/J/18
Page 32
5
11 At the beginning of the financial year inventory was valued at $15 000. During the year, sales of
$21 000 and purchases of $18 000 were made. Unfortunately, all inventory was stolen on the last
day of the financial year.
Goods are marked up by 50% to calculate selling price.
What is the cost of the stolen inventory?
A $7500 B $11 000 C $19 000 D $22 500
12 A business does not keep complete accounting records. All transactions are in cash.
Which item will not be required in order to calculate the owner’s cash drawings?
A non-current assets purchased

B opening capital account
C purchases
D sales
13 The following summarised information has been taken from the statement of financial position of
a partnership.
non-current assets 42 000

capital accounts 36 000
current accounts (debit) 6 000
What is the value of current assets?
A $5000 B $6000 C $11 000 D $23 000

Page 33
6
14 X and Y had been in partnership for some years when Z was admitted as a partner.
On that date the premises account was debited with $120 000 following a revaluation.
Profits were shared equally both before and after Z’s admission.
What were the credit entries recording the revaluation?
A capital accounts X $40 000, Y $40 000, Z $40 000

B capital accounts X $60 000, Y $60 000
C current accounts X $40 000, Y $40 000, Z $40 000
D current accounts X $60 000, Y $60 000
15 Which company reserves may not be used to pay dividends?
1 general reserve
2 retained earnings
3 revaluation reserves
4 share premium
A 1, 2 and 3 B 1 and 2 only C 2 and 3 only D 3 and 4
16 A company issued 50 000 ordinary shares of $0.50 each at a price of $0.60 each.
What were the accounting entries for the issue?
debit $ credit $
A bank 30 000 share capital 25 000

share premium 5 000
B bank 25 000 share capital 30 000
share premium 5 000
C share capital 30 000 bank 30 000
D share capital 25 000 bank 30 000
share premium 5 000
© UCLES 2018 9706/12/M/J/18
Page 34
7
17 What could be used to fund a bonus issue of shares?
1 general reserve
2 retained earnings
3 share premium
A 1, 2 and 3
B 1 and 2 only
C 1 and 3 only
D 3 only
18 The following is an extract from an income statement.
revenue 180 000

costs of goods sold (75 000)
distribution costs (8 000)
administrative expenses (22 000)
debenture interest (2 500)
profit for the year 72 500
What was the operating expenses to revenue ratio?
A 16.7% B 18.1% C 58.3% D 59.7%

Page 35
8
$000
revenue 640
cost of sales 350
machinery at net book value 120
land and buildings at net book value 90
motor vehicles at net book value 20
current assets 50
equity 210
What was the non-current assets turnover?
A 1.26 times
B 2.29 times
C 2.78 times
D 3.05 times
20 A baker receives one order for 350 loaves of bread.
Which costing method will the baker use?
A absorption costing
B batch costing
C job costing
D unit costing
21 A business pays a salesman a basic salary, plus commission based on how much he sells.
Which type of cost is the salesman’s total earnings?
A fixed
B semi-variable
C stepped
D variable
© UCLES 2018 9706/12/M/J/18
Page 36
9
22 Which cost is treated as variable cost of a motor transport company?
A advertising
B driver insurance
C fuel
D vehicle licence
23 Adam is paid $4 per hour and his expected output is 500 units per week. He is also paid a bonus
$1 for every 20 perfect units made above the total of 500.
In one week he worked for 40 hours and made 880 units, but 40 were faulty and were scrapped.
How much was Adam paid for the week?
A $177 B $179 C $202 D $204
24 A business values their inventory using the AVCO method. The inventory on 1 June 2017 was
100 units valued at $2.40 each.
The following took place.
June 5 purchased 40 units at $2.50 per unit

7 sold 60 units at $3.50 per unit
What was the value of the inventory on 8 June 2017 to the nearest dollar?
A $194 B $196 C $200 D $224
25 The following budgeted information is available for a hotel for the next financial year.
fixed overheads $192 000

direct costs $240 000
number of guests 2400
average guest stay 4 nights
What is the overhead absorption rate per guest night?
A $20 B $45 C $80 D $180

Page 37
10
26 The costs of producing 1000 units of a product are as follows.
direct materials 20 000

direct labour 10 500
direct expenses 1 600
variable overheads 11 300
fixed overheads 7 500
The selling price is $60 per unit and 1000 units are sold.
What is the contribution to sales ratio?
A 15.17% B 27.67% C 30.33% D 46.50%
27 A business produces a single product. The following information is available for a month.
budgeted sales quantity 200 units

selling price per unit $40
variable cost per unit $24
budgeted monthly fixed costs $800
The business plans to rent a machine which will increase monthly fixed costs by $1200 to $2000
and reduce variable costs to $20 per unit.
What would be the effect of this on the margin of safety?
A decrease by 50 units
B decrease by 90 units
C increase by 50 units
D increase by 90 units
28 A business hires machinery at a cost of $700 per machine per month. Each machine can produce
1000 units a month. A maximum of 10 machines can fit into the factory. The factory rent is $4900
per month. Other costs amount to $2 per unit.
What is the unit cost if 8500 units are produced in a month?
A $3.19 B $3.23 C $3.28 D $3.32
© UCLES 2018 9706/12/M/J/18
Page 38
11
29 The direct material cost of 20 000 units is $8000. 400 direct labour hours are required at a cost of
$6000. Overheads are absorbed at 150% of the cost of direct labour.
What is the cost per unit?
A $0.40 B $0.70 C $0.85 D $1.15
30 Why might a business prepare a budget?
A to determine the amount of bank loan it needs

B to determine the skills of labour force
C to identify its market share
D to identify the quality of its products
© UCLES 2018 9706/12/M/J/18
Page 39

ACCOUNTING 9706/22
Paper 2 Structured Questions May/June 2018
1 hour 30 minutes
You may use an HB pencil for rough working.

This document consists of 16 printed pages.
IB18 06_9706_22/3RP
Page 40
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
Provision for depreciation 22 000
Operating expenses 28 390
© UCLES 2018 9706/22/M/J/18
Page 41
3
The following information is also available.
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]

Page 42
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]
© UCLES 2018 9706/22/M/J/18
Page 43
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.
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.

Page 44
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
Share premium 80 000
Revaluation reserve 40 000
357 500
The following information is available.
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.
(b) State two reasons why capital reserves may be used before revenue reserves to fund a
bonus issue of shares for a limited company.
(c) (i) State two benefits to a limited company of making a rights issue.
(ii) State one limitation to a limited company of making a rights issue.
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.

Page 45
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]
© UCLES 2018 9706/22/M/J/18
Page 46
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]

Page 47
13
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:
$
Rent and rates 86 000
Light and heat 48 000
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 –
Number of employees 23 5 5 2
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
Light and heat 48 000
Advertising 40 000
Equipment
60 000
depreciation
Office costs 150 000
Total apportioned
overheads
Reapportionment
of Support
Total
[8]

Page 48
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]
© UCLES 2018 9706/22/M/J/18
Page 49
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.
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.
(g) State two limitations to a company of operating a system of budgetary control.

Page 50
ACCOUNTING 9706/32
INSERT 3 hours



This Insert contains all of the required information and questions. The questions are provided in the Insert for
reference only.
Anything you write in this Insert will not be marked.
The businesses described in this Insert are entirely fictitious.
IB18 06_9706_32/6RP
Page 51
2
Question 1
Source A1
YGP Traders Limited has been trading for several years and has a year end of 31 December. It buys
and sells a single product and makes all its transactions on a credit basis. It has a large bank
overdraft and the directors are concerned about the working capital position of the business.
The following information is available for 2017:
1 Every month 1000 units were sold at a selling price of $80 each.
2 Payment for half of all credit sales was received in the month following sale. The other half
was received two months after sale.
3 The company purchased 14 000 units during the year.
4 The purchase price has been $50 per unit for some years.
5 At 31 December, 3500 units were in inventory.
6 Trade payables at the end of the year amounted to $62 000.
Answer the following questions in the Question Paper. Questions are printed here for
reference only.
(a) Calculate for 2017:
(i) revenue for the year [1]
(ii) cost of sales for the year [1]
(iii) trade receivables at the year end [1]
(iv) average inventory at cost price. [3]
(b) State what is measured by the working capital cycle. [2]
(c) Calculate the working capital cycle for the year. [7]
The directors of the business are considering a new strategy of increasing the selling price to
$90 per unit and offering 10% cash discount for payment in the month following sale. The
directors believe that demand will be unchanged and that all customers will take the discount
offered.
(d) Calculate a revised working capital cycle for 2017 if this strategy had been implemented from
the start of the year. [5]
(e) Advise the directors whether or not they should proceed with this strategy. Justify your
answer. [5]
[Total: 25]
© UCLES 2018 9706/32/INSERT/M/J/18
Page 52
4
Question 2
Source A2
The trial balance of N plc at 31 December 2017 was as follows:

$ $
Land and buildings
cost 600 000
provision for depreciation 1 January 2017 72 000
Equipment
cost 278 000
provision for depreciation 1 January 2017 112 000
Revenue 2 354 000
Purchases 1 322 000
Administrative expenses 674 000
Distribution costs 296 000
Finance charges 9 000
Inventory 1 January 2017 241 000
Cash and cash equivalent 62 000
Ordinary share capital 600 000
6% debentures (2021) 200 000
3 938 000 3 938 000
1 Revenue included a deposit of $6000 from a customer for the goods to be delivered in
March 2018.
2 Total inventory at 31 December 2017 cost $265 000. Of this the goods costing $24 600 had a
net realisable value of $18 800.
3 Land and buildings were acquired in 2008. On 1 January 2017 they were revalued at
$720 000 of which two-thirds was allocated to land and one-third to buildings. N plc had not
recorded this revaluation.
4 During the year, a new photocopier was purchased for $80 000. The purchase consideration
was settled by an exchange for a fully depreciated old photocopier with a trade-in value of
$10 000. The old photocopier had been purchased in 2011 for $40 000. The balance of the
purchase had been paid by cheque. N plc had recorded only the bank payment transaction.
There was no other purchase or sale of non-current asset during the year.
© UCLES 2018 9706/32/INSERT/M/J/18
Page 53
5
5 Depreciation is to be charged as follows:
Land Nil
Buildings over the useful life of 25 years
Equipment 25% per annum on cost
A full year’s depreciation is charged in the year of purchase and none in the year of disposal.
All depreciation charged is to be included in administrative expenses.
6 An interim dividend of $30 000 was paid on 1 October 2017 and included in administrative
expenses.
7 Interest for 3 months on the debentures had not been recorded.
reference only.
(a) Prepare the income statement for the year ended 31 December 2017. [15]
(b) Calculate the balance on the revaluation reserve account at 1 January 2017 following the
revaluation. [5]
There was a water leak in the company’s printing room in January 2018. This destroyed the new
photocopier which was not insured.
(c) State how this should be treated in both 2017 financial statements and 2018 financial
statements. [3]
(d) State what is meant by impairment loss in respect of non-current assets. [2]
[Total: 25]
© UCLES 2018 9706/32/INSERT/M/J/18 [Turn over

Page 54
8
Question 4
Source A4
Ephraim and Fikriyah are sole traders. They agreed to merge their two businesses into a partnership
on 1 October 2017 sharing profits and losses equally.
Ephraim and Fikriyah’s statements of financial position at 30 September 2017 were as follows:
Ephraim Fikriyah
$ $
Non-current assets 45 000 110 000
Current assets
Inventories 7 500 11 500
Trade receivables 9 000 15 500
Cash and cash equivalents 6 500 1 000
23 000 28 000
Total assets 68 000 138 000
Capital 60 000 120 000

Current liabilities
Trade payables 8 000 18 000
68 000 138 000
The agreed valuations for the merger were:
Ephraim Fikriyah
$ $
Non-current assets 55 000 115 000
Goodwill 10 000 6 000
All other assets and liabilities were transferred at their book value.
Goodwill was not to be retained in the books of account.
reference only.
(a) Prepare the opening statement of financial position for the partnership at 1 October 2017. [13]
The average annual profit earned by Ephraim for the past three years was $60 000.
The average annual profit earned by Fikriyah for the past three years was $40 000.
The budgeted profit for the partnership for its first year’s trading is expected to be $100 000. In
each of the following three years it is expected to be 10% less than the previous year. This is as a
result of the increasing competition.
(b) Discuss the benefits and limitations of the merger to each partner. Justify your answer using
both financial and non-financial factors. [12]
[Total: 25]
© UCLES 2018 9706/32/INSERT/M/J/18
Page 55
9
Question 5
Source B1
Jason is considering investing in building a property in order to receive rental income.

He could buy the land now (year 0) for $100 000. Construction costs of $180 000 would be paid in
year 1.
The building would have ten flats and each would have an annual rental of $5000. Jason thinks that
he could rent out flats as follows:
Year Number of flats rented out

1 Nil
2 7
3 8
4 10
Total annual maintenance and management charges for the flats would cost $12 000 plus 10% of the
rent received.
At the end of the year 4 he would sell the building. Jason has consulted two different property dealers,
Alan and Bob. Alan estimates the building could be sold for $290 000. Bob estimates it could be sold
for $315 000.
Jason’s cost of capital is 10%. The discount factors to be used to account for this are as follows.
Year 1 0.909
2 0.826
3 0.751
4 0.683
All cash flows are assumed to take place on the last day of the year.
reference only.
(a) (i) Calculate the net present value (NPV) of investing in the building, using Alan’s
estimation of the sale proceeds. [12]
(ii) Calculate the net present value (NPV) of investing in the building, using Bob’s estimation
of the sale proceeds. [3]
(b) Calculate the sales proceeds at the end of year 4 which would result in a net present value
(NPV) of zero. [3]
(c) Advise Jason whether or not he should proceed with investing in the building. Justify your
answer. [5]
(d) State two reasons why the calculation of the payback period is a less useful investment
appraisal technique than the calculation of net present value (NPV). [2]
[Total: 25]

Page 56
10
Question 6
Source B2
C Limited produces tables. Each table requires the following:
raw materials 3 metres of wood at $80 per metre

direct labour 12 hours at $30 per hour
fixed production overhead $10 per direct labour hour
Budgeted production is 5000 tables.
Actual production was 4800.
Actual production costs were:

$
direct materials 15 360 metres 1 190 400
direct labour 55 200 hours 1 766 400
fixed production overhead 579 600
All tables produced were sold.
reference only.
(a) State two limitations of a standard costing system. [2]
(b) Calculate the following variances:
(i) direct materials price
(ii) direct materials usage
(iii) direct labour rate
(iv) direct labour efficiency
(v) fixed overhead expenditure
(vi) fixed overhead volume [12]
(c) Prepare a statement reconciling the budgeted cost of producing 4800 tables with the actual
cost. [8]
The directors are considering using higher quality wood and increasing the selling price.
(d) Advise the directors whether or not they should make these changes. Justify your answer.
[3]
[Total: 25]
© UCLES 2018 9706/32/INSERT/M/J/18
Page 57
ACCOUNTING 9706/12
1 hour
Soft clean eraser
*5929436929*

IB18 11_9706_12/RP
Page 58
2
1 A company does not include in the financial statements the value of skills gained by its
employees from training programmes.
Which accounting concept is being applied?
A consistency
B materiality
C money measurement
D substance over form
2 Which non-current asset is most likely to be depreciated using the revaluation method?
A loose tools
B motor vehicles
C office equipment
D plant and machinery
3 A trader purchased a motor vehicle costing $36 000 on 1 July 2016. The estimated useful life of
the motor vehicle was five years and the estimated residual value was $6000. Depreciation is
provided on a month-by-month basis using the straight-line method.
The motor vehicle was sold on 31 March 2018 for $22 500.
What was the profit or loss on disposal of the motor vehicle?
A $900 loss B $900 profit C $3000 loss D $3000 profit
4 The following is an extract from the statement of financial position for a company at
31 December 2016.
accumulated
cost net book value
depreciation
$ $
$
non-current assets 250 000 95 000 155 000
The assets have a residual scrap value of $12 500.
The company’s policy is to provide depreciation using the reducing balance method at a rate of
25% per annum.
What was the depreciation charge for the year ended 31 December 2017?
A $35 625 B $38 750 C $59 375 D $62 500
© UCLES 2018 9706/12/O/N/18
Page 59
3
5 A business sells a non-current asset for cash. The disposal account includes entries for the cost
of the asset and the sales proceeds.
Which books of prime entry are used?
cost sales proceeds
A cash book general journal

B cash book sales journal
C general journal cash book
D purchases journal cash book
6 A trader has extracted the following information from his books of account at 31 March 2018.
purchase ledger balances at 1 March 2018 32 100

credit purchases for March 26 400
cheques paid to credit suppliers in March 29 700
contra to sales ledger 600
discount received 400
What was the closing balance on the purchases ledger control account at 31 March 2018?
A $27 800 B $29 800 C $29 000 D $34 400
7 The table shows extracts from a business’s bank reconciliation.
balance per cash book at 31 December 2075 debit

balance per bank statement at 31 December 2250 credit
bank charges per bank statement not entered in cash book 150
outstanding cheques not presented at the year end 325
What is the bank balance to be shown in the financial statements?
A $1600 B $1925 C $2075 D $2225

Page 60
4
8 Bank interest income, $1800, had been correctly entered in the bank account but recorded as
interest expense.
Which entries in the ledger will correct the error?
account to account to
$ $
be debited be credited
A interest expense 1800 suspense 1800

B interest income 1800 suspense 1800
interest expense 1800
C suspense 1800 interest income 1800

D suspense 3600 interest income 1800
interest expense 1800
9 A company has the following balances.
trade receivables at 31 December 2017 125 400

provision for doubtful debts at 1 January 2017 1 800
During the year ended 31 December 2017 debts of $20 500 had been written off. The company
provides for doubtful debts at a rate of 5% of trade receivables at each year end.
Which expense for doubtful debts was included in the income statement for the year ended
31 December 2017?
A $3445 B $4470 C $5245 D $6270
10 How are purchases calculated when proper accounting records have not been kept?
A sales × (1 – margin) – closing inventory + opening inventory
B sales × (1 – margin) + closing inventory – opening inventory
C sales × (1 – mark-up) – closing inventory + opening inventory
D sales × (1 – mark-up) + closing inventory – opening inventory
11 The draft financial statements for a business included an inventory valued at $550 000.
This valuation included damaged items which originally cost $50 000. These could be sold for
$15 000 provided that $5000 is spent on repairs.
What is the correct inventory valuation?
A $490 000 B $500 000 C $510 000 D $515 000
© UCLES 2018 9706/12/O/N/18
Page 61
5
12 A trader took out a 6% bank loan of $30 000 on 1 November 2017, to be repaid in full in 10 years’
time. Interest is to be paid annually. No interest had been paid by 30 April 2018.
How should this be recorded in the statement of financial position at 30 April 2018?
current non-current
liabilities liabilities
$ $
A 0 30 000
B 900 30 000
C 1 800 30 000
D 30 900 0
13 Which items would not be in the appropriation account for a partnership?
1 interest on capital
2 interest on a partner’s loan
3 share of profit on revaluation of assets
4 share of residual profit
14 X and Y had been in partnership sharing profit and losses in the ratio of 1 : 2 respectively.
Z was later admitted to the partnership.
It was agreed that the goodwill is valued at $120 000. No goodwill account is to be retained in the
books of account.
Profit and losses were to be shared between X, Y and Z in the ratio of 2 : 1 : 1 respectively.
What was the effect of the goodwill adjustment in X’s capital account?
A decreased by $20 000

B decreased by $60 000
C increased by $20 000
D increased by $60 000

Page 62
6
15 J and K shared profits equally.
Their capital account balances were J $400 000 and K $160 000.
L was admitted as a partner. The three partners then shared profits equally.
On admission of L as a partner, assets were increased in value by $210 000. L paid in capital
equal to the average new capital balances of J and K.
What was the capital paid in by L?
A $175 000 B $280 000 C $350 000 D $385 000
16 The statement of financial position of a business on 31 December 2017 showed the following.

general reserves 28 000
share premium 55 000
During the year ended 31 December 2017 the business had made a profit for the year of $25 000
and had transferred $10 000 to the general reserve.
What was the total of revenue reserves on 1 January 2017?
A $101 000 B $139 000 C $149 000 D $194 000
17 A company provides the following information.
ordinary shares of $0.50 each 84 000

134 000
The following transactions then take place.
1 The company makes a rights issue of one new ordinary share for every two held, at
$1.30. The issue was fully subscribed.
2 A bonus issue of two new ordinary shares for every three held was then made.
What is the maximum possible balance of the retained earnings after these transactions?
A $8400 B $16 800 C $33 200 D $41 600
© UCLES 2018 9706/12/O/N/18
Page 63
7
18 The financial data relates to two businesses.
X Y
trade receivable turnover (days) 90 40

trade payable turnover (days) 50 70
liquid (acid test) ratio 3:1 1:1
current ratio 4.5 : 1 6.2 : 1
Which statement about the comparison of the two businesses’ performance is correct?
A X has better credit control system.

B X has higher profitability.
C Y has better credit control system.
D Y has higher profitability.
19 A company’s financial statements show the following.
profit before interest 125 378

200 000 ordinary shares $1 each 200 000
debentures 150 000
What is the return on capital employed (ROCE)?
A 22.22% B 23.13% C 30.72% D 31.99%
20 A company’s income statement shows the following.
revenue 460 000

cost of sales 120 000
administration expenses 54 000
distribution costs 47 000
finance charges 7 000
What is the operating expenses to revenue ratio?
A 21.96% B 23.48% C 48.04% D 49.57%

Page 64
8
21 To make a single unit of output a business requires material costing $1000.
When 20 items are produced, the total cost of the material is $20 000.
What best describes this cost?
A fixed cost
B semi variable cost
C stepped cost
D variable cost
22 A business has the following total overheads for two different output levels.
total overheads output

$ (units)
200 000 20 000

216 000 30 000
What is the total fixed overhead cost?
A $16 000 B $48 000 C $168 000 D $216 000
23 A retailer uses the FIFO method for inventory valuation. The following information is available.
June $
1 opening inventory 300 units at $12 per unit 3 600

10 purchased 1000 units at $12.50 per unit 12 500
21 sold 1200 units for $16 each 19 200
28 purchased 700 units at $13 per unit 9 100
What was the value of the inventory at 30 June?
A $6000 B $9850 C $10 080 D $10 350
© UCLES 2018 9706/12/O/N/18
Page 65
9
24 A business manufactures 175 units of a product each month.
The following information is available for the month.
Per unit $
revenue 580
variable costs 230
fixed overheads 90
What is the break-even point in units?
A 45 units B 61 units C 88 units D 160 units
25 When is marginal costing less useful than absorption costing?
A when choosing to make or buy a product

B when dealing with a limiting factor
C when producing a special order
D when valuing closing inventory
26 A company manufactures a single product with a selling price of $75 per unit. The table shows
the costs based on sales and production volume of 8000 units.
direct costs 158 000

variable manufacturing overheads 74 000
fixed manufacturing overheads 80 000
variable selling overheads 20 000
fixed administration overheads 100 000
If absorption costing is applied, what is the gross profit on each unit sold?
A $21.00 B $36.00 C $43.50 D $46.00

Page 66
10
27 A company has the following revenue information for a month.
actual revenue 510 000

break-even revenue 555 000
budgeted revenue 570 000
What was its margin of safety during the month?
A –$60 000
B –$45 000
C +$45 000
D +$60 000
28 A business provides the following information.
budgeted overhead costs $280 000

budgeted labour hours 25 000
budgeted machine hours 20 000
actual overhead cost $336 000
actual labour hours 35 000
actual machine hours 30 000
What is the over-absorption or under-absorption of overheads?
A $56 000 over absorbed

B $56 000 under absorbed
C $84 000 over absorbed
D $84 000 under absorbed
29 A business provides the following budgeted information.
contribution to sales ratio 60%

budgeted sales $240 000
budgeted production units 40 000
What is the contribution per unit?
A $3.60 B $3.75 C $9.60 D $10.00
© UCLES 2018 9706/12/O/N/18
Page 67

ACCOUNTING 9706/22
1 hour 30 minutes

IB18 11_9706_22/5RP
Page 68
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
To credit suppliers 65 100
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
Page 69
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]

Page 70
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.
REQUIRED
(e) Prepare the income statement for the year ended 31 December 2017.
© UCLES 2018 9706/22/O/N/18
Page 71
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
Total assets 113 100
Capital and liabilities
Capital accounts
Jack 33 000
Kelly 71 000
Current liabilities 9 100
Total capital and liabilities 113 100
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.
(b) State what is meant by the term ‘goodwill’.

(c) Explain why a partnership may make an adjustment for goodwill when they admit a new
partner.
(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.
© UCLES 2018 9706/22/O/N/18
Page 72
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]

Page 73
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
Page 74
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
was fully subscribed.
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]
(c) State the journal entry required to record a revaluation increase in the value of a non-current
asset.

Page 75
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%.

Page 76
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
Page 77
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]
(h) Advise the directors whether or not they should proceed with the expansion of the factory.
Justify your answer.

Page 78
ACCOUNTING 9706/32
INSERT 3 hours



reference only.
IB18 11_9706_32/6RP
Page 79
2
Question 1
Source A1
It is considered useful for a business to record all its manufacturing costs separately in a
manufacturing account.
reference only.
(a) State three reasons why it is useful to a business to record its manufacturing costs in this
way. [3]
HT Limited is a manufacturing business that makes a single product. It provided the following
information.
1 Factory profit had been accounted for at 20% on cost for some years.
2 The company earned a uniform gross margin of 40%.
3 Sales for the year ended 31 December 2017 amounted to $800 000.
4 The provision for unrealised profit account for the year ended 31 December 2017 was as
follows:
Provision for unrealised profit account
2017 $ 2017 $
Dec 31 Balance c/d 12 000 Jan 1 Balance b/d 10 000
Dec 31 Income statement 2 000
12 000 12 000
2018
Jan 1 Balance b/d 12 000
(b) Prepare the trading account section of the income statement of the company for the year
ended 31 December 2017. [5]
The following information was also available for the year ended 31 December 2017.
1 Prime costs were $250 000.
2 The value of work in progress decreased by $10 000.
© UCLES 2018 9706/32/INSERT/O/N/18
Page 80
3
(c) Prepare a summarised manufacturing account for the year ended 31 December 2017. This
account should include a total for factory overheads. [6]
Administrative expenses and distribution costs were $148 000 and $72 000 respectively.
(d) Prepare a statement to calculate the profit for the year ended 31 December 2017. [6]
The machinery in the factory is depreciated at the rate of 25% per annum using the reducing
balance method. It currently has a net book value of $85 000.
The directors are considering replacing all the old machinery with new machinery costing
$160 000. The new machinery, if purchased, would cause direct labour costs to fall by $14 000 a
year.
(e) Advise the directors whether or not they should proceed with the purchase of the new
machinery. Justify your answer. [5]
[Total: 25]
© UCLES 2018 9706/32/INSERT/O/N/18 [Turn over

Page 81
4
Question 2
Source A2
R plc has the year end of 30 September.
The directors have provided the following information before preparing the financial statements.
1 For the year ended 30 September 2017
$
Carriage inwards 6 320
Inventory at 1 October 2016 426 750
Provision for doubtful debts at 1 October 2016 12 150
Purchases 2 150 000
Returns outwards 19 750
Sales revenue 3 832 500
2 Inventory was valued at cost of $462 350 on 30 September 2017. This included inventory costing
$85 000. This can now only be sold for $33 500.
3 The provision for doubtful debts was to remain at 2% of trade receivables. Any change in the
provision is to be treated as an administrative expense.
4 A bank loan of $600 000 was taken on 1 May 2017. The agreed fixed rate of interest payable on
the loan was 4% per annum. No capital repayments will be made on the loan for 5 years.
5 The taxation charge for the year was $162 600.
6 All sales are made on credit.
reference only.
(a) Explain what is meant by a ‘non-adjusting event’. [2]
(b) Prepare the income statement for the year ended 30 September 2017. [13]
Sales for the year ended 30 September 2016 were $4 500 000.
The industry average for the trade receivables collection period is 35 days.
(c) Calculate the percentage change in trade receivables during the year ended
30 September 2017. [3]
(d) (i) Calculate the trade receivables collection period for both years. [2]
(ii) Advise the directors whether or not their present credit control procedures are
satisfactory. Justify your answer. [5]
© UCLES 2018 9706/32/INSERT/O/N/18
Page 82
7
Question 4
Source A4
The equity and reserves of J plc at 31 December 2017 were as follows:

$
Ordinary shares of $2 each 800 000
General reserve 50 000
922 000
1 Equity and reserves at 1 January 2017 were $838 000.
2 On 1 January 2017, J plc issued a 10% debenture (202224) of $100 000.
3 On 1 August 2017, an interim dividend of $0.12 per share was paid.
4 On 31 December 2017, the general reserve was created.
5 On 31 December 2017, a final dividend of $0.03 per share was proposed.
6 The market price of each share at 31 December 2017 was $3.00.
7 There was no issue of ordinary shares during the year ended 31 December 2017.
reference only.
(a) Prepare the statement of changes in equity for the year ended 31 December 2017. A total
column is not required. [5]
(b) Calculate the following ratios:
(i) earnings per share [1]
(ii) price earnings ratio [1]
(iii) dividend yield [1]
(iv) dividend cover [1]
(v) return on capital employed. [2]

Page 83
8
The following industry averages have been provided for the year ended 31 December 2017:
price earnings ratio 7

earnings per share $0.20
dividend cover 1.50
return on capital employed 12%
(c) Analyse the performance of J plc with reference to industry averages. Suggest reasons for
the differences. [9]
The directors of J plc are planning to expand the business in 2018. This will require an
investment of $300 000 and generate an additional annual profit of $80 000. The directors are
considering taking an 8% loan to fully finance this expansion.
(d) Advise the directors whether or not the company should take the loan. Justify your answer
with reference to the impact on the company’s return on capital employed and any other
relevant information.
[5]
[Total: 25]
© UCLES 2018 9706/32/INSERT/O/N/18
Page 84
9
Question 5
Source B1
F Limited was planning to introduce two new products, Product X and Product Y.
The relevant data were as follows.
Product X Product Y
units to be produced and sold each month 4000 1000
direct labour per unit 2 hours 4.8 hours
at $8 per hour at $10 per
hour
direct materials per unit 5 kilos 6 kilos
at $1.50 per at $4 per kilo
kilo
average number of hours to be worked by each production 200 hours 120 hours
worker per month
average number of kilos of direct material in each order to 4000 kilos 1500 kilos
be placed by the purchasing department
selling and distribution costs to be incurred by each product $19 200 $6400
Total factory overheads arising from the introduction of Product X and Product Y are expected to be:
$
purchasing costs of direct material 9 360
employment overheads for direct labour 10 080
other factory overheads 42 000
61 440
The directors’ policy is to set a selling price based on a mark-up of 50% on total cost per unit.
The directors asked two employees, Abdul and Brian, each to prepare a calculation of the selling
price which should be set.
Abdul decided to apportion the purchasing costs of direct material on the basis of the number of kilos
purchased, and to apportion the employment overheads for direct labour on the basis of hours
worked.
Abdul decided to apportion other factory overheads on the basis of units produced.
reference only.
(a) Prepare a statement to work out the proposed selling price per unit for both Product X and
Product Y as calculated by Abdul. [11]

Page 85
10
Brian decided to apportion the purchasing costs of direct material on the basis of the number of
orders being made, and to apportion the employment overheads for direct labour on the number
of employees working in production.
Brian also decided to apportion other factory overheads on the basis of units produced.
(b) Prepare a statement to work out the proposed selling price per unit for both Product X and
Product Y as calculated by Brian. [9]
(c) Explain to the directors how to proceed with the setting of the selling price. Support your
answer with reference to your calculations in parts (a) and (b) together with any other factors.
[4]
(d) State one reason why selling and distribution costs are not included in a valuation of
inventory suitable for inclusion in a statement of financial position. [1]
[Total: 25]
© UCLES 2018 9706/32/INSERT/O/N/18
Page 86
11
Question 6
Source B2
Stanley has been operating as a sole trader for many years with a year end of 31 December. He is
preparing a cash budget and provides the following information for the three-month period from
July 2019 to September 2019.
1 Total income of $120 000 from trade receivables for credit sales will be collected in equal
amounts over the three-month period.
2 Cash sales are expected to be 25% of the cash collected each month from credit sales.
There will be no trade receivables at 1 July 2019.
3 Total credit purchases of $75 000 will be paid for in equal amounts over the three-month
period.
4 Cash purchases are expected to be 20% of the cash paid each month for credit purchases.
There will be no trade payables at 1 July 2019.
5 The bank balance on 1 July 2019 is expected to be $3500.
6 Stanley is expected to receive a bank loan of $30 000 on 1 August 2019. Interest will be
payable monthly in arrears at 5% per annum. No capital will be repaid until July 2020.
7 New machinery costing $60 000 will be purchased by cheque on 15 August 2019. Stanley’s
policy is to depreciate machinery at 25% per annum using the straight-line method. A full
year’s depreciation is charged in the year of acquisition.
8 Stanley rents part of his business premises for $6000 per annum and receives this rental
income on a monthly basis.
9 General expenses are paid for in the month following that in which they are incurred. General
expenses incurred in June amounted to $6000. These are expected to increase by 5% in
July 2019 and a further 5% in August 2019.
10 Stanley makes annual cash drawings of $15 000 in equal instalments on 1 January and
1 July each year.
reference only.
(a) Explain three advantages of preparing a cash budget. [6]
(b) Prepare the cash budget for each of the three months beginning on 1 July 2019. [14]
Stanley has calculated the payback period for the new machine as 4 years. He has been advised
to evaluate his purchase using the net present value (NPV) method.
(c) Discuss how the NPV method might give Stanley a more accurate evaluation compared to
the payback method. [5]
[Total: 25]
© UCLES 2018 9706/32/INSERT/O/N/18
Page 87
Cambridge Assessment International Education
ACCOUNTING 9706/12
Paper 1 Multiple Choice February/March 2019
1 hour
Soft clean eraser
*9372618279*

Write your name, centre number and candidate number on the Answer Sheet in the spaces provided
IB19 03_9706_12/3RP
Page 88
2
1 An item is included in the financial statements because it affects their interpretation.
Which accounting concept is being applied?
A consistency
B materiality
C money measurement
2 Why is depreciation provided on non-current assets?
A so that the cost is allocated to periods that benefit from them

B so that the business entity concept is applied
C so that there is enough cash in the business to replace them
D so that they are shown at market value
3 A company purchased an asset costing $100 000. It had a life of five years and an estimated
residual value of $20 000. The company uses straight-line depreciation.
The asset was sold for $5000 at the end of the five-year period.
What is the total effect on year five profits from both depreciating and selling the asset?
amount of
expense
$
A 1000
B 15 000
C 16 000
D 31 000
© UCLES 2019 9706/12/F/M/19
Page 89
3
cheque paid in 2018 for equipment bought in 2017 15 000

equipment purchased on credit in 2018 42 000
net book value of equipment at 1 January 2018 83 000
net book value of equipment at 31 December 2018 67 000
What was the depreciation charge in the income statement for the year ended
31 December 2018?
A $16 000 B $31 000 C $43 000 D $58 000
5 Daphne buys a non-current asset for $10 000. It has an estimated life of two years and a scrap
value of $2000. She is considering whether to depreciate it using the straight-line method or to
use the reducing balance method at a rate of 60% per annum.
1 The profit for the year in Year 1 is higher if the reducing balance method is chosen.
2 The profit for the year in Year 1 is higher if the straight-line method is chosen.
3 The profit on disposal at the end of Year 2 is higher if the reducing balance method
is chosen.
4 The profit on disposal at the end of Year 2 is higher if the straight-line method is
chosen.
6 What is not a purpose of control accounts?
A to assist in the preparation of financial statements

B to identify all errors where the trial balance agrees
C to provide a total for trade receivables and trade payables
D to verify the accuracy of the individual ledger accounts
7 The balance on a sales ledger control account was $21 500. This did not agree with the total of
the sales ledger account balances.
It was discovered that a credit note for $200 sent to a credit customer had been posted to the
debit of the customer’s account.
What was the total of balances in the business’s sales ledger before the error was corrected?
A $21 100 B $21 300 C $21 700 D $21 900
© UCLES 2019 9706/12/F/M/19 [Turn over

Page 90
4
8 During the month of June, a business recorded the following information.
payments to credit suppliers during June 16 380

credit purchases for June 21 650
discount received 850
purchases ledger balances at the start of June 5 730
purchases returns during June 1 200
What was the purchases ledger control account balance at the end of June?
A $8950 B $10 650 C $15 570 D $27 380
9 A business paid an annual rent of $24 000. At 1 January 2018 there was accrued rent of $4000.
Rental payments were as follows.
1 January 2018 12 000

1 July 2018 10 000
1 September 2018 13 000
How was rent recorded in the financial statements at 31 December 2018?
income statement other receivables other payables

$ $ $
A 24 000 7 000 nil

B 24 000 nil 7 000
C 35 000 11 000 nil
D 35 000 nil 11 000
10 At the year-end, a business has some damaged goods in inventory. The following information is
available.
1 The goods were purchased for $8500.

2 If the goods are repaired, they can be sold for $10 400. The business will have to
pay $2000 repairing cost and pay $300 to a salesman.
3 The same quantity of damaged goods can be purchased from the supplier for
$8200.
What is the value of the damaged goods at the year-end?
A $8100 B $8200 C $8400 D $8500
© UCLES 2019 9706/12/F/M/19
Page 91
5
11 A company undervalued the closing inventory for its current accounting period.
How did this affect gross profit?
current period following period
A no effect no effect
B understated overstated
C understated no effect
D understated understated
12 For the year ended 31 December 2018, Sim’s net assets increased by $1210.
The following transactions took place during 2018.
1 Payments out of Sim’s personal bank account: rent for business office $3600, rent
for personal residence $2000.
2 Drawing of goods: with a cost $6200 and sales value $7700.
3 Drawing of cash: $9750.
What was the profit for the year ended 31 December 2018?
A $11 560 B $13 560 C $15 060 D $15 160
13 Meena was a sole trader. On 1 July 2018, Hanna entered into a partnership with her sharing
profits equally.
Profit for the year ended 31 December 2018 was $168 000 accruing evenly over the year. An
irrecoverable debt of $8000 was incurred during March 2018 and it was agreed that this would be
paid for by Meena.
What is Hanna’s share of profit?
A $40 000 B $42 000 C $44 000 D $46 000

Page 92
6
14 Z is admitted as a new partner in the partnership of X and Y. He brings the following into the
business.
cash 20 000
inventory 6 000
vehicle 11 000
Interest on capital is calculated at 10% per annum. There is no goodwill on Z’s admission.
What is Z’s interest on capital per annum?
A $1700 B $2000 C $3100 D $3700
15 L and M are in partnership sharing the profits equally. No goodwill account is maintained in the
accounts. N joins the partnership and pays $30 000 cash for his share of the goodwill.
Profits are to be shared equally between L, M and N.
What are the increases in the capital accounts on the admission of N into the partnership?
capital accounts
L M N
$ $ $
A 10 000 10 000 10 000

B – – 30 000
C 15 000 15 000 –
D – – –
16 During the year a business issued $1 ordinary shares at $1.20 each. The directors proposed a
final dividend at the end of the year.
Which balances in the statement of changes in equity were affected by these transactions?
ordinary share general retained

share capital premium reserve earnings
A
B
C
D
© UCLES 2019 9706/12/F/M/19
Page 93
7
17 A company has ordinary share capital of $250 000. The ordinary shares have a nominal value of
$0.25 each.
A rights issue is made on the basis of 2 shares for every 5 shares held at a premium of $0.15.
What is the total amount of capital raised from the rights issue of shares?
A $15 000 B $40 000 C $60 000 D $160 000
18 A shareholder sells some shares for less than he paid for them.
What happens to the share capital of the company?
A decreases by the nominal value of the shares sold

B decreases by the sales proceeds of the shares sold
C increases by the amount received from the sale of the shares
D remains the same as before
19 Which item would result in a decrease in the expenses to revenue ratio?
A accrual for telephone

B increase in provision for doubtful debts
C prepayment for rent and rates
D the return of goods sold
20 A company provided the following information.

interest paid 12 000
share capital 250 000
total reserves 129 000
5% debentures 60 000
What was the return on capital employed (ROCE) to two decimal places?
A 22.10% B 24.83% C 25.59% D 28.76%

Page 94
8
21 A business provided the following information.
budgeted overheads $127 000

budgeted machine hours 10 450
actual overheads $149 000
actual machine hours 9 300
What was the absorption rate per machine hour?
A $12.15 B $13.66 C $14.26 D $16.02
22 Which costs are stepped costs?
1 Increase in indirect materials cost.

2 Increase in variable overheads.
3 Renting further factory space.
23 An employee worked a normal 35-hour week and was paid $15 per hour. He also worked 5 hours
of overtime which was paid at $20 per hour and received a bonus of $50.
What was his total pay for the week?
A $525 B $600 C $625 D $675
24 A company uses machine hours to absorb its overheads.
The following information is provided for a month.
actual budgeted
overheads $237 010 $253 450

machine hours 12 460 13 700
Which statement regarding overheads is correct?
A $6500 over-absorbed
B $6500 under-absorbed
C $16 440 over-absorbed
D $16 440 under-absorbed
© UCLES 2019 9706/12/F/M/19
Page 95
9
25 Which line represents total variable cost?
$
B
C
D
O output
26 The following information is available in respect of a product.
per unit $
selling price 25
variable costs 15
contribution 10
Production is 50 000 units.
The fixed costs are $300 000. The margin of safety is 20 000 units.
The directors propose to increase the unit selling price by 10%.
What will be the percentage increase in the margin of safety?
A 13.6% B 20% C 30% D 36.4%
27 A company makes a single product and sells it for $12 per batch.
The variable cost is $4 per batch.
Fixed costs have been absorbed based on a normal activity level of 1000 batches at
$3 per batch.
What is the profit under marginal costing if the company makes and sells 1500 batches?
A $6000 B $7500 C $9000 D $12 000

Page 96
10
28 The following information relates to one unit of a product.
per unit $
selling price 20
marginal cost 8
fixed costs 5
What is its contribution to sales ratio?
A 35% B 40% C 60% D 65%
29 The budgeted information for one month is shown.
units sales 20 000

selling price per unit $12
variable cost per unit $3
fixed costs $50 000
It is expected that the number of units sold will increase by 10%.
Fixed costs will increase by 5%.
What is the increase in profit as a result of these changes?
A $15 500 B $18 000 C $20 500 D $21 500
30 What are the disadvantages of budgetary control systems?
1 Budget holders can be blamed for uncontrollable adverse outcomes.

2 Only financial outcomes are measured and considered.
3 Rigid decision-making often occurs.
© UCLES 2019 9706/12/F/M/19
Page 97

ACCOUNTING 9706/22
Paper 2 Structured Questions February/March 2019
1 hour 30 minutes
Write your centre number, candidate number and name on all the work you hand in.

IB19 03_9706_22/5RP
Page 98
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
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
(a) Prepare the income statement for the year ended 30 September 2018.
© UCLES 2019 9706/22/F/M/19
Page 99
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:
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.
© UCLES 2019 9706/22/F/M/19
Page 100
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]
(e) State three ways in which a business could reduce trade receivables turnover.
(f) State three drawbacks of increasing trade payables turnover.
© UCLES 2019 9706/22/F/M/19
Page 101
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]

Page 102
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
Motor vehicles 22 000
67 200
Current assets
Inventory 20 600
63 400

Capital accounts
Mira 45 500
Sasha 42 800
Peta 14 000
102 300
Current liabilities
28 300
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.
(b) Prepare the partnership realisation account.
(c) Prepare, on the next page, the partners’ capital accounts on dissolution.
(d) Prepare the final bank account to show the closure of the partnership.
(e) Suggest two reasons why the trade receivables did not pay the full amount they owed.
© UCLES 2019 9706/22/F/M/19
Page 103
14
3 Noor, a sole trader, was preparing her business’s financial statements for the year ended
31 December 2018.
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
Page 104
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]

Page 105
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
Page 106
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]

Page 107
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:
(c) Advise the directors which option they should choose. Justify your answer using both
financial and non-financial factors.
(d) Explain how unit contribution can be used by a business manufacturing multiple products
when there is a shortage of production materials.
(e) State two other uses of marginal costing to a business.

[9]
© UCLES 2019 9706/22/F/M/19
Page 108
ACCOUNTING 9706/32
INSERT
3 hours

reference only.
IB19 03_9706_32/4RP
Page 109
2
Question 1
Source A1
The following information is available for a Club.
At 1 July 2017
$
Clubhouse at cost 300 000
Accumulated depreciation on clubhouse 156 000
Equipment at cost 140 000
Accumulated depreciation on equipment 64 000
Subscriptions in arrears 7 000
Subscriptions in advance 3 400
Accumulated fund 194 000
For the year ended 30 June 2018

$
Operating expenses 192 000
Staff salaries 326 000
Subscriptions received 544 000
Restaurant profit 12 600
At 30 June 2018
$
Restaurant inventory 23 400
Restaurant trade payables 12 100
Loan from a club member (repayable 2022) 10 000
Cash and cash equivalents 7 700
Subscriptions in advance 2 400
1 Depreciation is charged as follows:

clubhouse at 4% per annum using the straight-line method
equipment at 15% per annum using the reducing balance method
2 Accrued restaurant wages, $3300, had not been accounted for.
3 The loan from the club member was received on 1 January 2018. Interest is to be paid at 10%
per annum. No interest has yet been paid.
© UCLES 2019 9706/32/INSERT/F/M/19
Page 110
3
reference only.
(a) Prepare the income and expenditure account for the year ended 30 June 2018. [7]
(b) State two differences between an income and expenditure account and a receipts and
payments account. [2]
(c) Prepare the statement of financial position at 30 June 2018. [7]
At 1 July 2017 the following balances for the restaurant were available.
$
Inventory 15 700
(d) Calculate the restaurant cash surplus or deficit for the year ended 30 June 2018. [4]
The club plans to improve the clubhouse next year at a cost of $50 000. The chairman is
considering financing the improvement by either members’ loans or taking a bank loan.
(e) Evaluate whether the club should finance the improvement by members’ loans or take a
bank loan. Justify your answer. [5]
[Total: 25]
© UCLES 2019 9706/32/INSERT/F/M/19 [Turn over

Page 111
4
Question 2
Source A2
The following information for F Limited is available at 31 March 2018.
$
Closing inventory 240 000
Purchases 680 000
Sales revenue 994 000
All purchases and sales were on credit basis.
The value of the closing inventory was 20% higher than at 1 April 2017.
reference only.
(a) Calculate the working capital cycle in days. [5]
The company allows its customers 60 days credit.
The company is allowed 30 days credit by its suppliers.
The inventory turnover ratio for the previous year was 104 days.
The net working assets to revenue ratio has risen from 27.85% to 32.74%.
Trade payables had fallen and trade receivables had risen since 31 March 2017.
(b) Analyse the liquidity of F Limited. [5]
(c) Analyse the change in the net working assets to revenue ratio of F Limited. [6]
© UCLES 2019 9706/32/INSERT/F/M/19
Page 112
5
Blair, an investor, wishes to invest in either F Limited or a competitor, C Limited. The market
value of one ordinary share in both companies is $1.50.
Blair’s main requirement is a regular income from the investment.
Relevant information for the two companies is as follows:
F Limited C Limited
Gearing 20% 25%
Earnings per share $0.18 $0.21
Dividend cover 3 times 4 times
Dividend per share $0.09 $0.12
(d) Advise Blair in which company he should invest. Justify your answer. [9]
[Total: 25]

Page 113
8
Question 4
Source A4
The statement of cash flows of T plc for the year ended 31 December 2018 was as follows:
T plc
Statement of cash flows for the year ended 31 December 2018
$000 $000
Profit from operations 288
Depreciation - land and buildings 4
- machinery 84
- fixtures and fittings 9 97
Profit on disposal of machinery (12)
Increase in inventory (46)
Increase in trade receivables (14)
Decrease in trade payables (4)
Cash from operations 309
Interest paid (29)
Tax paid (87)
Net cash from operating activities 193
Cash flow from investing activities

Purchase of non-current assets (272)
Proceeds of sale of machinery 42
Net cash used in investing activities (230)
Cash flow from financing activities

Proceeds from rights issue of shares 480
Dividend paid (80)
Repayment of debentures (200)
Net cash from financing activities 200
Net increase in cash and cash equivalents 163
Cash and cash equivalents on 31 December 2017 (81)
Cash and cash equivalents on 31 December 2018 82
Further information relating to the year ended 31 December 2018 was as follows:
1 Balances at 1 January 2018 were
$000
Land and buildings
Cost 400
Accumulated depreciation 12
Machinery
Cost 214
Cost 82
Ordinary share capital ($1 shares) 500
General reserve 40
2 The cost of the non-current assets purchased was $262 000 for new machinery and $10 000 for
fixtures and fittings.
© UCLES 2019 9706/32/INSERT/F/M/19
Page 114
9
3 The machinery sold during the year had an original cost of $100 000.
4 The rights issue was made at a premium of $0.20 per share.
5 Tax owing amounted to $72 000 at the start of the year and $85 000 at the end of the year.
6 Interest accrued amounted to $10 000 at the start of the year and $2000 at the end of the year.
7 A transfer to general reserve, $10 000, had been made by the directors.
reference only.
(a) (i) State why a bonus issue of shares would not be recorded in a statement of cash flows.
[1]
(ii) Name one financial item, other than a bonus issue of shares and a transfer to general
reserve, which would not be recorded in a statement of cash flows. [1]
(b) Prepare the non-current assets schedule for the year ended 31 December 2018 for inclusion
in the notes to the financial statements of the company. A total column is required. [9]
(c) Prepare the statement of changes in equity for the year ended 31 December 2018. A total
column is required. [9]
The directors are considering publishing a cash budget instead of preparing a statement of cash
flows in the future.
(d) Advise the directors whether or not to proceed with this change. Justify your answer. [5]
[Total: 25]

Page 115
10
Question 5
Source B1
B Limited produces two products – Premier and Standard. The budgeted cost information for the
month of June 2019 is as follows:
Premier Standard
Units produced and sold 500 800
Direct materials per unit $80 $50
Direct labour hourly rate $30 $25
Direct labour hours per unit 3 2
Budgeted fixed overheads $480 000 for 2019 are allocated to products based on 40 000 budgeted
total direct labour hours.
reference only.
(a) Calculate the cost per unit for each product using absorption costing. [3]
A newly recruited management accountant suggests that B Limited should adopt activity based
costing (ABC). He has provided an analysis of fixed overheads as follows:
Cost Cost driver Annual quantity

$
Materials requisition 90 000 Number of material requisitions 75
Machine set up 240 000 Number of setups 60
Inspection 150 000 Number of inspection hours 5000
480 000
Budgeted use of cost driver for each product for June 2019 is as follows:
Premier Standard
Number of material requisitions 2 6
Number of setups 2 3
Number of inspection hours 120 320
(b) Explain the meaning of the term ‘cost driver’. [2]
(c) State two advantages and three disadvantages of ABC. [5]
(d) Calculate the cost per unit for each product if ABC is adopted. [8]
The selling price of each product is cost plus 40%.

(e) (i) Calculate the selling price of each product using absorption costing. [2]
(ii) Calculate the selling price of each product using ABC. [2]
(iii) Explain, using suitable calculations, why your answers in (i) and (ii) are different. [3]
© UCLES 2019 9706/32/INSERT/F/M/19
[Total: 25]
Page 116
12
Question 6
Source B2
Jack makes a single product and uses a standard costing system. The budget for each month is
based on the following standard data per unit.
Direct material 0.5 kilos at $6 per kilo
Direct labour 1.5 hours at $4.50 per hour
Fixed production overhead 1.5 hours at $5 per hour
Budgeted production and sales for each month are 6500 units.
The actual data for the month of September was:
Direct material 2800 kilos cost $17 350
Direct labour 9500 hours cost $42 275
Total fixed production overheads $52 100
Actual production and sales for September were 5900 units.
reference only.
(a) Calculate the following variances for the month of September.
(i) Material price [2]
(ii) Material usage [2]
(iii) Labour rate [2]
(iv) Labour efficiency [2]
(b) Suggest one possible cause for each of the variances calculated in (a). [4]
(c) Calculate the following variances for the month of September.

(i) Fixed overhead expenditure [2]
(ii) Fixed overhead volume [2]
For the month of October, Jack has calculated an adverse fixed overhead volume variance.
(d) Explain how October’s fixed overhead volume variance can be further analysed to provide
Jack with more information about the performance of the business. [5]
(e) State two advantages and two disadvantages to Jack of using standard costing system. [4]
[Total: 25]
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.
To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
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 9706/32/INSERT/F/M/19
Page 117
ACCOUNTING 9706/12
1 hour
Soft clean eraser
*3024079424*

IB19 06_9706_12/5RP
Page 118
2
1 Which concept is identified by the accounting equation assets = capital + liabilities?
A business entity
B duality
C going concern
D realisation
2 What are causes of depreciation on non-current assets?
1 change in its cost of repair

2 change in its market value
3 changes in technology
3 June purchased a new machine. She depreciated it at a rate of 40% per annum using the
reducing balance method. After two years its net book value was $3600.
What was the purchase price of the machine?
A $7056 B $9216 C $10 000 D $22 500
4 The following information relates to the motor vehicles of a business.
1 January 2018 31 December 2018

$ $
net book value 398 000 480 000
During 2018 the following occurred.
1 Additional motor vehicles costing $195 000 were purchased.

2 A motor vehicle (original cost $80 000) was sold for $24 000 at a profit of $2000.
What was the depreciation charge for 2018?
A $87 000 B $89 000 C $91 000 D $113 000
© UCLES 2019 9706/12/M/J/19
Page 119
3
5 A book-keeper compared the business bank statement with the cash book. He then updated the
cash book and finally prepared a bank reconciliation statement.
Why was the bank reconciliation statement prepared?
A to ensure no transactions had been omitted from the cash book

B to establish the value of unpresented cheques
C to explain the difference between the cash book balance and the bank statement balance
D to find out if any cheques had been dishonoured
6 On 31 December 2018, a business had the following balances.
sales ledger 12 800

sales ledger control account 15 200
Which error explains the difference between the two figures?
A A credit balance of $1200 was brought forward as a debit balance in the sales ledger control
account.
B An irrecoverable debt of $2400 was omitted in a customer’s personal account in the sales
ledger.
C Purchases returns, $1200, were wrongly entered on the debit side of the sales ledger control
account.
D Sales returns, $1200, were entered twice in a customer’s personal account in the sales
ledger.
7 The provision for doubtful debts at 1 January 2018 was $1580.
Trade receivables at 31 December 2018 were $44 750. This included a debt of $12 500,
considered irrecoverable.
The provision for doubtful debts was to be maintained at a rate of 5%.
Which entry for doubtful debts was included in the income statement for the year ended
31 December 2018?
A $32.50 expense
B $32.50 income
C $657.50 expense
D $657.50 income

Page 120
4
8 Which statements about valuing inventory are correct?
1 Any charges for carriage inwards should be included in its cost.

2 Cost should always be compared with the net realisable value.
3 Cost should always be compared with replacement price.
A 1, 2 and 3 B 1 and 2 only C 1 and 3 only D 2 and 3 only
9 A sole trader calculated a draft profit for the year of $56 750.
He then discovered that discounts received of $580 and discounts allowed of $665 had been
recorded on the wrong sides of their respective accounts.
What is the correct profit for the year?
A $56 580 B $56 665 C $56 835 D $56 920
10 Which item will not appear in the income statement of a sole trader?
A accounting charges
B bank loan interest
C director’s fee
D rental charge for machinery
11 X and Y are in partnership sharing profits and losses in the ratio 2 : 1.
Z will be admitted with the following new arrangements.
Profit and loss sharing ratio will be 2 : 1 : 2 respectively.
Goodwill is valued at $90 000. Z will pay the partners for his share of the goodwill.
How much will Z pay X?
A $18 000 B $24 000 C $45 000 D $60 000
12 D, E and F are in partnership, sharing profits in the ratio 2 : 2 : 1.
D is allowed an annual salary of $10 000.
E has made a loan to the partnership on which the partnership pays interest of $5000 each year.
Profit for the year before appropriation was $150 000.
What was F’s total share of profit for the year?
A $27 000 B $28 000 C $29 000 D $30 000
© UCLES 2019 9706/12/M/J/19
Page 121
5
13 L and M had been in partnership sharing profits and losses equally. P was admitted to the
partnership and the partners continued to share profits and losses equally. Goodwill was valued
at $48 000 but the partners agreed that no goodwill account would be retained in the books of
account.
What were the accounting entries to record the goodwill?
A debit L capital account $16 000, debit M capital account $16 000, credit P capital account
$32 000
B debit P capital account $32 000, credit L capital account $16 000, credit M capital account
$16 000
C debit L capital account $8000, debit M capital account $8000, credit P capital account
$16 000
D debit P capital account $16 000, credit L capital account $8000, credit M capital account
$8000
14 Which items do not appear in a statement of changes in equity?
1 dividend paid
2 dividend proposed
3 loan interest
A 1 and 2 only B 1, 2 and 3 C 1 only D 2 and 3 only
15 On 1 January a company’s equity included 100 000 $1 ordinary shares.
The directors of the company then did the following:
1 March Made a rights issue of 20 000 ordinary shares at $1.25 each. The rights
issue was fully subscribed.
1 June Made a bonus issue of 5000 ordinary shares.
1 July Paid an interim dividend of $0.10 on all of the shares in issue at that
date.
By how much did the bank account increase as a result of these transactions?
A $12 500 B $17 500 C $30 000 D $37 000

Page 122
6
16 The following balances are extracted from the books of J Limited.
30 April 2019 30 April 2018

$ $
ordinary shares of $0.50 each 700 000 500 000

share premium 90 000 50 000
How many ordinary shares have been issued during the year ended 30 April 2019?
A 200 000 B 240 000 C 400 000 D 480 000
17 Which action will increase a company’s current ratio?
A making an issue of bonus shares

B making a rights issue of shares
C increasing the provision for doubtful debts
D reducing the rate of depreciation on non-current assets
18 A trader wishes to set a selling price.
How does he use a mark-up?
A by adding a percentage to the cost

B by adding a percentage to the selling price
C by deducting a percentage from the cost
D by deducting a percentage from the selling price
© UCLES 2019 9706/12/M/J/19
Page 123
7
revenue 800 000

cost of sales (175 000)
gross profit 625 000
distribution costs (95 000)
administrative expenses (35 000)
finance costs (5 000)
What was the operating expenses to revenue ratio?
A 16.25% B 16.88% C 21.88% D 38.13%
20 On 1 January 2018 a business expected to have sales for the year ended 31 December 2018 of
$450 000.
Its non-current assets at that date were $306 000.
On 1 July 2018 it purchased new machinery at a cost of $180 000, in order to increase its sales
by an extra $20 000 each month.
What was the rate of non-current asset turnover in 2018? (Ignore depreciation.)
A 1.17 times
B 1.42 times
C 1.44 times
D 1.74 times

Page 124
8
21 A business uses the First In First Out (FIFO) method to value its inventory.
The following inventory transactions took place during a month. There was no opening balance.
receipts issues
date
units $ per unit units
1 July 100 15.50

6 July 100 15.60
10 July 80
20 July 50 15.80
25 July 100
What was the value of inventory at the end of the month?
A $1085 B $1092 C $1102 D $1106
22 A business has two production departments: assembly and machinery. The following budgeted
information is available.
assembly machinery
labour hours 5600 1350

machine hours 1200 6900
overheads $75 000 $80 000
What is the overhead absorption rate for the assembly department?
A $13.39 per labour hour

B $19.14 per machine hour
C $22.30 per labour hour
D $62.50 per machine hour
23 A shortage caused a business to pay more for its purchases of raw materials.
What is the effect of this?
break-even point marginal cost contribution
A decrease decrease increase

B decrease decrease decrease
C increase decrease increase
D increase increase decrease
© UCLES 2019 9706/12/M/J/19
Page 125
9
24 Which statement best describes a stepped fixed cost?
A It changes in direct proportion to changes in output.

B It changes in proportion to changes in prime cost.
C It remains at a constant amount until output changes significantly.
D It represents a constant amount of total cost.
25 A company produces less than it sells in a particular period.
Which statement is correct?
A Reported profit is the same whether absorption or marginal costing is used.

B Reported profit is the difference between absorption and marginal costing closing
inventories.
C Reported profit is lower using absorption costing.
D Reported profit is lower using marginal costing.
26 Which statements are true about the preparation of a break-even chart?
1 Costs are easily classified into fixed and variable.

2 Fixed costs always change as output changes.
3 The break-even point is clearly seen.
A 1 and 2 only B 1, 2 and 3 C 2 and 3 only D 3 only
27 When a company had sales revenue of $600 000, its variable costs were $300 000.
At the break-even point, its sales were $400 000.
How much profit did it make when sales were $600 000?
A $100 000 B $200 000 C $300 000 D $400 000
28 A company provided the following information.
total sales $400 000

production and sales (units) 10 000
total costs $250 000
total fixed costs $60 000
What was the contribution to sales ratio?
A 37.5% B 47.5% C 52.5% D 62.5%

Page 126
10
29 Last year a company sold 2000 units and made a contribution of $50 per unit. Profit, after
deducting total fixed costs, was $60 000.
This year:
sales volume increased by 10%

contribution per unit decreased by 5%
total fixed costs increased by 25%.
What was the company’s profit this year?
A $45 000 B $54 500 C $60 000 D $64 500
30 Why do businesses prepare budgets?
1 to communicate plans
2 to control activities
3 to improve co-ordination
4 to prepare their annual financial statements
A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4
© UCLES 2019 9706/12/M/J/19
Page 127

ACCOUNTING 9706/22
1 hour 30 minutes
Write your centre number, candidate number and name on all the work you hand in.

IB19 06_9706_22/5RP
Page 128
2
1 Lee, a sole trader, provided the following information from his books of account on 30 April 2019.
$
Capital 50 000
Carriage inwards 670
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.
9 Depreciation is to be provided as follows:
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.

REQUIRED
(a) Prepare Lee’s income statement for the year ended 30 April 2019. Use the space on the next
page for your workings.
© UCLES 2019 9706/22/M/J/19
Page 129
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]
(c) State two benefits and two drawbacks of operating as a sole trader.
© UCLES 2019 9706/22/M/J/19
Page 130
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]
© UCLES 2019 9706/22/M/J/19
Page 131
7
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]
4
(b) Calculate the amount of provision for doubtful debts at 31 December 2018.
(c) Prepare the provision for doubtful debts account for the year ended 31 December 2018. Dates
are required.
(d) Explain one accounting concept which is applied when making a provision for doubtful debts.
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.

Page 132
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]

Page 133
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.

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.
© UCLES 2019 9706/22/M/J/19
Page 134
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
was fully subscribed.
REQUIRED
(d) Calculate the proceeds received by X Limited from the rights issue.
[3]
[Total: 15]
© UCLES 2019 9706/22/M/J/19
Page 135
13
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]

Page 136
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
Direct labour hours 2 700 6 300
Machine hours 13 400 3 350
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

(d) Calculate, to two decimal places, an overhead absorption rate for each production cost [6]
centre, using a suitable basis.
© UCLES 2019 9706/22/M/J/19
Page 137
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
2.0 direct labour hours
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.
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.
© UCLES 2019 9706/22/M/J/19
Page 138
ACCOUNTING 9706/32
INSERT
3 hours

reference only.
IB19 06_9706_32/9RP
Page 139
2
Question 1
Source A1
L plc is a manufacturing business. The total prime cost for the year ended 31 December 2017 was
$350 000.
The following selected balances were extracted from the company’s books of account at
31 December 2018.
$000
Indirect wages 100
General expenses 64
Power 36
Factory plant
Cost 600
Accumulated depreciation at 1 January 2018 150
Inventory
Work in progress at 1 January 2018 23
The following information is available at 31 December 2018.
1 The prime cost for the year was 10% greater than the previous year.
2 Indirect wages are to be apportioned between the factory and office in the ratio 2 : 3 respectively.
3 General expenses of $6000 were prepaid. General expenses are to be apportioned equally
between the factory and the office.
4 A power bill of $4000 remained unpaid. 60% of the total power expense is charged to the factory.
5 The value of work in progress was $31 000.
The following information is also available for the year ended 31 December 2018.
1 A new item of factory plant was acquired on 31 October 2018 at a cost of $30 000. This
transaction has not been recorded in the books of account.
Factory plant is depreciated at 25% per annum using the reducing balance method. A full year’s
depreciation is charged on assets acquired during the year.
2 Goods are transferred to the sales department at a mark-up of 20%.
reference only.
(a) Explain what is meant by:
(i) prime cost [2]
(ii) work in progress. [2]
(b) Prepare the manufacturing account for the year ended 31 December 2018. [13]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 140
3
After the draft statement of financial position had been prepared it was noted that the inventory
value of finished goods was $33 000. This was the value at which these goods had been
transferred from the manufacturing account.
(c) Discuss whether the inventory should have been included at this value. Justify your answer
by referring to relevant accounting concepts and appropriate calculations. [8]
[Total: 25]

Page 141
4
Question 2
Source A2
V plc had capital of 450 000 ordinary shares of $1 each. The following information was available at
31 December 2018.
1 The market price of one ordinary share was $2.40.
2 Dividend yield was 5%.
3 Dividend cover was 2.5 times.
reference only.
(a) Calculate the profit for the year ended 31 December 2018. [3]
The following information was also available for the year ended 31 December 2018.
1 Sales revenue for the year was $876 000. All the sales were on credit and had earned a
gross margin of 45%.
2 All purchases of goods were on credit.
3 Current assets at 31 December comprised inventory, trade receivables and cash at bank.
4 Current liabilities at 31 December comprised trade payables only. The current ratio was 3 : 1.
5 Other accounting ratios were:
Inventory turnover 60 days

Trade receivables turnover 50 days
Trade payables turnover 64 days
6 Other balances were:

$ $
Share premium 70 000 70 000
Retained earnings 74 000 ?
Inventory 78 105 ?
7 Non-current assets at 31 December 2018 were $505 272.
(b) Prepare the statement of financial position at 31 December 2018. (Cash at bank is the
balancing figure.) [15]
(c) Calculate the price earnings ratio. [2]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 142
5
T plc, a major competitor of V plc, had the following information for the year ended
31 December 2018.
Gross margin 42%

Inventory turnover 65 days
(d) Assess the performance of V plc and T plc in terms of profitability and efficiency in managing
inventory. [5]
[Total: 25]

Page 143
6
Question 3
Source A3
The financial statements of W Limited for the year ended 31 December 2018 are ready to be audited.
The directors have provided the following assets balances from the statement of financial position.
$
Property, plant and equipment 682 000
Inventory 94 200
Other receivables 9 430
1 Included in property, plant and equipment was equipment with a carrying value of $140 000. The
fair value of the equipment was $132 000 and the value in use was $136 000.
2 The retained earnings for the year ended 31 December 2018 were $184 000. This is after
deducting a proposed final dividend of $12 000.
3 The directors had budgeted to incur $25 000 advertising in 2019. A provision was made for this
expenditure.
reference only.
(a) Explain one benefit of auditing. [2]
(b) Explain to the directors the appropriate accounting treatments for item 1, 2 and 3, making
reference to the relevant International Accounting Standards (IAS). [7]
1 A deposit of $3000 had been paid to a supplier for goods to be delivered in April 2019. This
amount had been recorded as purchases.
2 Goods costing $5400 and with a sales value of $7000 were sent to a customer on sale or
return basis. The directors had recorded $7000 as a sale. At 31 December 2018 the
customer had not decided whether to buy the goods.
(c) Calculate the revised retained earnings at 31 December 2018 using all the information
available. [6]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 144
7
(d) Calculate the corrected figure for the following items for inclusion in the revised statement of
financial position at 31 December 2018.
(i) Property, plant and equipment
(ii) Inventory
(iii) Trade receivables
(iv) Other receivables
(v) Total assets

[5]
At the annual general meeting, some of the shareholders queried that the final dividend proposed
by the directors was too low.
(e) Advise the directors whether or not they should increase the proposed dividend. Justify your
answer by discussing benefits and drawbacks of your advice for both the company and the
shareholders. [5]
[Total: 25]

Page 145
8
Question 4
Source A4
Roberto and Sasha formed a joint venture. They sold sports equipment from a market stall in the
month before a major sporting event took place in their hometown. They shared profits and losses
equally.
The following transactions took place.
1 Roberto and Sasha introduced cash to open the joint venture bank account.
2 Sasha paid the rent on the stall.
3 Roberto paid for some fixtures to be used on the stall.
4 The joint venture bank account was used to buy inventory.
These transactions were recorded in the books of the joint venture.
The joint venture account and the joint venture bank account appeared as follows:
Joint venture account

$ $
June 1 Sasha 200
Roberto 120
Joint venture bank account 1700
Joint venture bank account

$ $
May 31 Roberto 1000 June 1 Joint venture account 1700
Sasha 1000
reference only.
(a) Explain what took place on 31 May. [2]
(b) Explain why the transactions which took place on 31 May were not recorded in the joint
venture account. [2]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 146
9
By the end of the month all the sports equipment was sold and sales had totalled $2500. Of this
amount, $1800 was paid into the joint venture bank account. Roberto kept the remainder for
personal use.
At the end of the month the fixtures were sold for $50 and the proceeds paid into the joint venture
bank account.
The profit was then calculated and the bank account closed.
(c) Calculate the share of profit for each party to the joint venture. [3]
(d) Prepare the ledger accounts as they would appear in the books of the joint venture for:
(i) Roberto [5]
(ii) Sasha. [4]
The major sporting event which took place will become an annual event. Both parties wish to
repeat the joint venture but Roberto is insisting that the mark-up applied should be 75%.
(e) Advise Sasha whether or not she should agree to repeat the joint venture. Justify your
answer using both financial and non-financial factors. [5]
(f) Explain how a business selling sports equipment differs from a sports club which also sells
equipment to its members. [4]
[Total: 25]

Page 147
10
Question 5
Source B1
Gerry manufactures a product using Machine B. The following budgeted information is available in
respect of this for the year ending 31 December 2019.
$
Total annual cash inflows from sales 800 000
Total annual cash outflows for cost of sales 416 000
Gerry has decided to purchase a new machine, Machine X, at a cost of $600 000, to replace Machine
B on 1 January 2020. The new machine will have a useful life of 3 years with no residual value. It is
expected that Machine X will produce the following results:
1 Each year sales will be 5% more than the sales in the previous year.
2 Gross margin will increase by 2% in 2020 and this gross margin will then remain constant.
3 Machine maintenance costs will be:

$
2020 10 000
2021 20 000
2022 30 000
4 Other operating costs (excluding depreciation) will be $120 000 per year.
reference only.
(a) Calculate for Machine X:
(i) the net cash flow for each year [5]
(ii) the payback period [3]
(iii) the accounting rate of return to two decimal places. [5]
(b) State two advantages and two disadvantages of using the payback method of investment
appraisal. [4]
Gerry’s cost of capital is 10%. The relevant discount factors are:
Year 1 0.909
Year 2 0.826
Year 3 0.751
(c) Calculate the net present value (NPV) of Machine X. [3]
(d) Advise Gerry whether or not he should purchase Machine X. Justify your answer using two
financial and two non-financial factors. [5]
[Total: 25]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 148
11
Question 6
Source B2
Ella uses flexible budgets as part of her budgetary control system. The following information is
available for the year ended 31 March 2019.
Fixed budget Actual

activity level activity level
Units 1000 3000 2500
$ $ $
Sales 25 000 75 000 63 000
Direct labour 5000 15 000 12 800
Direct material 6000 18 000 14 500
Semi-variable overheads 4000 7500 7250
Fixed costs 5000 5000 5200
Profit 5000 29 500 23 250
(a) State two advantages to a business of using a budgetary control system. [2]
(b) Calculate the flexed budgeted profit for the year ended 31 March 2019. [8]
(c) Prepare a statement, showing the relevant variances, to reconcile the flexed budget profit
with the actual profit. [6]
For the month of April 2019, Ella’s business showed a favourable total direct material variance
and an adverse total direct labour variance.
(d) Suggest what may have caused the:
(i) favourable total direct material variance [2]
(ii) adverse total direct labour variance. [2]
(e) Advise Ella whether or not she should continue to flex the budgeted data. Justify your
answer. [5]
[Total: 25]
© UCLES 2019 9706/32/INSERT/M/J/19
Page 149
ACCOUNTING 9706/12
1 hour
Soft clean eraser
*4998627567*

IB19 11_9706_12/5RP
Page 150
2
1 Which concept requires that profits should be based on recognising revenues and their related
expenses for an accounting period?
A consistency
B matching
C materiality
D prudence
2 A business buys a non-current asset and decides to apply the straight-line method of
depreciation. The accountant forgets to include an estimate of scrap value in the calculation.
1 The annual depreciation charge is too high.

2 The annual depreciation charge is too low.
3 There is likely to be a loss on disposal in the future.
4 There is likely to be a profit on disposal in the future.
3 The table gives information relating to the non-current assets of a business.
net book value at the end of the year 25 000

net book value at the beginning of the year 16 000
depreciation charge for the year 5 000
additions at cost during the year 22 000
What is the net book value of disposals during the year?
A $8000 B $14 000 C $18 000 D $24 000
4 The accounting year of a company ends on 31 December. It purchased a warehouse for

$100 000 on 1 January 2013. The warehouse had an estimated useful economic life of 25 years.
The company’s accounting policy is to depreciate the warehouse using the straight-line method.
On 1 January 2018, the warehouse was revalued at $120 000.
What was the depreciation charge for the year ended 31 December 2018?
A $4000 B $4800 C $5000 D $6000
© UCLES 2019 9706/12/O/N/19
Page 151
3
5 A company prepared a sales ledger control account. The balance did not agree with the total of
the sales ledger balances, which were $42 650. The following was discovered.
1 An irrecoverable debt of $500 in the general journal has not been recorded in the
sales ledger.
2 The sales journal has been incorrectly added and must be reduced by $750.
3 The sales ledger control account includes the discount received of $400. It should
have been discount allowed, $600.
4 Sales to J Brown, $640, have not been entered in his account.
What was the correct total of the sales ledger balances?
A $41 700 B $41 840 C $42 510 D $42 790
6 The correction of which error would require an entry in the suspense account?
A $100 paid for vehicle repairs were debited to the vehicles account.
B A sales invoice for $45 was omitted from the sales journal.
C Drawings of $60 were debited in the cash book and were credited to the drawings account.
D Wages, $150, were correctly recorded in the wages account and debited in the cash book.
7 The table shows information for a business at 31 March 2019.
inventory 16 100
trade payables 5 200
other payables 2 000
The information excludes the purchase of $3700 of goods. These goods were delivered on
31 March 2019, but the invoice states that legal title to the goods does not pass until payment is
received.
Which values should appear in the statement of financial position on 31 March 2019?
inventory trade payables other payables

$ $ $
A 16 100 5200 2000

B 16 100 5200 5700
C 19 800 5200 5700
D 19 800 8900 2000

Page 152
4
8 A business has valued some of its closing inventories at cost. Their net realisable value is lower
than cost.
What is the effect of this error on financial statements?
profit for the year current assets
B overstated overstated
C understated understated
D no effect overstated
9 The following balances were extracted from a trial balance at 31 March 2019.
total trade receivables 84 600

provision for doubtful debts at 1 April 2018 2 835
irrecoverable debt 1 600
There was a decrease in the provision for doubtful debts, $280, for the year ended
31 March 2019.
What was the amount of net trade receivables at 31 March 2019?
A $79 885 B $80 445 C $81 485 D $82 045
10 A business had the following assets and liabilities at the start of the year.
a motor car valued at $2500

inventory which cost $4000 with a sales value of $5800
bank overdraft of $500
a loan to a friend from the business bank account of $1000
What was the capital account balance at the start of the year?
A $5000 B $7000 C $8000 D $8800
© UCLES 2019 9706/12/O/N/19
Page 153
5
11 A sole trader had the following transactions.
returns outwards 2750

carriage inwards 4820
goods for own use 1460
What was the total effect of these transactions on the cost of sales?
A $610 increase
B $3530 increase
C $6110 decrease
D $9030 decrease
12 A sole trader’s personal expenses had been paid out of the business bank account and included
in his income statement.
What was the effect of this on the profit and capital?
profit capital
B no effect overstated
C understated no effect
13 A warehouse was damaged by fire on 31 March and some of the inventory was destroyed. The
following information is available.
inventory at cost on 1 January 6 000

inventory at cost on 31 March after fire 3 200
sales during the period 14 700
purchases during the period 9 500
The business uses a mark-up of 33.33%.
What was the value of the inventory destroyed?
A $1275 B $1800 C $2000 D $2500

Page 154
6
14 P and Q are in partnership. R was admitted as a partner on 1 July 2018, and the profit and loss
sharing ratio among P, Q and R was 2 : 2 : 1 respectively.
For the purpose of R’s admission, the partners agreed:
goodwill would be valued at $20 000, but not retained in the books of account
R would introduce cash, $40 000, and motor vehicle, $10 000
R would be entitled to an annual salary, $5000.
What was R’s capital account balance immediately after his admission?
A $36 000 B $46 000 C $51 000 D $54 000
15 Hilary and Lee commenced in partnership on 1 January 2018. There was no partnership
agreement. They provided the following information.
Hilary Lee
$ $
capital contributions 5000 6000

loan to partnership – 1000
Profit for the year ended 31 December 2018 before the loan interest was $8850.
What was Lee’s share of the profit?
A $4400 B $4425 C $4800 D $4827
16 L, M and N are in partnership sharing profits and losses equally.
L retired when the credit balances on her capital and current accounts were $100 000 and
$40 000.
Partnership assets were revalued upwards by $60 000.
L took half of the amount due to her on retirement. The other half was left as a loan to the
business.
How much was L paid from the partnership bank account on her retirement?
A $20 000 B $40 000 C $60 000 D $80 000
© UCLES 2019 9706/12/O/N/19
Page 155
7
17 The directors of a limited company recently made a rights issue of one ordinary share for every
three held at a premium of $0.50 per share. The rights issue was fully subscribed.
The statement of financial position showed the following information after the rights issue was
made.
$000
issued share capital: (shares of $1 each) 1200

share premium 300
Which amount was debited to the company’s bank account when the rights issue was made?
A $300 000 B $400 000 C $450 000 D $600 000
18 A company’s year end is 31 December. During the year ended 31 December 2018 it paid the
following dividends:
$
final dividend for the year ended 31 December 2017 15 000
interim dividend for the year ended 31 December 2018 8 000
On 1 February 2019 it declared a final dividend of $10 000 for the year ended 31 December 2018.
How much should be recorded for dividends in the statement of changes in equity for the year ended
31 December 2018?
A $8000 B $18 000 C $23 000 D $33 000
19 Which information would an investor gain by looking at the financial statements of a business?
1 identifying future trading prospects

2 identifying the amount of future dividends
3 identifying that the entity is a going concern

Page 156
8
20 The following information is available for a limited company.

10% debenture (2025) 75 000
100 000 shares ($1 each) 100 000
retained earnings at the end of the year 135 679
A 8.49% B 11.19% C 13.03% D 17.17%
21 A manufacturing business has provided the following information about a product.
units total cost

produced $
8 000 37 000
14 000 53 500
What is the variable cost per unit?
A $2.75 B $3.82 C $4.11 D $4.63
22 The following information relates to the inventory of a business.
date purchases unit cost sales unit selling price
2 June 1000 units $12

Estimated unit selling price at 30 June is $20.
There was no opening inventory.
What was the value of closing inventory at 30 June using FIFO?
A $24 600 B $28 600 C $29 400 D $44 000
© UCLES 2019 9706/12/O/N/19
Page 157
9
23 Inventory cost prices are rising for a business. The company uses AVCO rather than FIFO to
value its inventory.
What is the effect on inventory valuation and profit of using AVCO rather than FIFO?
inventory
profit
valuation
A higher higher
B higher lower
C lower higher
D lower lower
24 A company calculates its profit using marginal costing as $90 000 for a month.
Opening inventory was 4000 units and closing inventory 6000 units.
The fixed production overhead absorption rate is $20 per unit.
What is the profit under absorption costing?
A $10 000 B $50 000 C $130 000 D $170 000
25 A manufacturing business has provided the following information.
budgeted labour hours 12 000

budgeted overhead absorption rate $7.50 per labour hour
actual overhead cost $101 250
actual labour hours 15 000
What is the over or under absorption of overheads?
A $11 250 under absorbed

B $11 250 over absorbed
C $20 250 under absorbed
D $20 250 over absorbed

Page 158
10
26 A business has the following information relating to its single product.
selling price per unit 30

variable cost per unit 14
total cost per unit 24
What is its contribution to sales ratio?
A 20% B 46.67% C 53.33% D 80%
27 A company makes three products for which the following details are given.
product X product Y product Z

$ $ $
selling price per unit 40 48 72

direct material per unit 18 24 30
direct labour per unit 10 6 18
The same material is used to make all three products and it costs $2.00 per kilo.
There is a shortage of material.
In which order should the products be made to achieve maximum profit?
first last
A X Y Z
B Y Z X
C Z X Y
D Z Y X
28 Last month a company made and sold 10 000 units and earned a contribution of $20 per unit.
Its final profit, after deducting total fixed costs, was $120 000.
This month its sales volume has increased by 20%, its contribution per unit has increased by 5%
and its total fixed costs have increased by 15%.
What is its profit this month?
A $118 000 B $148 000 C $160 000 D $172 000
© UCLES 2019 9706/12/O/N/19
Page 159
11
29 Which statements about cost–volume–profit analysis are correct?
1 Fixed costs remain constant over a range of activity.

2 Profits are calculated on an absorption costing basis.
3 Sales revenue increases in direct proportion to output.
4 There is only one product or constant sales mix.
A 1 and 2 only
B 1, 2, 3 and 4
C 1, 3 and 4 only
D 2, 3 and 4 only
30 Why do businesses prepare budgets?
1 to communicate plans
2 to improve coordination
3 to plan annual operations
4 to plan long-term strategies
© UCLES 2019 9706/12/O/N/19
Page 160

ACCOUNTING 9706/22
1 hour 30 minutes

IB19 11_9706_22/5RP
Page 161
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 - -
Accumulated depreciation
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
Wages and salaries 45 000
Electricity expenses 2 700
Motor vehicles 50 000
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
Page 162
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
Administrative expenses
Distribution costs
Profit from operations
Finance cost
Profit for the year

Page 163
4
Workings:
Cost of sales
Distribution costs
Finance cost
[17]
© UCLES 2019 9706/22/O/N/19
Page 164
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]
(d) State one advantage and one disadvantage to a business:
(i) of making all sales on a cash basis only
(ii) of making all purchases on a cash basis only.

Page 165
8
2 Nibali has provided the following information for the year ended 31 July 2019.
$
Opening inventory 30 000
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
Page 166
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]

Page 167
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
Page 168
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]
(c) Explain two reasons why a partnership might keep separate current and capital accounts.
© UCLES 2019 9706/22/O/N/19
Page 169
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
Page 170
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.

Page 171
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
Page 172
17
Aramis’s accountant has suggested that he uses marginal costing. He has provided the following
analysis for one product:
$
Direct materials 710
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
financial and non-financial factors.
[7]
(f) State four factors that a business should consider before changing its supplier.
Page 173
ACCOUNTING 9706/32
INSERT 3 hours


reference only.
IB19 11_9706_32/6RP
Page 174
2
Question 1
Source A1
The directors of Z Limited have produced a draft income statement for the year ended 30 June 2019. The
following remaining balances have been extracted from the books of account.
Debit Credit
$ $
8% Debentures (2021–2022) 250 000
Freehold property at valuation 525 000
Inventory at 30 June 2019 69 000
Plant and machinery at cost 386 800
Plant and machinery accumulated depreciation 200 500
Motor vehicles at cost 240 000
Motor vehicles accumulated depreciation 147 000
Revaluation reserve 165 000
Trade and other payables 64 800
Trade and other receivables 86 200
1 423 300 1 423 300
During the year ended 30 June 2019, the following transactions had occurred in respect of
non-current assets.
1 New machinery had been purchased at a cost of $43 000.
2 Machinery that had originally cost $2200, which had been fully depreciated, was scrapped.
No sales proceeds were received.
3 A new motor vehicle had been purchased at a total cost of $36 000. The cost had been settled
by the payment of $20 800 by cheque and the part-exchange of an old motor vehicle. The
part-exchange motor vehicle had originally cost $24 000 and at the date of sale had been
depreciated by $10 000.
4 The freehold property had been revalued from its original cost of $360 000.
5 Depreciation charged during the year ended 30 June 2019 was as follows.
Freehold property Nil

Plant and machinery $20 700
Motor vehicles $59 000
© UCLES 2019 9706/32/INSERT/O/N/19
Page 175
3
reference only.
(a) Calculate the cost, accumulated depreciation and the net book value for each class of
non-current asset at 30 June 2018.
Cost Accumulated Net book value

depreciation
$ $ $
Freehold property
Plant and machinery
Motor vehicles
[7]
The directors have decided that the following adjustments should be made to the financial
statements for the year ended 30 June 2019 before they are finalised.
1 Irrecoverable debts of $18 000 should be written off.
2 Prepaid expenses amounted to $25 000.
3 The value of closing inventory should be increased by $6000.
(b) Prepare a statement of financial position for Z Limited at 30 June 2019. [8]
(c) Explain the factors that should be considered before deciding which method to use when
depreciating a non-current asset. [4]
The directors of Z Limited wish to raise $1 million for expansion. They are considering the
following two ways of raising the necessary finance.
1 Issue a further 8% debenture (2025–2027) for the full amount of funds required; or
2 Make an offer of a rights issue at a premium of $0.50 per share.
(d) Advise the directors which method of raising the finance they should use. Use any ratios as
appropriate to support your answer. [6]
[Total: 25]

Page 176
6
Question 3
Source A3
Jack and Paul were two sole traders. They decided to merge their businesses and form a partnership
on 1 July 2018. Their statements of financial position at 30 June 2018 were as follows.
Jack Paul
$ $
Non-current assets
Plant and equipment 118 000 103 700
Current assets
Inventory 36 000 47 000
Bank 6 200 3 400
73 700 79 900
Current liabilities
Net assets 164 000 150 500
Capital 1 July 2017 160 000 150 000

Profit for the year 44 000 20 500
Drawings (40 000) (20 000)
164 000 150 500
The following was agreed for the purpose of the merger.
1 The value of each business was: Jack $195 000; Paul $152 000.
2 Jack’s plant and equipment would be revalued at $128 000.
3 Paul’s inventory would be revalued at $40 000.
4 Paul’s trade receivables would be reduced by 2% for making allowance for doubtful debts.
All other assets and liabilities would be transferred at the book value.
reference only.
(a) Calculate the value of total goodwill arising from the terms of the merger. [3]
© UCLES 2019 9706/32/INSERT/O/N/19
Page 177
7
The following were the terms of the partnership.
1 Initial capital contributed by Jack and Paul would be $200 000 and $160 000 respectively, to
be settled by net assets transferred and cash.
2 The profit and loss sharing ratio between Jack and Paul will be 3 : 2.
3 Goodwill arising from the merger is to be written off against each partner’s capital account
immediately after the merger.
(b) Prepare the statement of financial position for the partnership at 1 July 2018. [10]
The partners also agreed to the following terms of the partnership.
1 Partners’ salaries will be $24 000 each.
2 Each partner will take their salary and share of profit as drawings.
The profit for the year ended 30 June 2019, before appropriation, was $66 000.
(c) Prepare the current account for each partner for the year ended 30 June 2019. [5]
(d) Calculate, to two decimal places, the return on capital employed (ROCE) for the year ended
30 June 2019. [2]
(e) Evaluate whether or not Jack and Paul have benefited financially from merging their
businesses. Justify your answer. [5]
[Total: 25]

Page 178
8
Question 4
Source A4
R Limited does not hold any inventory.
The non-current assets schedule of R Limited for the year ended 31 December 2018 was as follows.
Equipment Motor Total

vehicles
$000 $000 $000
Cost
At 1 January 2018 190 220 410
Additions 80 - 80
Disposals - (40) (40)
At 31 December 2018 270 180 450
Accumulated depreciation
At 1 January 2018 47 96 143
Charge for the year 27 21 48
Eliminated on disposals - (17) (17)
At 31 December 2018 74 100 174
Net book value

At 31 December 2018 196 80 276
At 1 January 2018 143 124 267
The statement of changes in equity of R Limited for the year ended 31 December 2018 was as
follows.
Ordinary
Share General Retained
share capital Total
premium reserve earnings
($1 shares)
$000 $000 $000 $000 $000
At 1 January 2018 1000 100 25 150 1275
Issue of shares 120 24 144
Transfer 50 (50) -
Ordinary dividend paid (80) (80)
At 31 December 2018 1120 124 75 155 1474
1 Finance charges for the year amounted to $16 000. All had been paid by the year-end.
2 Proceeds from the sale of the motor vehicle were $30 000.
3 During the year trade receivables increased by $22 000 and trade payables decreased by
$18 000.
4 The net increase in cash and cash equivalents during the year was three times the amount of
the overdraft at the start of the year.
© UCLES 2019 9706/32/INSERT/O/N/19
Page 179
9
reference only.
(a) Identify the type of business which keeps no inventory of goods for resale. [1]
(b) Prepare the statement of cash flows for R Limited for the year ended 31 December 2018 in
accordance with IAS 7. (Ignore taxation.) [18]
(c) State why the revaluation of a non-current asset is not disclosed in a statement of cash
flows. [1]
The finance director of R Limited has produced the cash budget for the year ending
31 December 2019. This shows at that date the company will again have an overdraft.
(d) Discuss the possible reasons for this. [5]
[Total: 25]

Page 180
10
Question 5
Source B1
Young manufactures two products, Product X and Product Y. The following budgeted information is
available.
Product X Product Y
Production units 5 000 5 000
Labour hours 5 000 7 500
Direct materials (per unit) $60 $75
Direct labour (per hour) $25 $30
Total production overheads, $180 000, are to be allocated to each product on the basis of machine
hours. A 50% mark-up will be added to the production cost of each product to set the selling price.
reference only.
(a) Calculate for each product the unit production cost and unit selling price. [7]
On the advice of the management accountant, Young is considering using activity based costing
(ABC) to allocate the production overheads to both products. The following information is
available.
$ Product X Product Y
Machine set up 120 000 20 times 10 times
Materials handling 45 000 10 receipts 5 receipts
Inspection 15 000 150 hours 100 hours
180 000
(b) State what is meant by ‘Activity Based Costing (ABC)’. [1]
(c) Recalculate for each product the unit production cost and the unit selling price using ABC. [7]
(d) (i) Calculate the difference between the unit production overhead charged to Product X and
to Product Y using each method. [3]
(ii) Calculate the difference between the unit selling price using the two costing methods for
Product X and Product Y.
[2]
(e) Advise Young whether or not he should change the method of allocating production
overhead costs to ABC. Justify your answer. [5]
[Total: 25]
© UCLES 2019 9706/32/INSERT/O/N/19
Page 181
11
Question 6
Source B2
Abida is a manufacturer of a product which has a seasonal peak demand during certain months. The
following budgeted information is available.
June July August September October November

Sales (units) 5000 12 000 18 000 6000 3000 1800
Each unit of production requires 1.5 kilos of direct material at $3 per kilo. There will be a cost increase
of 10% in August, and this will be in force for the rest of the year.
1 Abida manufactures the product one month before the month of sale.
2 Closing inventory is 20% of the following month’s sale.
3 Purchases of direct material are made one month before production starts. The company only
purchases sufficient raw materials each month to meet the following month’s production
requirement.
reference only.
(a) Prepare for each of the four months June to September:
(i) the production budget in units [5]
(ii) the purchases budget in both kilos and dollars. [5]
Abida encourages her managers to prepare their own departmental budgets.
(b) State two advantages and three disadvantages to Abida of continuing to allow the
departmental managers to prepare their own budgets. [5]

Page 182
12
Abida had also prepared an annual budget for a second product she manufactures. The following
budgeted information is available for the year for this product.
Per unit
Selling price $10.50
Direct materials at $3.30 per kilo 1.5 kilos
Direct labour at $6.50 per hour 0.5 hours
Fixed costs $27 000 per year.
The actual activity level for the year was 85 000 units. The following actual information is also
available.
Per unit
Selling price $10.25
Direct materials at $3.00 per kilo 1.5 kilos
Direct labour at $7.00 per hour 0.6 hours
Fixed costs $28 000 for the year.
(c) State two reasons why flexible budgeting may help a business. [2]
(d) Prepare the flexed budgeted profit statement for the year. Your statement should show
clearly the variances between the actual and flexed budgeted figures.
[8]
[Total: 25]
© UCLES 2019 9706/32/INSERT/O/N/19
Page 183
Cambridge International AS & A Level
ACCOUNTING 9706/12
Paper 1 Multiple Choice February/March 2020
1 hour
You must answer on the multiple choice answer sheet.

*4672324391*
You will need: Multiple choice answer sheet

Soft clean eraser
INSTRUCTIONS
• There are thirty questions on this paper. Answer all questions.
• For each question there are four possible answers A, B, C and D. Choose the one you consider correct
and record your choice in soft pencil on the multiple choice answer sheet.
• Follow the instructions on the multiple choice answer sheet.
• Write in soft pencil.
• Write your name, centre number and candidate number on the multiple choice answer sheet in the
spaces provided unless this has been done for you.
• Do not use correction fluid.
• Do not write on any bar codes.
• You may use a calculator.
INFORMATION
• The total mark for this paper is 30.
• Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
• Any rough working should be done on this question paper.
This document has 12 pages. Blank pages are indicated.
IB20 03_9706_12/5RP R
Page 184
2
1 A trader sells goods for $6600 to a customer on 31 March 2019, the last day of his financial year.
He does not produce an invoice until three days later. He is advised that the sales of $6600
should be entered in the financial statements for the year ended 31 March 2019.
Which accounting concepts are being applied?
1 consistency
2 prudence
3 realisation
2 The following costs for a business relate to a newly purchased machine.
1 alterations to the factory building to install the machine

2 payment of insurance for the new machine
3 the final purchase price of the machine agreed with the supplier
4 the price of the machine before the discount from the supplier
Which costs would be treated as capital expenditure?
freehold premises at cost 125 000

provision for depreciation of freehold premises 50 000
The premises were revalued at $180 000.
Which entries are required to record the revaluation?
income freehold premises provision for revaluation

statement at cost account depreciation reserve
A credit $105 000 debit $55 000 none debit $50 000
B debit $55 000 debit $75 000 debit $50 000 credit $180 000
C debit $75 000 debit $55 000 debit $50 000 credit $180 000
D none debit $55 000 debit $50 000 credit $105 000
© UCLES 2020 9706/12/F/M/20
Page 185
3
4 A business has a year end of 31 December.
It purchased a motor vehicle on 1 January 2017 for $15 000. The motor vehicle was sold on
31 March 2019 for $8000.
Depreciation is calculated at 20% per annum using the reducing balance method on a month by
month basis.
What is the accumulated depreciation and profit/loss on disposal of the motor vehicle?
accumulated depreciation profit/loss on disposal

$ $
A 5400 1600 loss

B 5400 1600 profit
C 5880 1120 loss
D 5880 1120 profit
5 A trial balance does not balance and a suspense account is opened.
Later the following errors are found and the suspense account is cleared.
1 A sales invoice for $1240 had been completely omitted from the books.
2 Purchases had been entered as $85 600. The correct amount should have been
$87 580.
3 Rent paid of $2600 was entered correctly in the cash book but as $6200 in the rent
account.
What was the original balance on the suspense account?
A $1620 credit
B $1620 debit
C $5580 credit
D $5580 debit
6 A sales ledger control account included the following entries.
1 contra with the purchases ledger control account $500, debit

2 discount allowed $600, debit
3 irrecoverable debts written off $1200, debit
Which entries must be corrected?
A 1 and 2 only B 1 and 3 only C 1, 2 and 3 D 2 and 3 only

Page 186
4
7 A company’s bank statement showed a credit balance of $2000.
The following errors were found.
1 A receipt of $2700 and a payment for $3000 were recorded on the bank statement.
Both had been omitted from the cash book.
2 Bank charges of $500 were correctly shown on the bank statement but had been
recorded as $600 in the cash book.
What was the cash book balance before the errors were corrected?
A $1600 B $1800 C $2200 D $2400
8 A business makes a provision for doubtful debts equal to 10% of trade receivables.
The provision at 31 March 2018 was $8300.
The trade receivables after the provision on 31 March 2019 were $55 800.
What is the change in the provision over the year?
A $2100 decrease
B $2100 increase
C $2720 decrease
D $2720 increase
9 A trader sent goods to a customer on a sale or return basis. At the trader’s year end he had not
heard if the customer had accepted the goods.
Where should the value of goods be included in the trader’s books of account at the year end?
A inventory and sales revenue

B inventory only
C sales revenue and trade receivables
D sales revenue only
© UCLES 2020 9706/12/F/M/20
Page 187
5
10 On 1 May 2018 Trevor had a debit balance of $3000 on his rent receivable account.
Rent received during the year was as follows.
28 May 2018 18 000

30 November 2018 16 000
On 30 April 2019, $4000 was owing to Trevor for rent for the period ended 30 April 2019.
Which entry should be made in the income statement for rent receivable for the year ended
30 April 2019?
A $33 000 B $35 000 C $38 000 D $41 000
11 A sole trader makes a profit for the year of $31 000, after taking the following items into account.
carriage inwards 2 600

decrease in provision for doubtful debts 1 500
discount received 2 000
other expenses 28 000
profit on disposal of non-current asset 300
What was the gross profit for the year?
A $55 200 B $55 500 C $56 700 D $57 800

Page 188
6
12 X and Y are in partnership sharing profit and losses equally.
Y’s opening current account balance was $1350 debit.
The residual profit for the year was $23 500.
Y was entitled to the following.
interest on capital 1 200

salary 14 500
Y’s drawings during the year were $25 000.
What is the closing balance of Y’s current account at the year end?
A $1100 credit
B $1100 debit
C $3800 credit
D $3800 debit
13 F and P are in business sharing profits and losses in the ratio 3 : 1.
Their capital account balances are:
F 90 000
P 60 000
B is introduced as a new partner and invests $50 000 as capital.
Goodwill is valued at $20 000 and is not to be retained in the books of account.
The new profit sharing ratio will be 2 : 2 : 1 for F, P and B respectively.
What is the new capital account balance of F following B’s admission?
A $57 000 B $83 000 C $97 000 D $105 000
© UCLES 2020 9706/12/F/M/20
Page 189
7
14 L and M are in partnership, sharing profits and losses in proportion to their capital invested. The
following information is available:
capital: L 68 000
M 102 000
profit for the year before appropriation 28 900
drawings: L 8 000
M 12 000
No interest is charged on drawings up to $10 000 for each partner.
Interest at a rate of 5% is charged on any drawings in excess of $10 000.
What was L’s share of residual profit?
A $11 520 B $11 600 C $11 800 D $11 960
15 Which item is shown in the statement of changes in equity?
A dividend proposed
B interest on long-term loan
C issue of debenture
D revaluation gain on non-current assets
16 Which statement about bonus shares is correct?
A They may be issued as repayment of debentures.

B They may be issued at a premium.
C They may be issued to the holders of preference shares.
D They may be issued using the share premium account.

Page 190
8
17 The equity of P Limited at 1 January 2019 was $668 000.
Profit for the year ended 31 December 2019 was $120 000.
During the year ended 31 December 2019, the following also took place:
1 April Paid an interim dividend of $40 000

1 July Transferred $50 000 from retained earnings to general reserve
1 October Issued 5% debentures for $200 000
31 December Proposed a final dividend of $30 000
What was the total equity of P Limited at 31 December 2019?
A $698 000 B $718 000 C $748 000 D $948 000
18 A business applied a mark-up of 25%.
A Gross margin is 20%.

B Gross margin is 25%.
C Profit margin is 20%.
D Profit margin is 25%.
19 A company’s results for a year showed credit sales of $500 000.
The trade receivables collection period was 73 days.
In the next year, credit sales were expected to be $550 000 and the collection period was not
expected to change.
What is the expected percentage change in trade receivables?
A decrease of 10%
B increase of 10%
C decrease of 20%
D increase of 20%
© UCLES 2020 9706/12/F/M/20
Page 191
9
20 A business has the following current assets and current liabilities.
trade receivables 6000

bank overdraft 1500
cash in hand 50
trade payables 5050
The only other item in the working capital is inventory.
The current ratio is 2 : 1.
What is the value of the inventory?
A $2550 B $4050 C $5550 D $7050
21 A mechanic carries out regular factory machine maintenance. He is paid an annual salary of
$20 000.
Which type of cost is this?
A direct labour cost

B fixed factory cost
C variable factory cost
D variable administrative cost
22 A manufacturer uses the weighted average cost (AVCO) method of inventory valuation. Opening
inventory was 10 units at $50 each.
During the month:
30 units were purchased costing $70 each.
20 units were sold at $80 each.
What was the value of the inventory at the end of the month?
A $1200 B $1300 C $1400 D $1600
23 Which statement is correct when production increases?
A Total fixed costs fall.

B Total variable costs fall.
C The fixed cost per unit falls.
D The variable cost per unit falls.

Page 192
10
24 Why might absorption costing be used?
1 to calculate contribution
2 to decide whether or not to accept a special order
3 to make long-term decisions
4 to set the selling price of a product
25 The following information is available for a business.
fixed overheads
hours
$
budget 180 000 10 000

actual 190 000 11 000
What was the over-absorption or under-absorption of fixed overheads?
A $8000 over
B $8000 under
C $10 000 over
D $10 000 under
26 A business plans to sell all the 10 000 units produced next year at the same price as this year.
Direct costs are forecast to decrease by $2 per unit and total fixed costs will increase by $40 000.
What will be the effect of this?
total cost break-even point
A decrease decrease
B decrease increase
C increase decrease
D increase increase
© UCLES 2020 9706/12/F/M/20
Page 193
11
27 The following information is available for a business.
sales revenue 600 000

variable cost 180 000
break even sales revenue 400 000
What is the profit for the period?
A $120 000 B $140 000 C $280 000 D $300 000
1 It assumes costs and revenues behave in a linear fashion.

2 It assumes that only activity levels are uncertain.
3 It considers activity levels, marginal costs and revenues.
29 A company is forecasting its profits at two levels of activity.
sales units 5000 8000

$ $
total fixed and variable costs 20 000 26 000
profit 15 000 30 000
sales revenue 35 000 56 000
Fixed costs and selling prices are unchanged within the above activity range.
What is the forecast profit if sales were 7000 units?
A $21 000 B $25 000 C $26 000 D $26 250
30 Why would a business prepare budgets?
1 to communicate its plans

2 to enable it to control costs
3 to improve its products’ quality
4 to plan its operations
© UCLES 2020 9706/12/F/M/20
Page 194
* 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 [ ].
DC (PQ) 181349/2
Page 195
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

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.
REQUIRED
(a) Prepare the income statement for the year ended 31 December 2019.
S Limited
Income statement for the year ended 31 December 2019
© UCLES 2020 9706/22/F/M/20
Page 196
4
The following additional balances were also available at 1 January 2019.
$
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
Page 197
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]
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.

Page 198
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]

Page 199
8
The directors of K Limited prepare financial statements to 31 December. They have provided the
following information.
Balances at 1 January 2019
$
Motor vehicles cost 180 000
Motor vehicles provision for depreciation 105 000
During the year ended 31 December 2019
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]
(ii) disposal account
© UCLES 2020 9706/22/F/M/20
Page 200
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
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]
11
(b) Prepare the sales ledger control account for the year ended 31 December 2019.
© UCLES 2020 9706/22/F/M/20
Page 201
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
Page 202
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
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]
Page 203
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
Page 204
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]
The customer offered $9 000 for this order.
REQUIRED
(h) Advise Cuthbert whether or not he should accept the order. Justify your answer.

Page 205
ACCOUNTING 9706/32
INSERT 3 hours
INFORMATION
*1923414812-I*
● This insert contains all of the required information and questions. The questions are provided in the
insert for reference only.
● You may annotate this insert and use the blank spaces for planning. Do not write your answers on the
insert.
DC (NF) 181290/5
Page 206
2
Section A : Financial Accounting
Question 1
Source A1
T Limited, a manufacturing company, extracted the following balances from its books of account for the
year ended 31 December 2019.
$
Sales revenue 782 000
Purchases of raw materials 200 400
Direct wages 206 400
Direct manufacturing expenses 8 600
Repairs 18 000
Inventory at 1 January 2019
Raw materials 17 300
Work in progress 20 400
Finished goods (cost) 55 000
Other administrative expenses 66 200
1 T Limited transfers the finished goods to the trading section of the income statement at total
production costs plus a mark-up which is not constant. The transfer price represents the
amount that T Limited would have had to pay if the goods were purchased from an outside
supplier.
2 The transfer value for the year ended 31 December 2019 was $632 400. The mark-up for the
2018 transfer value was 20%.
3 Inventory at 31 December 2019:
$
Raw materials 18 700
Work in progress 21 500
Finished goods (at transfer price) 75 888
4 At 31 December 2019, rent and rates remaining unpaid amounted to $3000.
5 The depreciation charge for the year 2019 amounted to $48 000.
6 The following expenses are to be apportioned as follows:
Factory Administrative
Rent and rates 3/5 2/5
Repairs 3/4 1/4
Depreciation 2/3 1/3
© UCLES 2020 9706/32/INSERT/F/M/20
Page 207
3
Answer the following questions in the Question Paper. Questions are printed here for reference
only.
(a) Prepare the manufacturing account for the year ended 31 December 2019. [8]
(b) Prepare the income statement for the year ended 31 December 2019. [7]
(c) Calculate the amount at which finished goods are included in inventory at 31 December 2019.
[2]
(d) Explain, with the support of accounting concepts, the treatment of unrealised profit on finished
goods in both the income statement and statement of financial position. [5]
(e) Advise the directors of T Limited whether or not they should continue basing the transfer price
on the price paid to an outside supplier. Justify your answer. [3]
[Total: 25]

Page 208
4
Question 2
Source A2
SS Club had the following balances at 31 December.
2018 2019
$ $
Café equipment (net book value) 126 500 101 200
Furniture and fixtures (net book value) 48 200 66 560
Café inventory 13 000 ?
Subscriptions in advance 2 600 1 500
Subscriptions in arrears 3 800 4 200
Café trade payables 26 400 29 600
Café wages accrued 5 000 Nil
Cash at bank 33 500 ?
The following information related to the year ended 31 December 2019.
1 Café sales $240 000 were on a cash basis. All café takings were banked on the same day.
One quarter of the café sales were made to non-members at a gross margin of 50%. The
remaining café sales were made to members at a gross margin of 40%.
2 Café purchases were $141 000.
3 No records had been kept for ascertaining café inventory at 31 December 2019.
4 There were no purchases or disposals of café equipment.
5 Café wages recognised in the income and expenditure account were $46 000.
only.
(a) Prepare the café trading account for the year ended 31 December 2019, showing clearly the
closing café inventory. [5]
The club had prepared an income and expenditure account for the year ended 31 December 2019.
The following items were shown in the income and expenditure account.
$
Subscriptions 322 000
Depreciation: furniture and fixtures 16 640
(b) Prepare the receipts and payments account for the year ended 31 December 2019. [8]
(c) State two differences between an income and expenditure account and a receipts and
payments account. [2]
© UCLES 2020 9706/32/INSERT/F/M/20
Page 209
5
The treasurer is aware that in early 2020, the club will receive two sums of donations from two
wealthy members. One donor intends his donation to be used for maintaining the general running
of the club in future years. The other donor intends his donation to be used for building a swimming
pool in a few years’ time.
(d) Explain the appropriate accounting treatment for the donation for:
(i) maintaining the general running of the club in future years [4]
(ii) building a swimming pool in a few years’ time. [3]
In view of the large cash balance in the club, the committee is thinking of making a distribution to
the existing members, just like paying a dividend to shareholders in a limited company.
(e) Advise the committee whether or not the proposed distribution should be made. Justify your
answer. [3]
[Total: 25]

Page 210
6
Question 3
Source A3
Ahmed and Omar were sole traders in the same trade. They decided to merge their businesses to form
a partnership on 1 January 2020.
The books of account of Ahmed and Omar had the following balances of assets and liabilities at
1 January 2020.
Ahmed Omar
$ $
Motor vehicles 74 000 46 000
Cash at bank Nil 28 600
Bank overdraft 8 900 Nil
The following was also agreed.
1 The values of each sole trader’s business at 1 January 2020 were:
$
Ahmed 400 000
Omar 300 000
2 The partnership would take over all the assets and liabilities of both businesses at the
following values:
Ahmed Omar
$ $
Cash at bank Nil 28 600
only.
(a) Calculate the value of goodwill of each of Ahmed’s and Omar’s businesses. [6]
(b) Prepare the statement of financial position of the partnership at 1 January 2020 if goodwill is
included. [6]
The profit and loss sharing ratio between Ahmed and Omar is 3:2.
Both partners also agreed that goodwill would not be maintained in the books of account.
© UCLES 2020 9706/32/INSERT/F/M/20
Page 211
7
(c) Calculate the capital account balance of each partner after goodwill is eliminated. [2]
(d) Explain the meaning of the term ‘goodwill’. [3]
(e) Explain why the goodwill account is not maintained in the books of the partnership. Support
your answer by reference to the accounting concepts. [4]
The partners plan to purchase additional equipment costing $80 000. They are considering making
loans to the partnership or applying for a bank loan.
(f) State one advantage and one disadvantage to the partnership of each option. [4]
[Total: 25]

Page 212
8
Question 4
Source A4
The summarised statement of financial position of J plc at 31 December 2019 was as follows:
$000
Non-current assets 3360
Current assets 1320
Total assets 4680
Equity and liabilities

Equity
$1 ordinary shares 2000
Share premium 260
Total equity 3100
Non-current liabilities
6% debentures 800
Current liabilities 780

Total equity and liabilities 4680
1 J plc’s profit from operations for the year ended 31 December 2019 was $588 000.
2 A dividend of $0.12 per share was paid during the year and a dividend of $0.08 per share was
proposed at 31 December 2019.
3 The market price of one ordinary share was $3.20 on 31 December 2019.
only.
(a) Calculate, to two decimal places, the following ratios:
(i) earnings per share [2]

(ii) price earnings ratio [1]
(iii) dividend cover [1]
(iv) dividend yield. [1]
The directors of J plc aim to maintain a higher dividend cover in the coming three years.
(b) Explain why the directors wish to maintain a higher dividend cover. [3]
During the year ended 31 December 2019, J plc was sued by a customer for the breach of a sales
contract. The case will be heard in court in May 2020. The lawyer of J plc advises the directors
that it is highly probable that the company will be found liable and the compensation is likely to be
$20 000. No accounting entries have been made to record this.
© UCLES 2020 9706/32/INSERT/F/M/20
Page 213
9
(c) Define the following terms:
(i) liability [2]

(ii) provision [2]
(iii) contingent liability. [2]
(d) Explain the accounting treatment of the expected compensation of $20 000 in the financial
statements by making reference to the relevant International Accounting Standard (IAS). [6]
J plc needs additional funds for future expansion. The directors are considering the following two
options:
option 1 : rights issue of ordinary shares
option 2 : further issue of 6% debentures.
(e) Advise the directors which of the two options they should choose. Justify your answer. [5]
[Total: 25]

Page 214
10
Section B : Cost and Management Accounting
Question 5
Source B1
The sales budget of Z Limited for five months to 31 May 2020 is as follows.
Units
January 3000
February 4000
March 4800
April 4400
May 5000
1 Finished goods inventory at the end of each month is equal to 20% of the following month’s
sales.
2 Each unit of finished goods requires three kilos of direct materials. Direct materials are
purchased every month.
3 Direct materials inventory at the end of each month is equal to 10% of the following month’s
production needs.
only.
(a) (i) Explain the meaning of the term ‘master budget’. [2]
(ii) State two components of a master budget (other than production and purchases). [2]
(b) Prepare the following budgets for each of the months of February and March 2020.
(i) Production budget (in units) [4]

(ii) Purchases budget (in kilos) [6]
There will be an increasing trend in the purchase price of direct materials. The purchase price of
direct materials for the first three months is expected to be:
per kilo
$
January 3.25
February 3.50
March 3.60
Z Limited adopts the first-in, first-out (FIFO) method to value direct materials inventory.
© UCLES 2020 9706/32/INSERT/F/M/20
Page 215
11
(c) Calculate the budgeted cost of direct materials consumed for the month of February 2020.
[4]
(d) Explain the impact on profit of using FIFO and average cost (AVCO) in the circumstances of
rising direct materials price. [4]
The marketing manager of the company is of the opinion that due to the unpredictable economic
climate, it is not worthwhile to prepare a budget.
(e) Discuss whether or not the marketing manager’s opinion is correct. Justify your answer. [3]
[Total: 25]

Page 216
12
Question 6
Source B2
The directors of W Limited plan to buy a machine costing $480 000 from an overseas manufacturer.
The machine has an estimated useful life of four years with no residual value.
Estimated receipts and payments are as follows:
Receipts Payments
$ $
Year 1 260 000 90 000
Year 2 290 000 120 000
Year 3 330 000 140 000
Year 4 130 000 80 000
The cost of capital of W Limited is 10%.
The discount factors are as follows:
7% 10%
Year 1 0.935 0.909
Year 2 0.873 0.826
Year 3 0.816 0.751
Year 4 0.763 0.683
only.
(a) Calculate for the proposed investment:
(i) the payback period (in months) [3]

(ii) the net present value (NPV) [4]
(iii) the internal rate of return (IRR). [4]
(b) Advise the directors whether or not they should buy the machine. Justify your answer by
reference to your calculations in part (a). [4]
The cost of the machine, $480 000, includes the purchase price plus a 20% tariff (import duty) on
the purchase price. Due to a recent trade agreement, it is highly probable that the 20% tariff will be
abolished.
On the basis that the tariff is to be abolished, the directors have recalculated the payback period
and NPV and decided to buy the machine.
(c) Comment on the directors’ decision to buy the machine when the tariff is abolished. Support
your answers with relevant calculations. [6]
(d) Explain why the directors of W Limited use the payback period and NPV to make their
investment decisions. [4]
[Total: 25]
© UCLES 2020 9706/32/INSERT/F/M/20
Page 217
ACCOUNTING 9706/32
INSERT 3 hours
INFORMATION
*8289165225-I*
insert.
DC (SC) 181613/6
Page 218
2
Question 1
Source A1
The statements of financial position of P plc at 31 December were as follows.
2019 2018
$ $
Non-current assets
Plant and machinery 344 250 225 000
434 250 361 000
Current assets
Inventory 34 650 44 600
Cash and cash equivalents Nil 12 400
84 350 95 900
Total assets 518 600 456 900

Equity
Ordinary share capital
($1 shares) 300 000 300 000
Retained earnings 61 700 88 200
401 700 428 200
Bank loan 80 000 Nil
Current liabilities
Other payables 6 800 8 600
36 900 28 700
Total equity and liabilities 518 600 456 900
Other payables included the following:
2019 2018
$ $
Accrued expenses 1100 3400
Accrued interest 2600 Nil
Tax payable 3100 5200
6800 8600
© UCLES 2020 9706/32/INSERT/M/J/20
Page 219
3
The following information relating to the year ended 31 December 2019 is also available.
1 A motor vehicle with net book value of $7000 was sold for $8300.
2 Additional machines costing $180 000 were purchased.
3 Interest expenses, $4800, were incurred.
4 Tax charge was $3100.
5 An interim dividend of $0.08 per share was paid in August 2019.
only.
(a) State the usefulness of a statement of cash flows to potential shareholders. [3]
(b) Calculate the profit from operations for the year ended 31 December 2019. [5]
(c) Prepare a reconciliation of the profit from operations to the cash from operations or cash
used in operations for the year ended 31 December 2019. [7]
(d) Prepare an extract of statement of cash flows for the year ended 31 December 2019, showing
the net cash from or used in:
(i) operating activities [3]
(ii) financing activities. [2]
During a directors’ meeting in April 2020, one of the directors said:
‘We have to make our shareholders happy. Even though the bank overdraft has increased since
31 December 2019, we still have to pay cash dividends for 2020 to our shareholders.’
All the directors agreed with this view.
(e) Discuss whether or not it is appropriate for P plc to pay out cash dividends to shareholders in
2020. Justify your answer. [5]
[Total: 25]

Page 220
4
Question 2
Source A2
Amir and Ishan had been in partnership providing IT solutions. They shared profits and losses in the
ratio of 3 : 2 respectively.
Raj had a similar business as a sole trader. Raj merged his business with Amir and Ishan on
30 June 2019.
Balances at 30 June 2019 were as follows.
Amir and
Ishan Raj
$ $
Inventory 47 200 12 500
Cash at bank 13 600 11 300
Capital account
Amir 300 000
Ishan 200 000
Raj 88 350
Current account
Amir 11 100 credit
Ishan 3 800 debit
The following arrangements had been agreed upon the merger.
1 The goodwill of the businesses was agreed as: Amir and Ishan $25 000, Raj $50 000.
2 All Raj’s assets and liabilities would be taken over by the partnership except cash at bank.
3 Assets of Amir and Ishan would remain at their book value.
4 Raj’s assets would be revalued as follows:

plant and equipment and inventory increased by 5%
trade receivables reduced by 10%.
5 Raj’s initial capital would be $100 000. Out of the amount payable to Raj upon the final settlement,
Raj agreed that $20 000 would be a long-term loan to the new partnership at an interest rate of 4%
per annum.
© UCLES 2020 9706/32/INSERT/M/J/20
Page 221
5
only.
(a) Calculate the net amount payable to Raj by Amir and Ishan. [6]
The partners also agreed to the following terms.
1 The profit and loss sharing ratio among Amir, Ishan and Raj would be 3:2:1 respectively.
2 The total goodwill would not be maintained in the books.
(b) Prepare the statement of financial position of the new partnership on 1 July 2019. [12]
(c) Explain two reasons why Amir and Ishan prefer asking for a loan from Raj instead of from the
bank. [4]
Amir’s friend Lala has just left an international IT firm and wants to join the partnership.
(d) Advise whether or not Amir, Ishan and Raj should admit Lala as a partner. Justify your answer.
[3]
[Total: 25]

Page 222
6
Question 3
Source A3
The J Club prepares its accounts to 31 December annually. It also runs a shop for the exclusive use of
its members. All shop sales are made on a cash basis. The shop takings are banked on the same day.
A summary of the bank statement for the year ended 31 December 2019 is as follows.
$
Bank balance at 1 January 9 850
Bank receipts
Subscriptions received 78 650
Shop takings 49 200
Bank payments
Club administrative expenses 78 600
Shop wages 18 700
Shop expenses 9 400
Shop purchases 15 100
Bank balance at 31 December 15 900
The following balances are also available.

$ $
Shop inventory 1 300 1 100
Shop trade payables 2 740 2 810
Subscriptions due 1 600 1 900
Subscriptions in advance 1 200 400
Club equipment
Cost 40 000 40 000
Accumulated depreciation 32 000 ?
The bank reconciliation statement for the month of December 2019 showed that $870 representing the
shop takings on 31 December 2019 had not been credited by the bank.
Depreciation on club equipment is to be 20% per annum using the straight-line method.
© UCLES 2020 9706/32/INSERT/M/J/20
Page 223
7
only.
(a) Prepare a statement to show the shop’s gross profit and profit for the year ended
31 December 2019. [4]
(b) Prepare the club’s income and expenditure account for the year ended 31 December 2019.
[5]
(c) Prepare a statement showing the movement in the club’s accumulated fund for the year
ended 31 December 2019. [3]
(d) State four differences between the financial statements of a limited company and the financial
statements of a not-for-profit organisation. [4]
All the club equipment was purchased on 1 January 2015. The replacement cost of club equipment
is $50 000.
(e) Analyse the club’s ability to replace the club equipment in 2020. [4]
The treasurer of the club proposes that the club could increase members’ subscriptions to finance
the replacement of club equipment.
(f) Discuss whether or not the club should increase members’ subscriptions for this purpose.
Justify your answer. [5]
[Total: 25]

Page 224
8
Question 4
Source A4
The financial year of W plc ends on 31 December. The summarised total assets in the draft statement
of financial position at 31 December 2019 were as follows.
$
Current ratio 1.6 : 1
Gearing ratio 12.5%
only.
(a) Prepare the summarised equity and liabilities section of the draft statement of financial
position of W plc at 31 December 2019. [4]
The non-current liabilities were represented by the bank loan obtained in 2018. The interest is 5%
per annum.
Return on capital employed was 22.50%.
(b) Calculate the draft profit for the year ended 31 December 2019. [3]
W plc had the following balances at 1 January 2019.
$
Ordinary share capital ($1 shares) 200 000
General reserve 21 000
In January 2019, 100 000 ordinary shares were issued at $1.40 per share.
On 30 November 2019, a final dividend was paid. The dividend cover for the year was 2.5 times.
In December 2019, a bonus issue of one ordinary share for every six held was made. The reserves
were maintained in their most flexible form.
On 31 December 2019, retained earnings of $18 000 were transferred to the general reserve.
(c) Prepare the draft statement of changes in equity for the year ended 31 December 2019. The
total column is not required. [10]
© UCLES 2020 9706/32/INSERT/M/J/20
Page 225
9
On 18 January 2020, before the draft financial statements were presented to the auditors, it was
found that one of the customers, owing $8000 at 31 December 2019, had been declared bankrupt.
(d) Define the meaning of the terms ‘adjusting events’ and ‘non-adjusting events’ according to
IAS 10. [4]
(e) Explain the appropriate accounting treatment of the amount of $8000 owed by a customer
declared bankrupt at 31 December 2019. [4]
[Total: 25]

Page 226
10
Question 5
Source B1
V Limited operates a standard costing system and a system of budgetary control.
The budgeted information and standard costs for March 2020 were as follows.
Budgeted output 2 500 units

Budgeted fixed overheads $48 000
Standard cost per unit
Direct materials $24 (3 kilos at $8 each)
Direct labour $64 (4 hours at $16 each)
V Limited uses labour hours to absorb fixed overheads.
The actual results for March 2020 were as follows.
Output 2 400 units

Fixed overheads $49 800
Direct materials cost $68 340
Direct materials usage 8 040 kilos
Direct labour costs $156 864
Direct labour hours 9 120 hours
only.
(a) Prepare a cost statement, in a columnar form, showing the master budget, flexed budget, and
the actual result. [7]
(b) (i) Calculate the direct materials variance. [1]
(ii) Analyse the reasons for the direct materials variance. Support your answer with
calculations. [4]
(c) (i) Calculate the direct labour variance. [1]
(ii) Analyse the reasons for the direct labour variance. Support your answer with calculations.
[4]
(d) (i) Calculate the total fixed overheads variance. [1]
(ii) Calculate the fixed overheads expenditure variance. [1]
(iii) Calculate the fixed overheads volume variance. [1]
© UCLES 2020 9706/32/INSERT/M/J/20
Page 227
11
In a meeting reviewing the April 2020 budget, a director suggested that the production manager
should be fully accountable for the adverse variances of direct materials and direct labour in April
2020. The production manager explained that due to the main supplier’s failure to supply the
required materials, he had to ask the manager of the purchasing department to buy the materials
from another supplier. This had caused a delay in production.
(e) Discuss whether or not the production manager should be fully accountable for the adverse
variances in direct materials and direct labour. Justify your answer. [5]
[Total: 25]

Page 228
12
Question 6
Source B2
T limited has the following sales budget (in units) for the first five months of 2021.
January February March April May

2400 2600 2800 3000 3200
1 The budgeted unit contribution will be:
$
selling price 75
raw materials 3 kilos at $8 each 24
direct wages 2 hours at $14 each 28
contribution 23
2 The ratio of credit sales to cash sales is 3 : 2 respectively. Credit customers are normally allowed
a 2-month credit period. However, they will enjoy a 5% cash discount if they settle their trade
debts in the following month after sales. It is estimated that 20% of customers will take the cash
discount.
3 Products sold during a month will be produced one month before they are sold. Raw materials
will be purchased one month before the production. Suppliers will be paid one month after the
purchases.
4 80% of wages will be paid in the month of production while the remainder will be paid in the
following month.
5 An additional machine, costing $36 000, will be purchased and paid for in April.
6 Other overheads of $56 210 will be paid in the month they are incurred. This includes depreciation
of $4200. The additional machine will increase the depreciation by $600 each month from April.
7 Cash balance at 1 March 2021 is estimated to be $39 400.
only.
(a) Prepare a cash budget for each of the months of March and April. [13]
(b) Explain two purposes of preparing a monthly cash budget. [4]
(c) Assess whether the budgeted April sales will achieve or exceed the break-even point. [4]
© UCLES 2020 9706/32/INSERT/M/J/20
Page 229
13
The directors are considering measures to improve the company’s cash position.
(d) Explain to what extent making sales exceeding the break-even point will improve the
company’s cash position. [4]
[Total: 25]
© UCLES 2020 9706/32/INSERT/M/J/20
Page 230
ACCOUNTING 9706/33
INSERT 3 hours
INFORMATION
*0535428445-I*
insert.
DC (JC) 181772/4
Page 231
2
Question 1
Source A1
The following are the statements of financial position for W Limited at 31 December.
2019 2018
$ $
Non-current assets
Premises 380 000 320 000
Machinery 203 000 202 000
696 200 640 000
Current assets
Inventory 32 550 36 500
Cash at bank 16 400 8 100
98 250 90 800
Total assets 794 450 730 800

Equity
Ordinary share capital ($1 shares) 440 000 400 000
General reserve 50 000 35 000
Retained earnings 79 300 104 000
Revaluation reserve 80 000 Nil
709 300 579 000
Bank loan 30 000 100 000
Current liabilities
Tax payable 13 400 12 600
Accrued interest 750 2 500
55 150 51 800
Total equity and liabilities 794 450 730 800
© UCLES 2020 9706/33/INSERT/M/J/20
Page 232
3
The following information relates to the year ended 31 December 2019.
1 Premises were revalued at $400 000 on 1 January 2019. There were no purchases or disposals of
premises during the year.
2 Additional machines costing $28 000 were purchased during the year.
3 A motor vehicle costing $65 000, with an accumulated depreciation of $26 000, was sold during
the year for $32 500. It was replaced by a new motor vehicle at a cost of $74 000.
4 Tax and interest charged for the year amounted to $13 400 and $8250 respectively.
5 Interim dividend of $0.11 per share was paid in August 2019 before 40 000 additional ordinary
shares were issued for cash.
6 Profit from operations for the year ended 31 December 2019 was $55 950.
only.
(a) State three differences between a statement of cash flows and a cash budget. [3]
(b) Prepare a statement reconciling the profit from operations with the cash from operations for
the year ended 31 December 2019. [9]
(c) Prepare a statement of cash flows for the year ended 31 December 2019. Start your answer
with cash from operations from (b). [7]
(d) Discuss the effect of an increase in general reserve during the year on cash flow. [2]
The bank loan of $100 000 was to be repaid in 2022. The directors made an early repayment in
part on 30 September 2019.
(e) Discuss whether or not the directors were right in repaying part of the bank loan during the
year ended 31 December 2019. Justify your answer. [4]
[Total: 25]

Page 233
4
Question 2
Source A2
AD Limited sells watches and clocks. Watches are manufactured by the company and clocks are
bought from a local manufacturer.
The following balances were extracted from the books of AD Limited at 31 December 2019.
$
Sales revenue
watches 628 000
clocks 332 000
Purchases
raw materials 132 700
clocks 252 600
Plant and machinery (at cost) 320 000
Office equipment (at cost) 210 000
Accumulated depreciation at 1 January 2019
plant and machinery 184 000
office equipment 94 000
Inventory at 1 January 2019
watches finished goods (cost) 40 000
watches work in progress 9 000
clocks 28 400
Direct wages 168 000
Manufacturing overheads 63 500
1 Manufactured watches are transferred to the trading account at production cost plus a mark-up of
20%.
2 Inventory at 31 December 2019 is as follows:

$
watches finished goods (at transfer price) 54 000
watches work in progress 9 700
clocks 29 600
3 Prepaid rent and rates at 31 December 2019 were $4000.
4 Rent and rates are allocated between manufacturing and administrative expenses in the ratio of
3 : 2.
5 Depreciation is provided as follows:

plant and machinery 25% per annum using the reducing balance method
office equipment 15% per annum using the straight-line method
© UCLES 2020 9706/33/INSERT/M/J/20
Page 234
5
only.
(a) State:
(i) the meaning of the term ‘work in progress’. [1]
(ii) how work in progress is valued. [2]
(b) Prepare the manufacturing account (for watches) for the year ended 31 December 2019. [7]
(c) Calculate the gross profit for the year ended 31 December 2019 on the sale of watches and
clocks. [2]
(d) Prepare an extract from the income statement for the year ended 31 December 2019, showing
the gross profit, the manufacturing profit and the adjustment of the provision for unrealised
profit. [3]
(e) Explain the accounting treatment in the income statement and the statement of financial
position of the provision for unrealised profit. Support your answer with reference to the
accounting concepts. [5]
The directors are considering whether they should stop selling watches and sell only clocks in the
future.
(f) Advise the directors whether they should sell only clocks in the future. Justify your answer
with reference to your calculations in (c) and (d). [5]
[Total: 25]

Page 235
6
Question 3
Source A3
Ang and Kim had been in partnership for many years, sharing profits and losses in the ratio of 3 : 2.
The books of account of the business had the following balances at 31 December 2019.
$
Office equipment 42 400
Motor vehicles (two vehicles) 27 700
Inventory 11 400
Capital account
Ang 42 000
Kim 38 000
Current account
Ang 2 500 debit
Kim 5 300 credit
The business was taken over by X Limited on 1 January 2020.
1 X Limited took over the assets of the partnership as follows:
office equipment $35 600

one motor vehicle $20 000
inventory value increased by 20%
trade receivables after allowing a provision for doubtful
debts of 4%
goodwill calculated as the average profit for
the last three years
average profit
$
2017 26 000
2018 31 000
2019 39 000
2 X Limited settled the purchase consideration by issuing 50 000 ordinary shares of $1 each at a
share premium of $0.80 per share and the remainder in cash. Ordinary shares were allocated to
the partners equally.
3 Trade payables were settled in full by the partnership for $13 000.
4 The other motor vehicle was taken over by Ang at a value of $10 000.
5 Realisation costs incurred by the partnership amounted to $3700.
© UCLES 2020 9706/33/INSERT/M/J/20
Page 236
7
only.
(a) Calculate the purchase consideration payable by X Limited. [4]
(b) Prepare the realisation account. [7]
It was agreed that the allocation of X Limited’s shares to the partners and the final settlement by
the partners to or from the partnership bank account will go through the partners’ capital accounts.
(c) Prepare partners’ capital accounts in a columnar form. [6]
After issuing 50 000 ordinary shares to Ang and Kim, X Limited had an issued ordinary share
capital of $300 000.
Ang and Kim were appointed as directors of X Limited and each received $25 000 per annum as
director fees.
X Limited forecasted that the profit for 2020, after acquisition of the partnership business, would
increase by $60 000 to $260 000.
It is expected that the dividend paid for 2020 will be $0.65 per share.
(d) Suggest three reasons for the forecast increase in profit in 2020. [3]
(e) Discuss whether or not Ang and Kim had made the right decision to sell the partnership
business to X Limited. Justify your answer giving both financial and non-financial reasons.
[5]
[Total: 25]

Page 237
8
Question 4
Source A4
The draft financial statements of M plc are being prepared. The equity and current liabilities at
31 December 2019 amounted to $480 000 and $45 000.
Gearing ratio 20%
only.
(a) Prepare the summarised draft statement of financial position at 31 December 2019. [4]
1 Further analysis of the equity at 31 December 2019 is as follows:
$
ordinary share capital ($1 shares) 300 000
general reserve 28 000
480 000
2 The current market price of one ordinary share is $2.40.
3 The price earnings ratio is 10 and the dividend yield is 5%.
4 An amount of $10 000 had been transferred from retained earnings to the general reserve
during the year ended 31 December 2019.
(b) Prepare an extract from the statement of changes in equity for the year ended
31 December 2019 showing the movement of retained earnings. [6]
© UCLES 2020 9706/33/INSERT/M/J/20
Page 238
9
During their review of the draft financial statements, the auditors brought two issues to the attention
of the directors.
Issue 1
During the year ended 31 December 2019, M plc had bought a specialised machine. The machine
had been designed by M plc and made by an overseas manufacturer. The following costs had
been incurred:
$
Design 7 000
Manufacture 26 000
Installation 3 000
Repair and maintenance 4 000
M plc had capitalised the manufacture cost, $26 000, and all other costs were charged to the
income statement. The company depreciates the machinery at 25% per annum using the
straight-line method. A full year’s depreciation is charged in the year of purchase.
Issue 2
M plc owns a warehouse. It was purchased on 1 January 2015 at a cost of $150 000. It has a
useful life of 25 years with no expected residual value. Its carrying value had been included in the
total value of non-current assets, without taking into account its fair value of $100 000 and value in
use of $112 000.
(c) Define the term ‘impairment of assets’. [4]
(d) Explain how the directors should adjust the draft financial statements to account for:
(i) issue 1 [2]
(ii) issue 2. [3]
(e) Calculate the adjusted profit for the year after considering issue 1 and issue 2. [6]
[Total: 25]

Page 239
10
Question 5
Source B1
T Limited had the following standard cost and budget information for the month of August.
Direct materials : kilos per unit 5

cost per kilo $4
Direct labour : hours per unit 3
rate per hour $12
Budgeted output and sales (units) 4 000
Budgeted direct labour hours 12 000
Budgeted fixed overheads $42 000
Expected unit selling price $82
T Limited uses absorption costing. The overhead absorption rate is based on direct labour hours.
only.
(a) Calculate the total budgeted profit for August. [2]
Actual output and sales for August were 4300 units, selling for $80 per unit.
Actual costs for August were as follows.
$
Total direct materials cost (22 790 kilos) 95 718
Total direct labour costs (12 040 hours) 150 500
Fixed overheads 43 600
(b) Calculate the actual profit for August. [1]
(c) Calculate the following variances:
(i) sales price variance
(ii) sales volume variance (use standard profit margin per unit)
(iii) labour rate variance
(iv) labour efficiency variance
(v) fixed overhead expenditure variance
(vi) fixed overhead volume variance.

[12]
© UCLES 2020 9706/33/INSERT/M/J/20
Page 240
11
Material price variance and material usage variance have been calculated at $4558 (adverse) and
$5160 (adverse).
(d) Prepare a statement reconciling the budgeted profit at 4000 units level with the actual profit.
You should start the statement with the budgeted profit in (a). [5]
After analysing the direct materials variances, the directors of T Limited plan to purchase raw
materials from a new supplier who provides better quality raw materials but at a higher price and
with no trade discount.
(e) Advise the directors whether or not T Limited should change to the new supplier. Justify your
answer. [5]
[Total: 25]

Page 241
12
Question 6
Source B2
V Limited manufactures two products, Standard and Premium.

The following budgeted information for 2020 is available.
Standard Premium
Units produced and sold 10 000 4000
Direct materials : unit cost $20 $30
Direct labour : hours per unit 3 5
rate per hour $18 $18
Budgeted factory overheads, $240 000, are to be allocated to the products on the basis of direct labour
hours.
only.
(a) Calculate the total production cost and the unit cost for each product. [5]
V Limited normally adds 40% to the cost of each product to set the selling price.
(b) Calculate the unit selling price for each product. [2]
V Limited is considering implementing an activity based costing (ABC) system. The management
accountant has prepared the following cost analysis.
Overhead Occurrences
Activity costs Cost driver Standard Premium
$
Materials handling 80 000 Number of purchase orders 30 10
Machine setups 90 000 Number of setups 65 25
Inspection 70 000 Number of units produced 10 000 4000
240 000
(c) Define the term ‘cost driver’. [1]
(d) State three benefits of adopting ABC. [3]
(e) Calculate the total production cost and unit cost for each product if ABC is used. [5]
(f) Calculate the unit selling price for each product if ABC is used. [2]
(g) Explain the difference in total production cost for each product in respect of (a) and (e). [3]
© UCLES 2020 9706/33/INSERT/M/J/20
Page 242
13
V Limited plans to manufacture only the Premium product from 2021.
(h) Explain why V Limited would find ABC useful in 2020 but not in 2021. [4]
[Total: 25]
© UCLES 2020 9706/33/INSERT/M/J/20
Page 243
ACCOUNTING 9706/12
1 hour

*1530464057*

Soft clean eraser
INSTRUCTIONS
INFORMATION
IB20 06_9706_12/4RP
Page 244
2
1 A business depreciates its non-current assets. It then includes them in the statement of financial
position at the net book value.
Which concept is the business following?
A duality
B prudence
C realisation
2 Which item is capital income?
A bank interest received

B proceeds from sale of business premises
C rental income from property
D sale of inventory to a customer
3 A company purchased a machine on 1 April 2017 for $25 000. It was depreciated at 20% per
annum using the straight-line method. A full year’s depreciation is charged in the year of
purchase but none in the year of sale. On 30 June 2019 the machine was sold for $12 500. The
company year-end is 31 December.
What was the profit or loss on the disposal of the machine?
A $1250 loss
B $1250 profit
C $2500 loss
D $2500 profit
4 Why do businesses charge depreciation on their non-current assets?
A to ensure that sufficient cash is available to replace the assets

B to show the realisable value of the assets in the statement of financial position
C to spread the cost of the assets over their estimated useful life
D to show when the assets must be replaced
© UCLES 2020 9706/12/M/J/20
Page 245
3
5 A trader’s trial balance did not agree at the end of the financial period and a suspense account
was opened.
The following errors were discovered.
1 No entry had been made in the books of account for a purchase of inventory, $650.
2 Purchase of a vehicle by cheque had been credited to bank but debited to motor
expenses.
3 The discount received of $300 had been correctly recorded in the purchases ledger
control account and was debited to discount allowed account.
4 The purchases account for the year had been incorrectly totalled.
Which errors would affect the suspense account?
A 1, 2 and 3
B 1 and 3 only
C 2 and 4 only
D 3 and 4 only
6 The following financial information is available for a business.
draft profit for the year 12 650

closing capital 52 780
The following error has been discovered.
Private fuel costs, $1930, had been charged in the business motor expenses account.
What are the correct figures for the year?
profit for the year closing capital

$ $
A 10 720 50 850
B 10 720 54 710
C 14 580 52 780
D 14 580 54 710

Page 246
4
7 A sales ledger control account has a closing balance of $21 000.
It was discovered that a contra entry with the purchases ledger control account for $700 had
been incorrectly entered on the wrong side of the sales ledger control account.
What was the correct sales ledger control account balance?
A $19 600 B $20 300 C $21 700 D $22 400
8 A sole trader does not keep a complete set of books of account. He believes a staff member has
stolen some cash.
Which items will not be needed to calculate the amount missing?
1 cash in hand at the beginning and end of the year

2 owner’s drawings taken from the bank
3 cheques received from customers
4 totals of cash sales and cash purchases
trade provision for

receivables doubtful debts
$ $
31 December 2018 46 200 1386

31 December 2019 48 100 1924
Which statement must be correct?
A The rate of provision for doubtful debts has decreased.

B The rate of provision for doubtful debts has increased.
C The value of irrecoverable debts incurred has decreased.
D The value of irrecoverable debts incurred has increased.
10 On 1 March a company has prepaid $3600 for 12 months’ travel costs. It also has an outstanding
hotel bill of $180.
During March it pays the outstanding hotel bill and a further $700 for airline tickets for the month.
At 31 March it has an outstanding hotel bill of $220.
What is the correct cost of travel in the income statement for March?
A $920 B $1220 C $1400 D $4520
© UCLES 2020 9706/12/M/J/20
Page 247
5
11 A business owner provided the following information at the end of his first year of trading.
closing inventory 15 000

total payments to suppliers 60 000
amount owing to suppliers 5 000
total receipts from customers 85 000
amount owed by customers 10 000
What was the gross profit for the year?
A $10 000 B $15 000 C $25 000 D $45 000
12 How should interest charged on a partner’s drawings account be treated?
A credited to the appropriation account

B credited to the income statement
C debited to the appropriation account
D debited to the income statement
13 X, Y and Z were in partnership, sharing profits equally. When Z retired from the business the
assets were revalued. Goodwill was also valued but was not retained in the books of accounts.
Which statement about Z’s retirement is correct?
A Only X and Y’s capital accounts will be adjusted for the revaluation.
B Only X and Y’s capital accounts will be adjusted for goodwill.
C The balance on Z’s current account will form part of her retirement settlement.
D Z may only be paid in cash for her share on retirement.

Page 248
6
14 L and M are in partnership, sharing profits and losses in the ratio of 3 : 2. They have the following
current account balances.
L M
$ $
31 March 2019 3 000 credit 4500 debit

31 March 2020 14 200 credit 6200 debit
The balances at 31 March 2020 are after taking into account the following.
L M
$ $
interest on drawings 1 000 1 500

interest on capital 3 000 2 000
drawings 10 000 15 000
What was the residual profit to be shared between L and M for the year ended 31 March 2020?
A $24 000 B $27 000 C $29 000 D $32 000
15 How is unpaid debenture interest recorded in the financial statements of a company at the year
end?
1 a current liability in the statement of financial position

2 a non-current liability in the statement of financial position
3 an expense in the income statement
4 an item in the statement of changes in equity
A 1 and 3 B 1 only C 2 and 3 D 2 and 4
© UCLES 2020 9706/12/M/J/20
Page 249
7
16 On 1 December 2019 a company’s statement of financial position included the following.
ordinary shares of $5 each 2 500 000

2019
15 December paid an ordinary share interim dividend of $0.15 per share

23 December made a bonus issue of 25 000 ordinary shares
Reserves were kept in their most flexible form.
What were the balances on the revenue reserves and capital reserves accounts after these
transactions?
revenue reserves capital reserves

$ $
A 335 000 725 000

B 335 000 825 000
C 635 000 725 000
D 635 000 825 000
17 A business sells goods at a uniform mark-up of 25%.
sales revenue 120 000

purchases 95 000
returns outwards 2 000
What is the value of closing inventory?
A $15 000 B $19 000 C $21 000 D $25 000

Page 250
8
18 The rate of inventory turnover of a company has been calculated for two successive periods.
current period 5.6 times

previous period 4.8 times
The following statements have been made about the change.
1 Inventory is moving more slowly in the current period.

2 Inventory is moving more quickly in the current period.
3 Management of inventory has been more efficient in the current period.
Which statements may explain the change?
19 The following items appear on a statement of financial position.
inventory 20 000
cash and cash equivalents 3 500
provision for doubtful debts 500
The current ratio is 3 : 1.
How much do the trade receivables owe?
A $9500 B $10 000 C $12 000 D $12 500
20 Which costs are indirect?
1 bought-in components used in a finished product

2 materials used for factory maintenance
3 raw materials used in a finished product
4 spare parts bought for factory machinery
A 1, 2 and 3 B 1, 2 and 4 C 2 and 4 only D 3 and 4
© UCLES 2020 9706/12/M/J/20
Page 251
9
21 A business provided the following information.
budgeted overheads $20 000

budgeted direct labour hours 2000
direct labour rate $20 per hour
A job used materials costing $45 and 6 hours of direct labour.
Overheads are charged on the basis of direct labour hours used.
What was the cost of the job before adding any profit?
A $105 B $165 C $180 D $225
22 A business has produced the following estimates of labour costs for next month.
units produced 600 800 1100

total labour cost $5690 $6170 $6890
What was the monthly fixed labour cost?
A $480 B $1200 C $2640 D $4250
23 Why are service centre costs apportioned to production departments?
A to act as a check on service centre managers

B to ascertain whether service centres are cost effective
C to ensure the service centre costs are included in selling prices
D to minimise the total costs of service centres

Page 252
10
24 The following data were available for a department for July.
budget actual
direct labour hours 40 000 41 950

machine hours 60 000 60 900
overheads $480 000 $499 200
What was the over or under absorption of overheads for July?
A $4200 over absorbed

B $4200 under absorbed
25 Which statements about marginal costing are correct?
1 It cannot be used as a basis to calculate contribution.

2 It is useful for decision-making.
3 It recognises the importance of fixed costs.
26 A company with fixed costs of $50 000 and a contribution to sales ratio of 40% makes a profit of
$30 000.
What are the total costs?
A $130 000 B $170 000 C $175 000 D $200 000
27 What is not an assumption made in cost–volume–profit analysis?
A Unit fixed cost is constant.

B Unit selling price is constant.
C Unit variable cost is constant.
D Units produced are all sold.
© UCLES 2020 9706/12/M/J/20
Page 253
11
28 The actual output for a business is lower than that forecast.
Which costs would normally still be the same as forecast?
1 fixed cost per unit

2 total fixed cost
3 total variable cost
4 variable cost per unit
29 A manufacturer produces a single product. The following information is available.
selling price per unit 14

variable costs per unit 8
fixed costs per annum 96 000
There are plans to reduce the selling price by $3 per unit and to reduce variable costs by $1 per
unit. Fixed costs will remain unchanged.
What will be the new break-even point?
A 9600 units
B 12 000 units
C 24 000 units
D 48 000 units
30 A company has recently introduced a system of budgetary control.
Workers have given the following reasons for failing to achieve the budget targets.
1 ‘We need more training.’

2 ‘The budget is unrealistic.’
3 ‘The budget needs to be changed to reflect actual conditions.
Which reasons should be considered when evaluating a worker’s performance?
A 1, 2 and 3
B 2 and 3 only
C 2 only
D 3 only
© UCLES 2020 9706/12/M/J/20
Page 254
ACCOUNTING 9706/13
1 hour

*3750503117*

Soft clean eraser
INSTRUCTIONS
INFORMATION
IB20 06_9706_13/4RP
Page 255
2
1 The owner of a business purchased a camera to take some photographs of her family.
She wishes to include it as an asset in the financial statements of the business. Her accountant
says that she should not do this.
Which accounting principle is the accountant applying?
A business entity
B consistency
C going concern
D realisation
2 What are the characteristics of non-current assets?
1 They are not intended for resale.

2 They provide future economic benefits.
3 They prevent the company from going out of business.
A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
3 A business has a year end of 31 December. It depreciates its motor vehicles over four years
using the straight-line method. A full year’s depreciation is charged in the year of purchase, but
none in the year of sale.
A motor vehicle purchased on 1 July 2016 for $18 000 had an estimated residual value of $4000.
The motor vehicle was sold for $5000 on 31 December 2019.
What was the profit or loss on disposal?
A $1000 loss
B $1000 profit
C $2500 loss
D $2500 profit
© UCLES 2020 9706/13/M/J/20
Page 256
3
4 The following information is available in respect of the purchase of a new machine.
machine cost 80 000

less 10% trade discount 8 000
72 000
delivery cost 1 200
installation cost 1 800
annual maintenance cost 4 000
The business plans to keep the machine for 5 years. It is expected to be sold for $5000.
What will be the annual depreciation charge using the straight-line method?
A $13 400 B $14 000 C $14 800 D $15 600
5 What does the debit side closing balance carried down and the credit side opening balance
brought down represent in a sales ledger control account?
debit side closing credit side opening

balance carried down balance brought down
A owing from customers owing from customers

B owing from customers owing to customers
C owing to customers owing from customers
D owing to customers owing to customers
6 The trial balance of a business did not agree and a suspense account was opened.
The following errors were then discovered.
1 The sales journal total of $9150 had been credited to both the sales account and the
sales ledger control account.
2 The purchases journal total of $3450 had been entered correctly in the purchases
account but as $3350 in the purchases ledger control account.
3 Motor expenses of $6450 paid by cheque had only been entered in the bank
account.
What was the opening balance in the suspense account?
A $15 700 credit

B $15 700 debit
C $24 650 credit
D $24 650 debit

Page 257
4
7 A bank statement showed an overdraft of $750. The following was then discovered.
1 A cheque issued in payment of rent for $570 had not been presented.
2 A cheque for $624 received was not shown on the bank statement.
3 The bank statement included a bank charge of $50 which had not been entered in
the cash book.
What amount of overdraft should appear in the statement of financial position?
A $646 B $696 C $754 D $1894
8 What is a purpose of financial statements?
A to aid managers to manage the business

B to allow the owner to take drawings
C to ensure a profit is made
D to ensure accuracy of the double entry
9 An electricity accrual of $375 was treated as a prepayment when preparing a trader’s income
statement.
What was the effect of this on the profit for the year?
A overstated by $375
B overstated by $750
C understated by $375
D understated by $750
10 The draft financial statements of a business show a profit for the year of $64 000 before taking
account of the following:
1 the reduction of the provision for doubtful debts by $300

2 the purchase of office stationery costing $2400 which has not been entered in the
books; only one-sixth of this stationery was used by the year end.
What is the corrected profit for the year?
A $61 900 B $63 900 C $64 100 D $64 300
© UCLES 2020 9706/13/M/J/20
Page 258
5
11 A company receives rental income from letting out two properties. Total rental income received
from these two properties for the year ended 31 December 2019 was $55 000.
Further information relating to these two properties was as follows.
property 1 property 2
$ $
rent received in advance
1 January 2019 1840
31 December 2019 720
rent receivable in arrears
1 January 2019 2120
31 December 2019 1100
What was the total amount of rental income shown in the income statement for the year ended
31 December 2019?
A $54 340 B $54 900 C $55 100 D $55 660
12 Finn provided the following information.
capital at the start of the year 19 800

drawings (cash) 19 500
drawings (goods for own use) 1 100
private vehicle transferred to business use 6 000
What was Finn’s capital at the end of the year?
A $23 200 B $24 300 C $29 200 D $31 400
13 What would be recorded in a partnership appropriation account?
2 interest on drawings
3 interest on loan by partner to partnership
4 interest on bank overdraft
A 1, 2 and 3 B 1 and 2 only C 2, 3 and 4 D 3 and 4 only

Page 259
6
14 X and Y were in partnership and shared their profits equally. On 1 March 2019, Z is admitted as a
partner.
In future they will share profits in the ratio X, Y and Z, 3 : 2 : 1. The net assets valued at $20 000
have lost $8000 in value. Goodwill is valued at $9000 but will not be retained in the books of
account.
What will the entries in the capital accounts of Y be to record these changes?
debit credit
$ $
A 4500 9000
B 4500 7000
C 6000 4500
D 7000 4500
15 The statement of financial position showed the following balances at 31 December 2019.
L M
$ $
capital accounts 20 000 10 000

current accounts 1 000 debit 2 500 credit
Net assets at 1 January 2019 were $14 000.
Property had been revalued upwards by $12 000 during the year ended 31 December 2019. No
drawings had been made during the year.
What was the profit for the year ended 31 December 2019?
A $2500 B $5500 C $14 500 D $17 500
16 ‘Shareholders are entitled to a fixed annual dividend with any unpaid dividends being paid out of
future profits.’
What does this statement describe?
A cumulative preference shares

B debentures
C ordinary shares
D participating preference shares
© UCLES 2020 9706/13/M/J/20
Page 260
7
17 Which statements about a bonus issue of ordinary shares are correct?
1 It will generate extra funds for the company.

2 The company’s liquidity is not affected.
3 Shareholders can sell their bonus shares.
18 The following information is available for T Limited.
30 June 2018 30 June 2019
$ $
retained earnings 94 000 148 000
general reserve 50 000 65 000
accrued loan interest 3 000 1 000
During the year ended 30 June 2019, T Limited made the following payments.
dividend 60 000
loan interest 27 000
What was the profit from operations for the year ended 30 June 2019?
A $104 000 B $114 000 C $129 000 D $154 000
19 Which ratio tells managers how long it takes to receive payment for goods sold on credit?
A current ratio
B liquid (acid test) ratio
C trade payables turnover
D trade receivables turnover

Page 261
8
20 The following information is available for G Limited for the year ended 31 December 2019.
share capital 275 000

long-term bank loan 180 000
bank loan interest 34 000
retained earnings including profit for the year 400 000
A 21.54% B 24.56% C 25.03% D 28.54%
21 A company has been asked to prepare a quotation to print 100 leaflets for a customer. The total
cost of direct materials, direct labour and a share of overheads is $820 and a profit of 25% on
cost has been added.
Which costing method is this an example of?
A absorption costing
B job costing
C marginal costing
D unit costing
22 Which expense for a business may be classified as a stepped cost?
A direct labour
B direct materials
C factory rent
D telephone
© UCLES 2020 9706/13/M/J/20
Page 262
9
23 The inventory movements of a business in a three-month period are shown.
receipts issues
date
units per unit units
January 100 $5
January 200 $6
February 50
March 200
The business uses the first in first out (FIFO) method of inventory valuation.
What was the value of inventory at the end of March?
A $250 B $275 C $283 D $300
24 A company uses absorption costing based on predetermined absorption rates.
Which statement about absorption rates is correct?
A They will be based on budgeted costs and outputs.

B They will be calculated only when actual costs and outputs are known.
C They will be changed each time outputs and costs change.
D They will be set for a period of more than one year.
25 A business absorbs fixed overheads using direct labour hours.
The following information is provided.
actual budgeted
overheads $525 000 $525 000

direct labour hours 16 300 15 000
indirect labour hours 2700 2500
A Overheads were over absorbed by $45 000.

B Overheads were under absorbed by $45 000.
C Overheads were over absorbed by $45 500.
D Overheads were under absorbed by $45 500.

Page 263
10
26 The data relate to the production of three products.
product X product Y product Z

$ $ $
contribution per unit 160 175 190

fixed overhead per unit 125 130 160
labour hours per unit 1 1.25 0.75
The company is experiencing a shortage of labour.
In which order should the products be ranked to maximise profit?
1 2 3
A X Y Z
B Y X Z
C Z X Y
D Z Y X
27 A company has the following budgeted information for May.
selling price (per unit) 120

variable costs (per unit) 80
total fixed costs 56 000
The company is planning to buy a new machine which will reduce the variable costs by 20% and
increase fixed costs by 20%.
What is the change in break-even sales in units?
A increase by 200 units

B decrease by 200 units
C increase by 700 units
D decrease by 700 units
28 What does cost–volume–profit analysis assume causes costs to change?
1 production methods
2 sales mix
3 sales volume
© UCLES 2020 9706/13/M/J/20
Page 264
11
29 A business has a sales revenue of $400 000 and total fixed cost of $140 000. Its contribution to
sales ratio is 40%.
What is the sales revenue if profit for the year increases by $40 000?
A $360 000 B $450 000 C $480 000 D $500 000
30 Budgetary control systems have just been introduced by a company but employees have not
achieved their targets.
Reasons given for this are as follows:
1 The budget was unrealistic.

2 Actual trading conditions differed from budget assumptions.
3 The workforce needs more training.
Which reasons should be considered when evaluating employees’ performance?
A 1, 2 and 3 B 1 and 2 only C 2 and 3 only D 3 only
© UCLES 2020 9706/13/M/J/20
Page 265
* 2 9 5 4 9 4 1 6 1 4 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 181955/5
Page 266
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
ended 31 December 2019.
$
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.
REQUIRED
(a) State how profits and losses are shared in a partnership where there is no agreement.
(b) Explain two reasons why you would recommend partners to have a written agreement, other
than stating a ratio for sharing profits and losses.
(c) Prepare the income statement for the year ended 31 December 2019.
© UCLES 2020 9706/21/M/J/20
Page 267
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

Appropriation account for the year ended 31 December 2019
(e) Calculate the balance of Hamza’s current account at 31 December 2019.
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.
© UCLES 2020 9706/21/M/J/20
Page 268
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
Opening inventory 11 440
Purchases 120 120
131 560
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 ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
(ii) Trade receivables turnover (in days)
(iii) Current ratio (to two decimal places)
© UCLES 2020 9706/21/M/J/20
Page 269
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

Trade receivables turnover 32 days
(b) Analyse the trend in Ayesha’s business’s liquidity.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
(c) State two factors that should be considered when choosing businesses with which to
compare a business.
© UCLES 2020 9706/21/M/J/20
Page 270
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
Page 271
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.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
[Total: 15]

Page 272
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 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[6]

Page 273
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
Number of employees 14 29 4 5
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
Page 274
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

department department department department
$ $ $ $ $
Budgeted overheads
57 620 38 530 14 150 2 800 2 140
already allocated
Machinery depreciation 33 600
Power 45 500
Lighting and heating 18 000
Total overheads 154 720

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

Page 275
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
Page 276
19
REQUIRED
(e) Calculate the profit for the month of April if the offer from Wendy is accepted.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]
(f) Advise the directors whether or not they should accept the offer from Wendy. Justify your
answer.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [5]
[Total: 30]
© UCLES 2020 9706/21/M/J/20
Page 277
* 7 3 3 4 1 6 3 4 6 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 187922/4
Page 278
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
Discounts received 940
REQUIRED
(a) Calculate credit purchases for the year ended 30 September 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [4]
Assets and other liabilities
30 September 1 October
2019 2018
$ $
Furniture and equipment at valuation 28 300 26 800
Inventory 8 080 7 410
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
Page 279
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.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
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.
(d) Prepare the income statement for the year ended 30 September 2019.
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.

Page 280
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
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Disadvantage
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[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
Page 281
9
REQUIRED
(b) Calculate the balance of the delivery vehicles provision for depreciation account at
31 December 2019.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [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
$ $
Additional information [5]

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.
Page 282
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 $ $
Non-current assets at net book value
Motor vehicle 19 400
Furniture and equipment 11 900
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
Page 283
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
$ $
(c) Calculate the amount due to, or from, Xu as a result of the dissolution. [7]
Page 284
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 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
3 ................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
[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
Page 285
17
REQUIRED
(b) Calculate the contribution per unit.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [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.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]

Page 286
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.
REQUIRED
(d) Calculate the annual profit if the directors choose:
(i) Option A
6 marks
(ii) Option B 5marks
(e) Advise the directors which option they should choose, taking account of financial and
non-financial factors. Justify your choice.
© UCLES 2020 9706/22/M/J/20
Page 287
* 0 6 0 3 5 4 4 8 6 5 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (PQ) 187923/4
Page 288
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
Page 289
3
REQUIRED
(a) Complete the income statement for the year ended 31 October 2019. Use the space on the
next page for your workings.
K Limited
Income statement for the year ended 31 October 2019
Revenue 542 370
Gross profit 283 130
Distribution costs
Profit from operations
Finance costs
Profit for the year

Page 290
4
Workings:
Distribution costs
Finance costs
[11]
© UCLES 2020 9706/23/M/J/20
Page 291
5
At 1 November 2018 the equity section of the company’s statement of financial position was as
follows.
$
Ordinary shares of $0.50 each 90 000
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
$ $ $ $
[7]
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.

Page 292
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 marks
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.

Page 293
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]

Page 294
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
Page 295
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.
Purchases ledger control account
$ $
[7]

Page 296
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
Page 297
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]

Page 298
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
Page 299
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]

Page 300
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
Page 301
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]
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.

Page 302
ACCOUNTING 9706/31
INSERT 3 hours
INFORMATION
*2653138023-I*
insert.
DC (RCL/GO) 188098/4
Page 303
2
Question 1
Source A1
Barry owns a manufacturing business. He applies a rate of factory profit which varies each year. In this
way inventory is valued at a transfer price similar to the price at which the goods could be bought from
an external supplier.
Barry provided the following information.
At 1 January 2019 $
Inventory of finished goods at transfer price 140 000
Unrealised profit included in inventory value 40 000
For the year ended 31 December 2019

Prime cost 505 000
Decrease in work in progress 12 000
Revenue 1 550 000
Decrease in provision for unrealised profit 15 000
Factory overheads 283 000
Finance charges 20 000
At 31 December 2019
Inventory of finished goods at transfer price 125 000
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Calculate the amount of unrealised profit included in inventory on 31 December 2019. [2]
(b) Calculate the rate of factory profit being applied in 2019. [2]
(c) Prepare the income statement for the year ended 31 December 2019. [14]
The factory manager has suggested that a rate of factory profit of 50% should be applied every
year.
(d) Advise Barry whether or not he should apply a rate of factory profit of 50%. Justify your
answer. [5]
(e) Explain where carriage on raw materials is recorded in the financial statements of a
manufacturing business. [2]
[Total: 25]
© UCLES 2020 9706/31/INSERT/O/N/20
Page 304
3
Question 2
Source A2
PL plc is a trading company. A trainee in the finance department made a start on preparing the financial
statements for the year ended 31 December 2019. He produced the following statement, which
contains errors.
Ordinary Retained Bank loans

share capital earnings
($1 shares)
$ $ $
Balance at 1 January 2019 250 000 76 000 80 000
Issue of new ordinary shares at $2.50 each 150 000
Dividend paid (20 000)
1 for 10 bonus issue of ordinary shares (31 000) 31 000
New five-year bank loan received 25 000
Profit from operations for the year 63 000
Loan interest paid (12 000)
Balance at 31 December 2019 349 000 170 000 93 000
In addition to the obvious errors, the following had not been considered.
1 At the end of the year, the premises had been revalued from $100 000 to $195 000.
2 A general reserve had been created, $30 000.
3 Accrued interest had amounted to $3000 on 1 January 2019 and $5000 on 31 December 2019.
The following information was also available.
1 Trade payables at the year end were $67 000.
2 It is the policy of the company to keep its reserves in the most flexible form.
3 Of the original bank loan, $20 000 is due to be repaid during 2020, with the remainder due in the
following years.

Page 305
4
only.
(a) Calculate the profit for the year ended 31 December 2019. [3]
(b) Prepare the correct equity and liabilities section of the statement of financial position at
31 December 2019. [16]
The financial statements of PL plc also contain a value for goodwill.
(c) Explain the event which has taken place and caused the company to record the value for
goodwill. [2]
(d) State two other reasons why goodwill might arise. [2]
(e) Explain what is meant by the term ‘audit’. [2]
[Total: 25]
© UCLES 2020 9706/31/INSERT/O/N/20
Page 306
6
Question 4
Source A4
TC plc provided the following information at its year end.
Ordinary shares in issue 1 million at $0.50 each

Annual dividend $80 000
Profit from operations $215 000
Profit for the year $195 000
Market value of one share $0.75
only.
(a) Explain why the use of ratios may be helpful in analysing accounting data. [3]
(b) (i) Calculate, to two decimal places, TC plc’s income gearing ratio. [2]
(ii) State what this ratio tells an investor about the risk of the company. [1]
(iii) Name one other ratio which assesses the relationship between fixed cost capital and
total capital. [1]
(c) (i) Calculate, to two decimal places, TC plc’s dividend cover. [2]
(ii) State what this ratio tells an investor about the company’s potential for capital growth.
[1]
(d) (i) Calculate, to two decimal places, TC plc’s dividend yield. [2]
(ii) State what this ratio tells an investor in the company who needs income. [1]
(e) Name and calculate the ratio which shows the amount of profit attributable to each ordinary
share. [3]
(f) Name and calculate, to two decimal places, the ratio which measures the confidence
investors have in the future of the business. [4]
Fred is considering investing in TC plc. His brother says that in order to make a decision, Fred
does not need to look at the income statement and statement of financial position, but only needs
to look at the directors’ report.
(g) Advise Fred whether or not he should follow his brother’s advice. Justify your answer. [5]
[Total: 25]
© UCLES 2020 9706/31/INSERT/O/N/20
Page 307
7
Question 5
Source B1
Bob manufactures and sells two products. He provides the following information.
Product A Product B
Monthly sales 2000 units 3000 units
Direct material cost per unit $8 $12
Direct labour cost per unit $10 $11
Selling price per unit $29 $46
The total overheads for the month are as follows.
$
Rent 42 000
Machine set-up costs 8 000
Packaging 6 160
Quality inspections 5 000
61 160
Overheads are split between the two products on the basis of total sales revenue.
only.
(a) Calculate, to two decimal places, the profit or loss per unit of each product. [5]
The following additional monthly data is available.
1 Approximately 40% of the floor space in the factory is used in the manufacture of product A
and 60% in the manufacture of product B.
2 The machinery used to manufacture product A is set up 300 times a month and the machinery
for product B 500 times a month.
3 The number of orders packed for despatch are 700 a month for product A and 420 a month
for product B.
4 300 quality inspections take place each month for product A and 700 for product B.
(b) Calculate the amount of overhead allocated or apportioned to each product using the
additional monthly data. [8]
(c) Name and explain why one of Bob’s overhead costs cannot be allocated using activity based
costing. [3]
(d) Calculate, to two decimal places, the profit or loss per unit of each product which would be
earned if overheads were calculated using the additional monthly data. [4]
(e) Advise Bob whether or not he should make any changes to the selling prices. Justify your
answer. [5]
[Total: 25]
Page 308
8
Question 6
Source B2
Samir has a business in the leisure industry. He is purchasing a boat and plans to start luxury river
cruises. In his original plan, which had a positive net present value (NPV), he anticipated the following
revenue.
number of tickets price per ticket

sold per year $
year 1 8000 100
year 2 8300 110
He is now considering a revised plan, employing local historians to accompany the cruises and give
lectures on the history of the area. He thinks that this will result in 20% more tickets being sold each
year. The selling price of the tickets would be $10 higher than under the original plan.
only.
(a) Calculate the total revenue for each year for:
(i) the original plan [1]
(ii) the revised plan. [1]
The majority of the running costs of the cruises will be fixed. Variable costs are expected to amount
to $30 for each ticket sold.
(b) Calculate the total variable cost for each year for:
(i) the original plan [2]
(ii) the revised plan. [2]
1 The cost of employing the historians will add $125 000 per annum to the total fixed costs of
running the cruises.
2 The capacity of the boat restricts the total number of tickets which can be sold each year to
10 000.
3 Samir uses a cost of capital of 10% per annum. The discount factors for this rate are as
follows.
year 1 0.909
year 2 0.826
(c) Calculate the increase in NPV which would arise if the revised plan was used instead of the
original. [8]
© UCLES 2020 9706/31/INSERT/O/N/20
Page 309
9
(d) Calculate the total number of tickets Samir would have to sell in year 1 under the revised plan
so that the increase in revenue equalled the additional fixed costs. [3]
(e) Assess any concerns Samir might have about the revised plan. [2]
(f) Advise Samir whether or not he should implement the revised plan. Justify your answer. [3]
(g) Explain how sensitivity analysis helps in investment appraisal. [3]
[Total: 25]
© UCLES 2020 9706/31/INSERT/O/N/20
Page 310
ACCOUNTING 9706/32
INSERT 3 hours
INFORMATION
*1322978784-I*
insert.
DC (RCL (GO)) 188096/1

Page 311
2
Question 1
Source A1
FG Limited is a manufacturing business. The rate at which it accounts for factory profit has not changed
for some years. Inventory is valued at transfer price.
The company’s accountant produced draft financial statements for the year ended 31 December 2019
as follows.
Draft manufacturing account for the year ended 31 December 2019

$
Cost of raw materials consumed 31 200
Direct labour 52 800
Prime cost 84 000
Overheads 54 900
Change in work in progress 1 100
Production cost of manufactured goods 140 000
Factory profit 28 000
Transfer price 168 000
Draft income statement for the year ended 31 December 2019

$ $
Revenue 320 800
Inventory 1 January 2019 36 000
Transfer price 168 000
204 000
Inventory 31 December 2019 30 000
Factory profit 28 000
Change in provision for unrealised profit 1 000
Administrative expenses 78 900 121 600
Draft profit for the year 54 200
© UCLES 2020 9706/32/INSERT/O/N/20
Page 312
3
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) Explain two reasons why a factory profit is added in an income statement. [4]
After the preparation of the draft financial statements the following errors were discovered.
1 The rent expense, $60 000, should have been split 70% factory, 10% distribution centre and
20% offices. In error it had been split 50% factory, 10% distribution centre and 40% offices.
2 An item of factory machinery, cost $50 000, had been bought on 1 January 2019. This had
been recorded in error as office equipment. Factory machinery is depreciated at the rate of
20% per annum and office equipment at 10% per annum.
3 An error had occurred in counting the inventory of finished goods at the year end. The value
in the draft financial statements was based on an inventory of 5000 units but in fact there
were only 4000 units.
(b) Calculate for the year ended 31 December 2019:
(i) the correct value for the production cost of manufactured goods [3]
(ii) the correct value of factory profit. [1]
(c) Prepare for the year ended 31 December 2019:
(i) the corrected provision for unrealised profit account [3]
(ii) the corrected income statement. [9]
One of the directors has suggested that the company should stop accounting for factory profit.
(d) Advise the directors whether or not they should stop accounting for factory profit. Justify your
answer. [5]
[Total: 25]

Page 313
4
Question 2
Source A2
The books of account of RF plc for the year ended 31 December 2019 showed the following.
Plant and machinery Provision for depreciation of plant and

machinery
$000 $000 $000 $000
Balance b/d 100 Balance b/d 20
Bank 38 Balance c/d 138 Balance c/d 32 Income 12
138 138 statement
32 32
Motor vehicles Provision for depreciation of motor vehicles

$000 $000 $000 $000
Balance b/d 60 Disposal 16 Disposal 4 Balance b/d 25
Balance c/d 44 Balance c/d 31 Income 10
60 60 statement
35 35
Retained earnings Interest payable

$000 $000 $000 $000
Dividend 8 Balance b/d 33 Bank 5 Balance b/d 2
General 18 Profit for the 15 Balance c/d 1 Income 4
reserve year statement
Balance c/d 22 6 6
48 48
During the year ended 31 December 2019 the following had taken place.
1 Inventory had increased by $17 000.
2 Trade receivables had increased by $3000.
3 The bank balance had gone from an overdraft of $7000 to a positive balance.
4 The company had issued 72 000 ordinary shares of $0.50 each at par value.
5 A new bank loan of $5000 had been received.
6 Trade payables had decreased by $6000.
7 A motor vehicle had been sold for $15 000.

(a) Prepare the statement of cash flows for the year ended 31 December 2019. (Ignore taxation.)
[19]
(b) Explain how a premium on an issue of shares is dealt with differently in a statement of cash
flows as compared to the books of account of a company. [3]
(c) State three reasons why a company might prepare a statement of cash flows. [3]
[Total: 25]
© UCLES 2020 9706/32/INSERT/O/N/20
Page 314
6
Question 3
Source A3
Alice and Babak had both been trading as sole traders for some years when they decided to merge
their businesses to form a partnership. The merger took place on 1 January 2020.
The book values of the assets and liabilities of the businesses immediately prior to the merger were as
follows.
Alice Babak
$ $
Premises 18 000 Nil
Equipment 7 400 8 900
Vehicle Nil 5 200
Intangible asset 200 Nil
Inventory 4 100 3 500
Trade payables 1 400 700
Bank (300) 6 100
The terms of the merger were as follows.
1 The profit sharing ratio of the partnership would be Alice 2:Babak 1.
2 Alice’s premises would be revalued at $32 000.
3 Part of Alice’s inventory, valued at $400, would be written off.
4 An impairment loss of $800 on Babak’s vehicle would be accounted for.
5 Alice would transfer her personal vehicle to the business at a valuation of $2000.
6 The bank accounts would be merged and Alice would pay in enough cash that the
value of the capital accounts would be in the profit sharing ratio.
© UCLES 2020 9706/32/INSERT/O/N/20
Page 315
7
reference only.
(a) Suggest two items, purchased by a business, which could be included in its intangible assets.
[2]
(b) Prepare, showing the adjustments made during the merger on 1 January 2020,
(i) the capital account of Babak [3]
(ii) the capital account of Alice. [6]
(c) Prepare the statement of financial position of the partnership immediately after the merger on
1 January 2020. [9]
Whilst operating as sole traders both Alice and Babak maintained their books of account on a
manual basis. Babak has suggested that the partnership should use a computerised accounting
system.
(d) Advise Alice whether or not she should agree to using a computerised accounting system.
Justify your answer. [5]
[Total: 25]

Page 316
8
Question 4
Source A4
RP Limited provided the following information for the year ended 31 January 2020.
$000
Cash sales 1140
Credit sales 7260
Cash purchases 630
Credit purchases 4670
Inventory at 1 February 2019 1150
Inventory at 31 January 2020 1650
Trade receivables 1500
Trade payables 760
reference only.
(a) Calculate the working capital cycle ratio. Round up your answer to the next whole day. [8]
The industry average for the working capital cycle ratio is 100 days.
(b) Compare your answer to (a) with the industry average. Suggest reasons for the difference.
[5]
(c) Explain why having cash sales and cash purchases might affect the usefulness of the working
capital cycle ratio to the directors. [2]
(d) Calculate the net working assets to revenue ratio. [4]
The industry average for the net working assets to revenue ratio is 21%.
(e) Compare your answer to (d) with the industry average. Suggest reasons for the difference.
[3]
One of the directors has suggested offering cash discount to credit customers.
(f) Advise the directors whether or not the company should start offering cash discount to credit
customers. Justify your answer. [3]
[Total: 25]
© UCLES 2020 9706/32/INSERT/O/N/20
Page 317
9
Question 5
Source B1
WJ plc uses a system of budgetary control. It prepares budgets for periods of four weeks each. Its
sales budget for the first four periods of the year shows the following.
period sales in units

1 6000
2 5600
3 6400
4 7200
The company spreads its sales and production evenly throughout the four weeks in each period.
reference only.
(a) State three factors which might affect the accuracy of a sales budget. [3]
It is the policy of WJ plc to keep an inventory of finished goods sufficient to meet the budgeted
sales for the first week of the coming period.
(b) Prepare the production budget (in units) for each of the periods 1 to 3. [8]
Each unit of production requires five kilos of raw material. It is the policy of the company to keep
an inventory of raw material sufficient for the production process for the first two weeks of the
coming period.
The raw material costs $10 per kilo.
(c) Prepare the purchases budget for both period 1 and period 2:
(i) in kilos [7]
(ii) in dollars. [2]
One of the directors has made two suggestions to increase profits.
Suggestion 1 to continue to use the same supplier of raw materials but to buy a
lower quality of raw materials
Suggestion 2 to continue to buy the same quality of raw materials but to use a
cheaper supplier
(d) Advise the directors whether or not they should accept either of these suggestions. Justify
your answer. Ignore the effect on variances. [5]
[Total: 25]

Page 318
10
Question 6
Source B2
XP plc uses a system of standard costing. It manufactures and sells one product. The following per unit
information is available.
Direct material 2 kilos at $6 per kilo

Direct labour 4 hours at $10 per hour
Fixed overheads $3.50 per direct labour hour
The master budget for March was based on sales of 15 000 units at a selling price of $100 per unit.
Actual sales in March amounted to 14 000 units at a selling price of $104 each.
The materials usage variance for the month was $22 800 (Favourable) and the materials price variance
was $36 300 (Adverse).
Actual direct labour for the month was 53 200 hours at $10.40 per hour.
The fixed overhead expenditure variance for the month was $10 000 (Favourable) and the fixed
overhead volume variance was $14 000 (Adverse).
reference only.
(a) Calculate for the month of March:
(i) the amount of direct materials used (in kilos) [3]
(ii) the amount paid per kilo for the direct materials [3]
(iii) the labour rate variance [2]
(iv) the labour efficiency variance [2]
(v) the actual profit. [5]
(b) Prepare a statement reconciling the profit of $476 000 from the flexed budget with the actual
profit. [6]
(c) Name two other variances which the directors could calculate if they wished to do further
analysis of the change in the fixed overheads. [2]
(d) Suggest one reason for the company’s:
(i) materials price variance [1]
(ii) materials usage variance. [1]
[Total: 25]
© UCLES 2020 9706/32/INSERT/O/N/20
Page 319
ACCOUNTING 9706/33
INSERT 3 hours
INFORMATION
*2023985371-I*
insert.
DC (RCL (GO)) 187380/6

Page 320
2
Question 1
Source A1
GH plc prepared draft financial statements for the year ended 30 June 2020. These included the
following.
GH plc
Draft income statement for the year ended 30 June 2020
$
Revenue 1 980 000
Cost of sales 1 324 000
Profit from operations 78 500
Finance costs 49 000
Draft profit for the year 29 500
The following information was also available.
1 The draft cost of sales value comprised opening inventory of $85 000, purchases of $1 317 000
and closing inventory of $78 000.
2 Included in sales were goods which had been invoiced to a customer on a sale or return basis at
the end of June 2020. These goods had an original cost of $8000 and a selling price of $20 000.
The customer had not yet decided to make a purchase.
3 Included in closing inventory were goods which had originally cost $27 000 and had a normal
selling price of $63 000. These had been damaged and could now only be sold for $18 200 after
repairs costing $4100 had taken place.
4 Import duties of $30 000 on goods purchased for resale had been included in distribution costs. Of
these $3500 related to goods in inventory at the year end.
5 Export duties of $7200 had been included in administrative expenses in the draft income statement.
6 The value of trade receivables in the draft statement of financial position was $194 000, which was
shown after deducting a provision for doubtful debts of $6000. This was the provision for the start
of the financial year which needed to be updated to 5% of the closing trade receivables.
7 Other income of $6300 had been netted off against administrative expenses in the draft income
statement.
8 During the year ended 30 June 2020 a customer had started legal action against GH plc. At the
year end, it was considered that there was a 75% possibility that GH plc would lose the case and
have to pay $31 000.
9 An impairment loss of $4000 relating to a delivery vehicle was yet to be accounted for.
© UCLES 2020 9706/33/INSERT/O/N/20
Page 321
3
only.
(a) Calculate the correct values of:
(i) inventory at 30 June 2020 [4]
(ii) cost of sales for the year ended 30 June 2020. [2]
(b) Prepare a corrected income statement for the year ended 30 June 2020. [15]
(c) Explain how your treatment of item 8 would be different if there was a 25% possibility of the
company losing the case. [4]
[Total: 25]

Page 322
4
Question 2
Source A2
RX Sports is a sports club which provides sporting facilities and also sells running machines to its
members.
The treasurer prepared the financial statements for the club for the year ended 31 December 2019.
These included the following.
RX Sports
Trading account for the year ended 31 December 2019
$ $
Sales 14 800
Inventory 1 January 2019 700
Purchases 9 950
10 650
Inventory 31 December 2019 1 250
Cost of sales 9 400
Income and expenditure account for the year ended 31 December 2019
$ $
Subscriptions 14 200
Profit on disposal of club equipment 600
Profit from trading account 5 400
20 200
Depreciation – computers 1 900
– club equipment 4 010
Staff costs 9 800
Rent 6 000
Other costs 1 320 23 030
Deficit for the year 2 830
The treasurer accidentally deleted the receipts and payments account from the computer before it
could be printed off. However, the following information was available.
1
at 1 January 2019 at 31 December 2019
$ $
Subscriptions paid in advance 200 600
Cash and cash equivalents 1420 ?
Net book value of computers 4800 ?
2 The club equipment which was disposed of during the year had an original cost of $7200.
Accumulated depreciation was $3100.
3 The club depreciates its computers at the rate of 25% per annum using the reducing balance
method.
© UCLES 2020 9706/33/INSERT/O/N/20
Page 323
5
4 No club equipment was purchased during the year. A new computer was bought and was paid for
by cheque.
5 One month’s rent was unpaid at the year end.
6 Staff costs in the income and expenditure account included a provision for holiday pay of $160.
7 All sales and purchases of running machines were made on a credit basis.
only.
(a) Prepare the receipts and payments account for the year ended 31 December 2019. [16]
(b) State three reasons why the difference between the total receipts and total payments in
a receipts and payments account may not equal the surplus or deficit in an income and
expenditure account. [3]
The credit sales of running machines to members involved the members repaying their debt in
instalments. The managing committee of the club is considering making future sales only on a
cash basis.
(c) Name the financial statement in which the write-off of an irrecoverable debt arising from the
sale of a running machine to a club member would be recorded. [1]
(d) Advise the committee whether or not future sales should only be made on a cash basis.
Justify your answer, making reference to the effect of this change on the club’s cash flow and
its surplus/deficit for the year. [5]
[Total: 25]

Page 324
6
Question 3
Source A3
Arthur and Belinda had run a successful partnership for some years. They had shared profits and
losses equally. They decided to retire and VC plc agreed to buy the business on 1 January 2020 for a
purchase consideration of $300 000.
only.
(a) State three reasons why VC plc might want to buy the partnership. [3]
(b) State three ways in which the purchase consideration might be settled. [3]
Arthur says that as there were only two partners, he is entitled to receive half of the purchase
consideration.
(c) Advise Belinda whether or not she should agree to Arthur receiving half of the purchase
consideration. Justify your answer. [5]
VC plc took over all the assets and liabilities of the partnership except for the bank account. The
assets were revalued for the purposes of the sale.
The book value of the assets and liabilities of the partnership on 1 January 2020, along with the
revalued amounts, were as follows.
Book Revalued
values amounts
$ $
Premises 98 000 168 000
Equipment 61 000 45 000
Vehicles 14 800 14 950
Inventory 31 270 30 000
(d) Suggest two reasons for the difference in the values for the equipment. [2]
(e) Calculate:
(i) the value of goodwill recorded in the books of VC plc [3]
(ii) the total profit on realisation made by the partnership. [3]
(f) Explain the treatment of the total profit on realisation made by the partnership in (e)(ii). [2]
(g) Explain why a revaluation reserve may appear in the financial statements of a limited company
but not in the financial statements of a partnership. [4]
[Total: 25]
© UCLES 2020 9706/33/INSERT/O/N/20
Page 325
8
Question 4
Source A4
The books of account of PM Limited contained the following summarised ledger accounts for the year
ended 31 March 2020.
Premises Provision for depreciation of premises

$000 $000 $000 $000
Balance b/d 900 Balance c/d 900 Balance b/d 72
900 900 Balance c/d 90 Income 18
statement
90 90
Plant and machinery Provision for depreciation of plant and

machinery
$000 $000 $000 $000
522 522 statement
291 291
Motor vehicles Provision for depreciation of motor vehicles

$000 $000 $000 $000
274 274 statement
149 149
Disposal of plant and machinery Disposal of motor vehicle

$000 $000 $000 $000
Plant and 92 Provision for 46 Motor 44 Provision for 35
machinery depreciation vehicles depreciation
of plant and Income 10 of motor
machinery statement vehicles
Bank 17 Bank 19
Income 29 54 54
statement
92 92
© UCLES 2020 9706/33/INSERT/O/N/20
Page 326
9
only.
(a) Prepare a schedule of non-current assets for the year ended 31 March 2020 in accordance
with the provisions of IAS16, suitable for inclusion in the notes to the accounts. [9]
(b) Identify the total figures from the summarised ledger accounts which would appear in the
statement of cash flows for the year ended 31 March 2020. State the section of the statement
of cash flows in which each figure would be recorded. [10]
(c) Explain how your answer to (a) would be different if the premises had been revalued upwards
at the end of the year. [2]
(d) Explain how your answer to (b) would be different if the premises had been revalued upwards
at the end of the year. [2]
(e) State two items (other than the initial purchase price) which can be included in the total cost
of a non-current asset when following IAS16. [2]
[Total: 25]

Page 327
10
Question 5
Source B1
At present PL plc manufactures only one product. It manufactures and sells 2000 units a year. The
following information is available.
Direct material $20 per unit

Direct labour $12 per unit
Total production overheads $36 000 per year
Total selling and distribution overheads (all variable, $20 000 per year
relating to number of units)
Mark-up 33.33%
The production overheads are as follows.
$
Machine set-up costs 22 000 (for 440 set-ups)
Quality inspection costs 6 000 (for 500 inspections)
Order processing costs 8 000 (for 800 orders)
36 000
only.
(a) Calculate the selling price of one unit. [6]
The directors are considering starting the manufacture of a deluxe version of the product. The plan
is to manufacture and sell 1000 units of the deluxe version per year in addition to the standard
version already being made. The percentage of mark-up would be unchanged.
Data relating to the deluxe version are as follows.
Direct material $30 per unit

Direct labour $20 per unit
Machine set-ups 350 per year
Quality inspections 400 per year
Orders processed 770 per year
The production overhead costs would be the same for each occurrence of an activity for the
deluxe version as for the standard version. The per-unit selling and distribution costs would be
unchanged.
(b) Calculate the selling price of one unit of the deluxe version. [12]
(c) State two concerns the directors might have in setting the selling price of the deluxe version.
[2]
© UCLES 2020 9706/33/INSERT/O/N/20
Page 328
11
One of the directors is suggesting halving the number of quality inspections.
(d) Advise the directors whether or not they should halve the number of quality inspections taking
place. Justify your answer. [3]
(e) State what is meant by the following terms.
(i) Cost driver [1]
(ii) Cost pool [1]
[Total: 25]

Page 329
12
Question 6
Source B2
OT plc makes one product and uses a standard costing system. Its standard costs and revenues for
one month are based on the following information.
Sales
12 000 units at $15 each
Per-unit costs
Direct materials 0.25 kilos at $8 per kilo
Direct labour 30 minutes at $6 per hour
Variable overhead $10 per direct labour hour
Total fixed overhead

$20 000 per month
In March 2020 actual sales amounted to 12 500 units.
only.
(a) State, with regard to standard costing, two advantages and two disadvantages. [4]
(b) Prepare a budgeted income statement in respect of the master budget and the flexed budget
for March 2020. [6]
The increase in sales units in March 2020 was the result of a special promotion where the selling
price was reduced to $14.50.
(c) Prepare a statement reconciling the budgeted sales revenue from the master budget with the
total actual sales revenue for March 2020, using relevant variances. [4]
After the success of the promotion in March 2020, the company is considering reducing the selling
price still further, to $13. At this price, the company expects to sell 14 000 units a month.
(d) Name the variances which would be affected if the selling price was reduced to $13 per unit.
Show the revised amounts of these variances. [4]
(e) Advise the directors whether or not they should proceed with the suggested reduction in
selling price to $13 a unit. Support your answer with calculations. [7]
[Total: 25]
© UCLES 2020 9706/33/INSERT/O/N/20
Page 330
ACCOUNTING 9706/11
1 hour

*8638679745*

Soft clean eraser
INSTRUCTIONS
 There are thirty questions on this paper. Answer all questions.
 For each question there are four possible answers A, B, C and D. Choose the one you consider correct
 Follow the instructions on the multiple choice answer sheet.
 Write in soft pencil.
 Write your name, centre number and candidate number on the multiple choice answer sheet in the
 Do not use correction fluid.
 Do not write on any bar codes.
 You may use a calculator.
INFORMATION
 The total mark for this paper is 30.
 Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
 Any rough working should be done on this question paper.
IB20 11_9706_11/4RP
Page 331
2
1 Which accounting concept is being applied when calculating depreciation?
A business entity
B matching
C materiality
2 A company purchased a new delivery vehicle.
Which items would appear in the income statement?
1 delivery cost of the delivery vehicle

2 insurance for the delivery vehicle
3 painting of the company name on the delivery vehicle
4 purchase cost of the delivery vehicle
3 A company has two non-current assets. Details are as follows:
cost residual
asset date bought depreciation method
$ value
X 1 Jan 2018 10 000 straight-line life 5 years $2000

Y 1 Jan 2018 20 000 reducing balance rate 20% nil
What was the total depreciation charge in the income statement for the year ended
31 December 2019?
A $4800 B $5200 C $5600 D $6000
4 A business purchased a new machine on 1 January 2020 for $15 000 paying $10 000 by cheque.
The balance was settled by part exchange of an old machine. This old machine had cost $12 000
on 1 January 2018 and had been expected to last for 6 years with a residual value of $2400.
The business uses the straight-line method of depreciation.
What was the loss on the disposal of the old machine?
A $1400 B $3000 C $3800 D $4600
© UCLES 2020 9706/11/O/N/20
Page 332
3
5 Which errors will result in a difference between the total of the individual customer account
balance in the sales ledger and the balance on the sales ledger control account?
1 An irrecoverable debt has been posted to the debit of a customer's account.

2 Discount allowed has only been credited to the customer’s account.
3 Returns by a customer have been omitted from the customer’s account.
6 When preparing the financial statements for the year the following errors are discovered.
1 No provision had been made for accrued wages of $250.

2 No account had been taken of prepaid rent of $400.
3 The sales journal was undercast by $300.
The draft profit for the year is $8050.
What will be the profit when the errors are corrected?
A $8100 B $8500 C $8750 D $9000
7 The following information relates to a company’s banking transactions at 31 December.
balance at bank as per bank statement 22 650 credit

uncleared bankings 3 110
unpresented cheques 6 290
bank interest received recorded twice by bank in error 650
What amount should appear as the bank balance in the statement of financial position at
31 December?
A $18 820 B $20 120 C $25 180 D $26 480

Page 333
4
8 John did not keep sales or purchases ledger control accounts. His trial balance did not balance
and a suspense account was opened. The following errors were discovered.
1 Sales of $200 had been entered as a credit in both a customer’s account and the
sales account.
2 Purchases of $350 from J Brown had been entered as a credit in E Brown’s
account.
3 Machinery repairs of $600 had been entered in the machinery at cost account.
4 Returns inwards of $450 had been entered in the sales returns account but omitted
from the customer’s account.
What was the amount of opening balance on the suspense account?
A $400 B $500 C $650 D $850
9 A business valued its inventory at the year end at cost, $24 650. This did not take account of the
following.
1 Goods had been invoiced to a customer at $3000 and included in sales. They should
have been treated as goods on sale or return as the customer had not indicated they
would buy them.
2 Goods purchased for $6400 and included in the inventory have been damaged and
now have a sales value of $5700.
3 Returns inwards which had been sold for $800 had not been included in the
inventory.
The business has a mark-up of 25%.
What was the correct value of the inventory?
A $26 350 B $26 990 C $27 590 D $27 750
10 A business prepaid its rent.
What is the effect of this on the current assets and the rent expense at the year end?
current assets rent expense
A decrease increase
B increase decrease
C increase no effect
D no effect increase
© UCLES 2020 9706/11/O/N/20
Page 334
5
11 At 1 April 2019 a business had a provision for doubtful debts of $3400.
An analysis of trade receivables at 31 March 2020 was as follows.
amount provision
$ required
50 000 nil
40 000 5%
1 600 20%
During the year an irrecoverable debt of $3000 had been written off in the customer’s account,
but no entry made in the income statement.
No entry had been made for the increase or the decrease in the provision for doubtful debts.
The income statement for the year ended 31 March 2020 showed a draft profit for the year of
$90 000.
What was the effect on the draft profit for the year of these omissions?
A $680 overstated
B $680 understated
C $1920 overstated
D $1920 understated
12 X and Y were in partnership sharing profits and losses equally.
Z joined the partnership and profit continued to be shared equally between the three partners.
Goodwill was valued but no goodwill account was to remain in the books of account.
Which entries were made to record the goodwill adjustment?
debit account credit account
1 goodwill X and Y
2 goodwill X, Y and Z
3 X and Y goodwill
4 X, Y and Z goodwill

Page 335
6
13 Which are not appropriations of partnership profit?
2 interest on drawings
3 interest on loan from partner
4 partner’s drawings
14 L, M and N were in partnership sharing profits and losses in the ratio 3 : 2 : 1. The partnership was
dissolved on 31 December 2019. After all assets had been realised and all liabilities paid, the
following balances remained in the books of account.
L M N total
($) ($) ($) ($)
partners’ capital accounts 30 000 20 000 10 000 60 000

partners’ current accounts 4 000 8 000 (3 000) 9 000
cash at bank (debit) 60 000
realisation account (debit) 9 000
How much cash did N receive when the dissolution was complete?
A $5500 B $7000 C $10 000 D $11 500
15 Which items will be shown in the equity and reserves section of the statement of financial
position?
1 debentures
2 finance charges
3 retained earnings
4 share premium
© UCLES 2020 9706/11/O/N/20
Page 336
7
16 An investor owns 5% preference shares in H Limited.
One year H Limited does not have enough profits to pay the preference dividend.
The investor expects the profits to improve and thinks the directors will pay the outstanding
dividend in the following year.
Which type of preference shares does the investor own?
A cumulative
B non-cumulative
C participating
D redeemable
17 The following information was taken from the accounting records of a company at
1 January 2020.
non-current assets at cost 250 000

accumulated depreciation 120 000
trade receivables 42 000
bank overdraft 25 000
cash & cash equivalents 9 000
prepaid expenses 2 000
inventory 17 000
5% debenture (2025) 7 000
What was the total capital employed?
A $164 000 B $168 000 C $171 000 D $175 000
18 A trader has a current ratio of 2 : 1.
Which event would cause this ratio to increase?
A buying goods for resale on credit

B buying new machinery on credit
C converting an overdraft to a long-term loan
D credit customers paying their account

Page 337
8
19 A company buys and sells all of its inventory on a credit basis.
purchases 450 000

sales 500 000
trade receivables 120 000
Which period of credit was taken by customers?
A 59 days
B 65 days
C 88 days
D 98 days
20 A company purchases a product that costs $120. The company expects to make a gross margin
of one-third.
What is the company’s mark-up?
A $40 B $60 C $160 D $180
21 A business manufactures electric motors.
Which cost can be classified as a direct cost?
A assembly workers’ wages

B factory rent
C machine depreciation
D sales person’s commission
22 An employee is paid $16 an hour basic pay for working 7 hours a day.
Overtime is paid at the rate of time and a half.
A bonus is also paid at the rate of $32 per unit for output in excess of 9 units per day.
On Monday the employee worked 10 hours and produced 12 units.
What was the employee’s total pay for Monday?
A $232 B $280 C $520 D $568
© UCLES 2020 9706/11/O/N/20
Page 338
9
23 Details of inventory movements for an item are shown.
quantity unit value

date transaction
(units) $
1 January opening balance 400 10.00

2 February bought 200 11.00
3 June sold 100 12.50
4 August bought 200 12.00
4 December sold 300 13.00
31 December closing inventory 400 ?
What is the value of closing inventory if the first in first out (FIFO) method of inventory valuation is
used?
A $4000 B $4600 C $5000 D $5200
24 What are advantages of absorption costing?
1 conforms to the matching concept

2 is a recognised method of inventory valuation
3 is suitable for determining selling price
25 A business calculates its overhead absorption rates on the basis of direct labour hours. For the
month of October the following information is available.
budgeted overhead expenditure 15 000

budgeted direct labour hours 5 000
actual overhead expenditure 15 800
actual direct labour hours worked 4 000
What was the under or over absorption of overheads for October?
A $3000 over
B $3000 under
C $3800 over
D $3800 under

Page 339
10
26 How is contribution calculated?
A sales revenue minus cost of goods sold

B sales revenue minus fixed costs
C sales revenue minus variable costs
D sales revenue minus (variable costs + fixed costs)
27 A company has the following budgeted information.
revenue 800 000

contribution 480 000
fixed production costs 300 000
fixed non-production costs 120 000
What is its budgeted break-even sales revenue?
A $500 000 B $700 000 C $750 000 D $1 050 000
28 Which statements describe assumptions made when using cost–volume–profit analysis?
1 Costs can be accurately divided into their fixed and variable parts.
2 Costs cannot be accurately divided into their fixed and variable parts.
3 There are multiple products or a varying sales mix.
4 There is a single product or constant sales mix.
29 The following budgeted information relates to a business that manufactures two products.
product X product Y
$ $
selling price per unit 120 130

marginal cost per unit 110 115
The budgeted fixed costs for the period are $400 000.
The forecasted sales quantity of product X for the period is 25 000 units.
The business has a target profit for the period of $180 000.
How many units of product Y must be sold to achieve the target profit for the period?
A 10 000 B 12 000 C 22 000 D 33 000
© UCLES 2020 9706/11/O/N/20
Page 340
11
30 How can budgeting help a business achieve control of its performance?
A by comparing the actual performance with the budgeted performance

B by comparing the business’ performance with its competitors
C by comparing the business’ performance with the industry averages
D by comparing the current year’s performance with its previous year’s performance
© UCLES 2020 9706/11/O/N/20
Page 341
ACCOUNTING 9706/12
1 hour

*3801950463*

Soft clean eraser
INSTRUCTIONS
INFORMATION
IB20 11_9706_12/3RP
Page 342
2
1 The inclusion of unpaid loan interest in financial statements is in accordance with which
accounting concept?
A consistency
B going concern
C matching
D money measurement
2 What is depreciation?
A a means of allocating the cost of a non-current asset over its useful life
B a measure of the decrease in market value of a non-current asset
C an outflow of cash from the use of a non-current asset
D the expense spent on the non-current asset
3 A trader depreciates fixtures and fittings at the rate of 10% per annum on cost. On
1 January 2019 a purchase of new fixtures and fittings, $5000, was posted to the advertising
account in error.
What was the effect of this error on the trader’s capital account on 31 December 2019?
A overstated $4500
B overstated $5000
C understated $4500
D understated $5000
4 A company had a non-current asset which cost $370 000. The asset had a 10-year useful life and
an estimated residual value of $20 000. A full year’s charge for depreciation is made in every year
of use.
After four years the asset was sold. The loss on disposal was $30 000 and disposal costs were
$10 000.
What were the sale proceeds?
A $192 000 B $200 000 C $202 000 D $210 000
5 Which item is recorded on the debit side of a sales ledger control account?
A interest charged on overdue accounts of customers

B irrecoverable debts written off
C returns of goods supplied to credit customers
D total of cash sales
© UCLES 2020 9706/12/O/N/20
Page 343
3
6 A trader prepared a trial balance which did not balance. The difference was posted to a suspense
account.
The following errors have now been found.
1 The returns inwards account had been overcast by $90.

2 A payment of $200 for rent had been entered correctly in the cash book but had not
been posted to the rent account.
What was the opening balance on the suspense account?
A $110 credit
B $110 debit
C $290 credit
D $290 debit
7 How could a credit entry of $500 in X’s account have arisen in the books of account of Y?
A X bought goods from Y.

B X returned goods to Y.
C Y made a payment to X.
D Y returned goods to X.
8 An invoice for purchases was credited to the purchases account.
How will the balance on the purchases account be corrected?
A decrease by the value of the invoice

B decrease by twice the value of the invoice
C increase by the value of the invoice
D increase by twice the value of the invoice

Page 344
4
9 Rent is paid by a business monthly in advance on the first day of each month. The payments
during a financial year were as follows.
up to and including 1 June $500 per month

from 1 July $600 per month
Which amounts will appear in the financial statements for the year ended 31 October?
statement of financial
income statement
position
A $6300 $600 other receivables

B $6300 $600 other payables
C $6400 –
D $6500 –
10 What is the effect on profit for the year and net assets when accrued expenses are understated?
profit for the year net assets
A overstated overstated
B overstated understated
C understated overstated
11 Ali’s trade receivables at 31 December 2019 were $26 500. He knew that $400 of these were
irrecoverable.
He wished to maintain a provision for doubtful debts equal to 5% of the trade receivables.
At 1 January 2019 the balance of the provision for doubtful debts was $1200.
Which entry does Ali make in the provision for doubtful debts account at 31 December 2019?
A $105 credit
B $105 debit
C $125 credit
D $125 debit
© UCLES 2020 9706/12/O/N/20
Page 345
5
12 Adil and Bashir were in partnership sharing profits and losses in the ratio 2 : 1.
Chandra joins the partnership and profits and losses are now to be shared between Adil, Bashir
and Chandra in the ratio 3 : 2 : 1.
The balances of the partners’ capital accounts prior to Chandra joining the partnership are as
follows:
Adil 20 000
Bashir 10 000
Goodwill is to be valued at $36 000 and is not to be retained in the books of account.
What is the balance on Adil’s capital account after Chandra joined the partnership?
A $20 000 B $26 000 C $38 000 D $44 000
13 How is a loss on realisation recorded when a partnership is dissolved?
A Credit each partner’s capital account equally.

B Debit each partner’s capital account equally.
C Credit each partner’s capital account in the profit-sharing ratio.
D Debit each partner’s capital account in the profit-sharing ratio.
14 John and Brian are in partnership sharing profits and losses equally. John receives a salary of
$2000 per annum. Brian loaned the business $5000. He is entitled to interest of 5% per annum.
The profit for the year before appropriation was $24 000. During the year John took drawings of
$3000.
What will be the amount of residual profit Brian will receive for the year?
A $9375 B $10 875 C $11 000 D $11 250
15 A company issued 100 000 ordinary shares of $1 each at a premium of $2. The market value was
$4 per share.
Which statement is not correct?
A Capital reserves increased by $200 000.

B Cash and cash equivalents increased by $300 000.
C Ordinary share capital increased by $100 000.
D Revenue reserves increased by $400 000.

Page 346
6
16 Which item has no effect on the total equity of a limited company?
A bonus issue of shares

B dividends paid
C rights issue of shares
D upward revaluation of non-current assets
17 Information relating to W Limited for the year ended 31 December 2019 was as follows:
retained earnings at 1 January 2019 22 000

dividend paid 20 000
dividend proposed 15 000
bank loan interest 16 000
What was the amount of retained earnings at 31 December 2019?
A $32 000 B $47 000 C $54 000 D $69 000
18 Which financial information is not available for potential shareholders of a limited company?
A cash budget
B income statement
C notes to financial statements
D statement of changes in equity
© UCLES 2020 9706/12/O/N/20
Page 347
7
$ $
revenue 600 000

purchases 244 000
290 000
closing inventory 50 000 240 000
gross profit 360 000
expenses 150 000
What was the rate of inventory turnover (in times)?
A 4.8 B 5 C 12 D 12.5
20 A company’s financial statements for the year ended 31 December showed the following:
issued share capital 150 000

reserves including retained earnings 250 000
The company’s profit from operations was $160 000 and the profit for the year was $120 000.
What was the company’s return on capital employed?
A 23.5% B 30.0% C 37.2% D 40.0%
21 Which cost can be classified as a fixed cost?
A bank overdraft interest

B piece rate labour cost
C sales commission
D telephone rental

Page 348
8
22 An employee works a 40-hour week at an hourly rate of $8.
She receives a bonus of 30% of the hourly rate for time saved producing each unit. The target
production time is 30 minutes per unit.
Last week she worked 40 hours and produced 90 units.
What were her gross earnings for the week?
A $320 B $332 C $360 D $416
23 A business uses the weighted average (AVCO) method to value its inventory.
It purchased the following units of inventory.
cost per unit total cost

units
$ $
100 36 3600
120 48 5760
80 54 4320
After these receipts it issued 250 units to production.
What was the value of the issue?
A $10 980 B $11 400 C $11 500 D $11 880
number of overheads
month
machine hours $
April 34 000 493 000

May 67 000 625 000
The variable overhead rate per machine hour was $4.
What was the monthly fixed overhead cost?
A $132 000 B $136 000 C $268 000 D $357 000
© UCLES 2020 9706/12/O/N/20
Page 349
9
25 A business absorbs its fixed overheads using direct labour hours.
The following information is provided.
actual budgeted
overheads $600 000 $508 000

labour hours 14 300 12 700
A Overheads were over absorbed by $28 000.

B Overheads were under absorbed by $28 000.
C Overheads were over absorbed by $92 000.
D Overheads were under absorbed by $92 000.
26 A company sells a single product for $24 per unit.
The variable cost is $8 per unit.
Fixed costs have been absorbed based on a normal activity level of 1000 units at $6 per unit.
What is the profit under marginal costing if the company makes and sells 1250 units?
A $10 000 B $12 500 C $14 000 D $20 000
27 A product has the following revenue and costs per unit.
selling price 40
marginal cost 22
fixed manufacturing overhead 6
non-manufacturing overhead 2
What is the contribution to sales ratio?
A 25% B 30% C 45% D 55%
1 It applies over any time period.

2 It is suitable for any range of output.
3 Profits are calculated using marginal costing.

Page 350
10
29 Total costs at two levels of production are as follows.
units $
10 000 230 000

16 000 320 000
Fixed costs will increase by $30 000 if more than 20 000 units are produced.
What are the total costs if 25 000 units are produced?
A $405 000 B $485 000 C $530 000 D $605 000
30 Which are benefits of a budgetary control system?
1 It can be used to control expenditure.

2 It can be used to record accounting transactions.
3 It can help when applying for a loan.
4 It can identify where improvements are required.
A 1, 2, 3 and 4
B 1 and 2 only
C 1, 3 and 4 only
D 3 and 4 only
© UCLES 2020 9706/12/O/N/20
Page 351
ACCOUNTING 9706/13
1 hour

*5328369787*

Soft clean eraser
INSTRUCTIONS
INFORMATION
IB20 11_9706_13/3RP
Page 352
2
1 A company decided not to capitalise the purchase of a stapler for use in its office.
Which accounting concept was the company applying?
A consistency
B duality
C materiality
D prudence
2 Which book of prime entry is also used as a ledger account?
A cash book
B purchases journal
C sales journal
D journal
3 A motor vehicle costing $8000 is depreciated by 25% per annum using the reducing balance
method. After depreciating it for two years it was sold for $4000.
What is the profit or loss on disposal?
A $500 loss
B $500 profit
C $2000 loss
D $2000 profit
4 A business purchased a new delivery van. The total amount paid is made up of the basic cost of
the delivery and the following:
1 changing the inside to carry tools and materials

2 one year’s insurance and servicing
3 painting the exterior with the business name
Which items are included in the total to be entered in non-current assets?
© UCLES 2020 9706/13/O/N/20
Page 353
3
5 A business owner suspects that a loss of cash has occurred. He provides the data shown.
cash balance at the start of the month 150

cash balance at the end of the month 100
cash banked 10 200
cash sales for the month 10 500
How much cash has been lost?
A $200 B $250 C $300 D $350
6 The difference on a trial balance is entered in a suspense account. It is discovered that a

discount received has been debited to the discount allowed account.
Which journal entry corrects the error?
account(s) to be debited account(s) to be credited
A discount received suspense

B discount allowed suspense
discount received
C suspense discount allowed
D suspense discount allowed
discount received
7 Which items will be entered in the debit side of the purchases ledger control account?
1 contra with sales ledger control account

2 discount received
3 returns inwards

Page 354
4
8 The bank column of a business cash book showed a debit balance of $25 000.
The following was then discovered.
$
direct debit payments not recorded in the cash book 6500
payments for sales made directly into the bank by 5500
customers but not recorded in the cash book
bank charges not recorded in the cash book 1500
payment made by the business but not yet shown in 4500
the bank statement
What was the correct cash book balance?
A $18 000 B $19 500 C $22 500 D $27 500
9 At the year end a company discovers that some of its inventory is damaged.
This inventory originally cost $2000 and to replace it would now cost $1900.
It would normally sell for $2400 but can now only be sold for $2200 if repairs costing $400 are
undertaken.
What value of the damaged inventory should be shown in the financial statements?
A $1800 B $1900 C $2000 D $2200
10 The following information relates to rent receivable for the year ended 31 March 2020.
1 April 2019 rent owed by the tenants 700

1 April 2019 rent prepaid by the tenants 1200
rent received during the year 7800
31 March 2020 rent owed by the tenants 1000
How much is the rental income entered in the income statement for the year ended
31 March 2020?
A $6300 B $7300 C $8300 D $9300
© UCLES 2020 9706/13/O/N/20
Page 355
5
11 A business has provided the following information.
A provision for doubtful debts has been calculated as $1750. It is based on 5% of trade
receivables after an irrecoverable debt of $4200 had been written off.
What was the original amount of trade receivables before making these adjustments?
A $29 050 B $30 800 C $37 450 D $39 200
12 A sole trader provides the following information.
start of year end of year

$ $
total assets 100 000 135 000

total liabilities excluding owner’s capital 35 000 40 000
During the year the owner took drawings of $18 000.
What was the profit for the year?
A $12 000 B $30 000 C $35 000 D $48 000
13 On the dissolution of a partnership, one of the partners takes a motor vehicle in part settlement of
the amount due to him.
How is this entered in the books of account?
debit account credit account
A capital motor vehicle

B capital realisation
C realisation capital
D motor vehicle capital
14 At 31 December 2019 X, Y and Z were in partnership sharing profits and losses equally.
At that date the net assets of the partnership were valued at $300 000 and X’s capital account
balance was $70 000.
On 1 January 2020 X retired. The net assets were then revalued upwards by $90 000.
X left half of the amount due to him on retirement as a loan to the partnership.
What was the value of the partnership’s net assets remaining after X’s retirement?
A $220 000 B $230 000 C $290 000 D $350 000

Page 356
6
15 Which items would appear in a partnership’s appropriation account?
1 partners’ interest on capital

2 partners’ introduction of new capital
3 salaries of employees
4 salaries of partners
16 Which item will affect the total equity of a limited company?
A bonus issue of shares

B issue of debentures
C proposed dividend
D rights issue of shares
17 A company makes a fully subscribed rights issue of 100 000 ordinary shares of $1 each at $1.20.
The market value of a share at that date was $1.30. Half of the rights issue proceeds were used
to repay a long-term loan.
By how much did the company’s capital employed increase?
A $60 000 B $65 000 C $120 000 D $130 000
18 Where are dividends paid during the year recorded in the financial statements of a limited
company?
1 income statement
2 statement of changes in equity
3 statement of financial position
19 Which ratios identify how well a business has utilised its resources?
1 inventory turnover
2 non-current asset turnover
3 profit margin
4 return on capital employed
© UCLES 2020 9706/13/O/N/20
Page 357
7
20 A business provided the following information at the year end.
non-current assets 75 000

current assets 25 000
There were no interest charges for the year.
A 23.73% B 28.00% C 34.15% D 37.33%
21 Anna is paid an hourly rate for each hour worked. She also receives an additional $0.25 for every
unit produced in excess of 200 units a week.
Which method of labour remuneration is used to pay Anna?
A fixed rate only

B fixed rate plus bonus
C fixed rate plus commission
D fixed rate plus piece rate
22 A business uses the first in first out (FIFO) inventory system. The following information is
available.
per unit value

date details units
$
1 March opening inventory 1 200 10.00

12 March purchases 2 000 10.20
22 March sales 3 000 15.00
26 March purchases 800 10.50
The inventory at 31 March could be sold for $10 800.
What is the value of inventory to be included in the statement of financial position at 31 March?
A $10 000 B $10 425 C $10 440 D $10 800

Page 358
8
23 The following data is available for the production department of a manufacturing company for a
period. Overheads are absorbed on a direct labour hour basis.
total
direct
overhead costs
labour hours
$
budgeted 96 000 242 880

actual 97 600 253 760
What is the over or under absorption of overheads for the period?
A $6832 over absorbed

B $6832 under absorbed
24 The records of a company showed the following.
machining assembly
total fixed overheads $150 000 $60 000

machine hours 3000
employee hours worked 2000
What is the hourly fixed overhead absorption rate for the machining department?
A $30 B $42 C $50 D $70
25 Which costs are included in inventory valuation under absorption costing?
1 fixed manufacturing overhead

2 variable manufacturing overhead
3 variable selling expenses
26 What would cause a margin of safety of a product to increase?
1 Break-even revenue decreases.

2 Break-even revenue increases.
3 Forecast revenue decreases.
4 Forecast revenue increases.
© UCLES 2020 9706/13/O/N/20
Page 359
9
27 A company makes and sells a single product for $50 per unit.
The variable cost is $16 per unit.
Fixed costs have been absorbed based on a normal activity level of 1000 units at $4 per unit.
What is the profit under marginal costing if the company makes and sells 2000 units?
A $32 000 B $60 000 C $64 000 D $68 000
28 Which purpose is cost–volume–profit analysis used for?
A comparing actual and budgeted costs

B organising resources in the most efficient way
C planning to achieve targeted profit
D preparing annual financial statements
29 The following budgeted information is available.
total cost
units
$
7000 15 000
9000 19 000
If production exceeded 9000 units, fixed costs would increase by $500.
What is the total budgeted production cost for 10 000 units?
A $20 500 B $21 000 C $21 500 D $21 750
30 Which statement does not apply to an efficient system of business planning?
A It identifies levels of achievable costs and revenues.

B It identifies budgets when a business is only making a loss.
C It identifies targets regularly to monitor future performance.
D It informs management if standards are not met.
© UCLES 2020 9706/13/O/N/20
Page 360
* 0 6 8 9 0 3 6 1 8 6 *
ACCOUNTING 9706/21
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RCL/GO) 188099/5
Page 361
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
General expenses 22 280
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.
(a) Prepare the corrected income statement for the year ended 31 December 2019.
© UCLES 2020 9706/21/O/N/20
Page 362
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.
(c) Advise Ismail which of these options he should choose. Justify your answer.
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.
© UCLES 2020 9706/21/O/N/20
Page 363
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
Page 364
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]
Page 365
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
Page 366
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

capital premium earnings
$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]

Page 367
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
Page 368
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.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [6]

Page 369
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.
Selling price per unit $55

Materials per unit $10
Direct labour per unit $21
Fixed costs per month $54 000
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
Page 370
13
REQUIRED
(e) Calculate the forecast profit per month for:
(i) Option A
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
(ii) Option B
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
(f) Recommend which option the directors should choose. Justify your answer.
[11]
Page 371
* 4 1 2 1 7 0 0 4 9 8 *
ACCOUNTING 9706/22
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (RCL/GO) 188100/2
Page 372
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
Non-current assets (carrying value) 85 000
During the year ended 30 September 2020 the following transactions were recorded.
General expenses paid 11 480

Payments to trade payables 50 250
Receipts from trade receivables 73 850
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
Non-current assets (carrying value) 72 250
Prepaid general expenses 600
REQUIRED
(a) Calculate the bank balance at 30 September 2020.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(b) Prepare the income statement for the year ended 30 September 2020. Use the space on the
next page for your workings.
© UCLES 2020 9706/22/O/N/20
Page 373
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
Page 374
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]

Page 375
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]
(d) State the purpose of financial statements.
© UCLES 2020 9706/22/O/N/20
Page 376
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.
2 Inventory was sold for $42 000.
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
Page 377
9
REQUIRED
(a) Prepare the partnership realisation account.
Partnership realisation account
$ $
[5]
(b) Prepare the partners’ capital accounts on dissolution of the partnership.
Partners’ capital accounts
Roberto Sangeeta Roberto Sangeeta

$ $ $ $
(c) Prepare the bank account on dissolution of the partnership. [5]

Page 378
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]

Page 379
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 production 20 000 units per month

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
Production (units) 18 000 18 000
Fixed overheads $100 000 $100 000
© UCLES 2020 9706/22/O/N/20
Page 380
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]

Page 381
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
$ $ $ $
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
......................................................... .................. .................. .................. ..................
[6]
(e) Prepare a statement reconciling the marginal cost profit with the absorption cost profit for
January.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [3]
(f) Advise Kevin whether or not he should change from marginal costing to absorption costing.
© UCLES 2020 9706/22/O/N/20
Page 382
* 5 9 5 2 6 7 5 8 1 9 *
ACCOUNTING 9706/23
1 hour 30 minutes
INSTRUCTIONS
INFORMATION
DC (CJ) 190053/3
Page 383
2
1 The directors of G Limited have provided a trial balance at 30 September 2020.
Debit Credit
$ $
Bank 10 316
Inventory at 1 October 2019 86 228
Ordinary share capital ($1 shares) 200 000
Property plant and equipment
Cost 300 000
Provision for depreciation at 1 October 2019 82 500
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
(a) Prepare the income statement for the year ended 30 September 2020.
(b) Prepare the statement of financial position at 30 September 2020
© UCLES 2020 9706/23/O/N/20
Page 384
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]

Page 385
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.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
............................................................................................................................................. [7]
[Total: 30]
© UCLES 2020 9706/23/O/N/20
Page 386
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.
REQUIRED
(b) Prepare the journal entries to correct the errors. Narratives are not required.
© UCLES 2020 9706/23/O/N/20
Page 387
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
Page 388
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]
(c) Calculate the trade payables turnover (days).
(d) Explain the effect on the liquidity of Giles’s business of your answers to (b) and (c).
© UCLES 2020 9706/23/O/N/20
Page 389
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
Page 390
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]
(ii) Calculate the budgeted total profit for the year ending 31 December 2021 based on the
optimum production plan.
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.

Page 391
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
Page 392

2017 To 2020 Combined

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2017 To 2020 Combined

Uploaded by

Copyright:

Available Formats

Contents

1. Nov 2017 P12 Pg 1 29. June 2020 P21 Pg 266

Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Read the instructions on the Answer Sheet very carefully.

This document consists of 10 printed pages and 2 blank pages.

1 Which item is classed as revenue expenditure?

A installation costs of machinery

2 What is the purpose of depreciation?

A to allocate the cost of the assets over their lives

In May 2017 the factory is revalued at $300 000.

How much should be included in the revaluation reserve account?

A $100 000 B $120 000 C $130 000 D $140 000

What was the loss on disposal?

A $20 000 B $24 000 C $40 000 D $60 000

5 Why does a business keep a sales ledger control account?

1 It helps deter fraud.

A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4

© UCLES 2017 9706/12/O/N/17

The sales journal was undercast by $1500.

What was the value of the irrecoverable debt?

A $100 B $1100 C $3100 D $4100

7 The following information is available.

provision for doubtful debts at the beginning of the year 6 250

Provision for doubtful debts is to be maintained at 6% of trade receivables.

8 At 31 December the following information is available about a company’s banking transactions.

balance at bank per bank statement 22 650

A $18 820 B $20 120 C $25 180 D $26 480

© UCLES 2017 9706/12/O/N/17 [Turn over

historic cost paid 60

A $6000 B $6300 C $6825 D $8500

capital at start 52 000

What is the profit or loss for the year?

What is the net realisable value of the inventory?

A $1400 B $1475 C $2200 D $2275

© UCLES 2017 9706/12/O/N/17

A $36 300 B $37 200 C $38 900 D $39 800

13 A partnership maintains capital accounts and current accounts.

Which statements are correct?

A 1 and 2 B 1 and 3 C 2 only D 3 only

capital account current account

$50 000 $6400 debit

Goodwill was valued at $30 000.

How much cash was Y entitled to when he retired?

A $51 400 B $51 800 C $55 200 D $64 200

© UCLES 2017 9706/12/O/N/17 [Turn over

capital account S 40 000

What is the new balance of T’s capital account?

A $18 000 B $20 000 C $22 000 D $30 000

profit from operations 240 000

What is the residual balance of profits to be appropriated between the partners?

A $109 000 B $154 000 C $159 000 D $204 000

17 Which accounting entry could record the issue of bonus shares?

A bank share capital

© UCLES 2017 9706/12/O/N/17

18 From which accounts can a company pay dividends?

A 1 and 2 B 1 and 3 C 2 and 3 D 2 and 4

19 A company provides the following data on 1 January 2016.

10% debentures (2020) 200 000

What is the total value of non-current liabilities at 31 December 2016?

A $154 000 B $210 000 C $340 000 D $364 000

20 Calculation of which ratio does not include revenue?