www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/11
Paper 1 (Multiple Choice – Core), maximum raw mark 30
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
www.maxpapers.com
Syllabus
9706
Question
Number
Key
Question
Number
Key
1
2
B
D
16
17
C
A
3
4
5
C
B
A
18
19
20
C
D
A
6
7
A
B
21
22
B
C
8
9
10
A
D
C
23
24
25
C
B
D
11
12
B
A
26
27
C
B
13
14
15
C
A
C
28
29
30
D
C
B
© University of Cambridge International Examinations 2011
Paper
11
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/12
Paper 1 (Multiple Choice – Core), maximum raw mark 30
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
www.maxpapers.com
Syllabus
9706
Question
Number
Key
Question
Number
Key
1
2
C
B
16
17
B
A
3
4
5
D
C
D
18
19
20
A
A
C
6
7
D
A
21
22
B
C
8
9
10
B
B
A
23
24
25
C
A
C
11
12
C
C
26
27
C
A
13
14
15
B
C
B
28
29
30
B
D
A
© University of Cambridge International Examinations 2011
Paper
12
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/13
Paper 1 (Multiple Choice – Core), maximum raw mark 30
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
www.maxpapers.com
Syllabus
9706
Question
Number
Key
Question
Number
Key
1
2
D
C
16
17
A
C
3
4
5
B
A
A
18
19
20
D
A
B
6
7
B
A
21
22
C
C
8
9
10
D
C
B
23
24
25
B
D
C
11
12
A
C
26
27
B
D
13
14
15
A
C
C
28
29
30
C
B
B
© University of Cambridge International Examinations 2011
Paper
13
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/21
Paper 2 (Structured Questions – Core),
maximum raw mark 90
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
21
(a)
Iqbal
Income Statement (Trading and Profit and Loss Account)
For the year ended 31 March 2011
$
$
Revenue (sales) (85 000 – 7 200 (1) + 8 300 (1) + 1 400 (1) + 24 000 (1))
Opening Inventory (Stock)
Ordinary goods purchased (Purchases)
(37 000 – 3 400 (1) – 2 400 (1) + 3 700 (1) + 500 (1))
$
111 500
8 000
35 400
43 400
Less Closing Inventory (Stock)
9 200
Cost of Sales
34 200
Gross Profit
77 300
Discounts received
500 (1)
500
77 800
Less Expenses
Motor expenses
Rent
Rates
Wages
Discounts allowed
Loan interest
Provision for doubtful debts
Depreciation – Fixtures and fittings
Depreciation – Delivery van
3 800 (1)
5 800 (1)
1 700 (1)
18 000 (1)
1 400 (1)
700 (1)
249 (1)
8 000 (1)
2 500 (1)
42 149
Profit for the year (Net Profit)
© University of Cambridge International Examinations 2011
35 651
[18]
www.maxpapers.com
Page 3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
21
(b)
Iqbal
Statement of Financial Position (Balance Sheet) at 31 March 2011
$
$
Non-Current (Fixed) Assets
Fixtures
Delivery van
68 000
7 500
75 500
Current Assets
Inventory (stock)
Trade receivables (debtors)
Rent
Rates
Cash and cash equivalents (bank)
Current Liabilities
Trade payables (creditors)
Loan interest
$
(1)
9 200 (1)
8 051 (1)
600 (1)
300 (1)
31 350 (1)
49 501
3 700 (1)
700 (1)
4 400
Working Capital
Total Assets less current liabilities
Non-Current (long term) Liabilities
Loan
45 101
120 601
14 000 (1)
14 000
106 601
Financed by
Capital
Profit for the year (Net Profit)
Drawings
98 350 (1)
35 651 (1of)
134 001
27 400 (1)
106 601
[12]
[Total 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 4
2
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
21
(a)
16 800
12 600
(7 100 – 700)
1 300
× 1%
× 2%
× 3%
× 10%
=
=
=
=
168 (1)
252 (1)
192 (2)
130 (1)
742 (1)
[6]
(b) (i) Must have correct narrative to gain marks.
Provision for Doubtful Debts
$
Income Statement
58 (1of) Balance b/d
Balance c/d
742 (1of)
800
$
800 (1)
800
[3]
(ii)
Bad Debts
Debbie
Harvey
Others
$
700 (1)
450 (1)
350 (1)
1500
$
Income Statement (1)
1500 (1)
1500
[5]
(iii)
Harvey
Balance b/d
$
600 (1)
Bank
Bad Debts
600
$
150 (1)
450 (1)
600
[3]
(c)
Balance Sheet (extract) at 31 December 2010
$
Trade receivables
37 100
Less provision for doubtful debts
__742
(1of)
36 358
(1of)
(d) (i) ($37 100 × 4%) = $1484 – $742 = $742
(ii) Reduce net profit for the year (1)
Reduce trade receivables/current assets/balance sheet total (1)
[2]
[2]
[2]
(iii) Prudence concept (1) Current provision $742 is 2% of the debtors (1) Actual bad debts
are $1500 (1) This may suggest the provision is insufficient. (1)
[4]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 5
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
(e) Past experience
Specific knowledge about a customer
The state of the economy
Consistency concept
Industry average
Length of time
Size of debtors
Comparing with previous years or with competitors.
Paper
21
(3 × 1 mark) [3]
[Total 30]
3
(a)
Brought forward
Maintenance
Canteen
Total
Machining
Assembly
Maintenance
Canteen
143 500
154 700
165 800
176 900
99 480 (1)
49 740 (1)
(165 800) (1)
16 580
77 392 (1)
116 088 (1)
(193 480) (1)
320 372 (1)
320 528 (1)
[8]
(b) Machining Department = 320 372 (1of) / 18 845 (1) = $17.00 (1of) per machine hour (1)
Assembly Department = 320 528 (1of) / 20 350 (1) = $15.75 (1of) per labour hour (1)
[8]
(c)
$
Materials
Labour
Overheads – machining (17.00 × 3)
Overheads – assembly (15.75 × 4)
Cost per unit
12.00
56.00
51.00
63.00
182.00
(1)
(1)
(1of)
(1of)
(1of)
[5]
(d) 182 (1of) × 1.25 (1) = $227.50 (1of)
[3]
(e) 640 900 (1) / (227.50 (1of) – 68.00 (1of)) = 4019 (accept 4018.18) units (1of)
[4]
(f) Assumes:
Everything produced is sold.
Selling price is linear.
Variable costs are linear.
Fixed costs remain unchanged.
A single product firm.
Product mix remains constant.
No semi variable costs.
No external factors.
Is based on estimates.
(2 × 1 mark) [2]
[Total 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/22
Paper 2 (Structured Questions – Core),
maximum raw mark 90
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
22
(a)
Kirsty
Income Statement (trading and profit and loss account)
for the year ended 30 April 2011
$
$
$
Revenue (sales) (108 000 – 4 800)
Opening Inventory (Stock)
103 200 (1)
3 600
Ordinary goods purchased (Purchases) (56 000 – 1 800 (1) – 2 500 (1)) 51 700
55 300
Less Closing Inventory (Stock)
4 200
Cost of Sales
51 100
Gross Profit
52 100
Discounts received
400
(1)
Commission received
Provision for doubtful debts*
880
216 (3of)
1 496
53 596
Less Expenses
Rent
General expenses
Insurance
Salaries
Electricity
Motor expenses
Bad debts
Loan interest
Carriage outwards
Discounts allowed
Depreciation – equipment
Depreciation – motor vehicles
4 000
4 800
2 840
14 000
2 380
4 900
200
1 500
700
600
4 920
6 300
(1)
(1)
(1)
(1)
(1)
47 140
Profit for the year (Net Profit)
6 456
[12]
* 6200 – 200 – 800 = 5200 × 2% = 104 + 200 = 304 deducted from 520 = 216
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
22
(b)
Kirsty
Statement of Financial Position (Balance Sheet) at 30 April 2011
$
$
Non-Current (Fixed) Assets
Equipment
Motor vehicles
29 880
18 900
48 780
Current Assets
Inventory (stock)
Trade receivables (debtors)
Insurance prepaid
Bank
Commission receivable
Current Liabilities
Trade payables (creditors)
Loan interest owing
Electricity owing
Loan
$
(1)
4 200
5 096
460 (1)
3 400
150 (1)
13 306
3 800
250
380 (1)
7 500 (1)
11 930
Working capital
Total assets less current liabilities
Non-Current (long term) Liabilities
Loan
1 376
50 156
7 500 (1)
7 500
42 656
Financed by:
Capital
Profit for the year (Net Profit)
Drawings
44 000
6 456 (1of)
50 456
7 800 (1)
42 656
[8]
(c) 54 000 + 1 000 + 2 000 = 57 000 (2)
[2]
(d) (57 000 – 4 000 (1)) / 5 = 10 600 (1)
[2]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 4
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
22
(e)
Disposal of Machinery
Machinery
$
57 000 (1)
Depreciation
Bank (1)
Profit and Loss (1)
57 000
$
42 400 (1)
12 000 (1)
2 600 (1)
57 000
[6]
[Total 30]
2
(A) (a)
Sales Ledger Control Account
Balance b/d
Credit Sales
Dishonoured Cheques
Interest charged
$
43 900 (1) Bank
522 250 (1) Returns Inwards
2 200
Bad Debts
30 (1) Contra (purchases ledger)
Discount allowed
Balance c/d (closing debtors)
$
436 300
30 110 (1)
9 250 (1)
5 190 (1)
28 800
58 730
568 380
568 380
[6]
Alternative answer
Sales Ledger Control Account
Balance b/d
Interest charged
$
63 530 (1)
30 (1)
Bad debts
Contra / set off
Goods on return basis
Sales returns
Balance c/d (closing debtors)
568 380
$
850
1 980
400
1 600
58 730
(1)
(1)
(1)
(1)
568 380
(b)
Schedule of Trade Receivables (debtors)
$
Opening balance
61 140 (1)
Error 1
180 (1)
Error 3
–240 (2)
Error 4
–1 980 (1)
Error 5
30 (1)
Error 6
–400 (1)
58 730 (1of)
[8]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 5
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
22
(c) Provides an independent check on the postings in the sales ledger.
Errors in the ledger can be located quickly.
Segregation of duties helps in the prevention of fraud because members of staff who
complete the control accounts are not involved in completing the sales ledger.
Totals of trade receivables (debtors) from control accounts can be determined quickly and
used in preparation of the trial balance and final accounts.
(Any two points – 2 each)
[4]
2(B) (a) Profit for the year = (880 000 × 25%) – 130 000 = $90 000 (2)
(b) (i) Return on capital employed
=
=
=
(ii) Inventory Turnover
=
=
=
=
(iii) Liquid (acid test) ratio
=
=
=
=
[2]
Profit for year
× 100
Capital Employed
90 000
× 100
1125 000
8% (2of)
Cost of sales
Average stock
880 000
(45 000 + 65 000) / 2
880 000
55 000
16 times (2)
Current Assets − Closing Stock
Current Liabilities
(65 000 + 150 000) − 65 000
100 000 + 50 000
150 000
150 000
1 : 1 (2)
[6]
(c) Paradis Foods
1.
2.
3.
The return on capital employed is high at 15%. It is higher than S Turner is currently
obtaining.
The current ratio is good and possibly too high with excess stock. The level of the
current ratio is well in excess of S Turners’.
The liquid ratio seems low for a general trading business.
Jones Wholesaler
1.
2.
3.
The return on capital employed is low at 6%. It is much lower than S Turner is currently
obtaining.
The current ratio is good and within the range of 1.5 and 2.0 that we would expect to
see.
The liquid ratio is high at 1.4 : 1 indicating high debtors or cash.
(Any three points – 1 each + 1of for decision)
[4]
[Total 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 6
3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
(a) (i) Selling price per unit
Variable costs per unit
Direct materials
Direct labour
Direct overheads
Contribution per unit
Syllabus
9706
Paper
22
35 (1)
8 (1)
10 (1)
2 (1)
20
15 (1of)
[5]
(ii) 180 000 (1) / 15 (1of)
= 12 000 (1of) units
[3]
(iii) Margin of safety = 25 000 (1) – 12 000 (1of) = 13 000 units
13 000 / 25 000 (1) × 100 = 52% (1of)
[4]
(b) Depreciation
Admin costs
Rent
Insurance
Advertising/marketing
Rates
Indirect wages
Loan interest
Or other suitable alternative.
(Any three examples – 1 mark each)
[3]
(c) Stepped costs occur when a business increases capacity. As a result of expansion
overheads such as insurance, rent and rates and bank interest payments are likely to
increase. On a break even chart these increases would result in a horizontal fixed cost line
moving to a higher level beyond the output at which increased capacity occurs.
(2 × 1 mark)
[2]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 7
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
22
(d)
Marks awarded for label or figure and label where both are given
[6]
(e) If budgeted data is reasonably accurate and the budgeted level of activity could be
maintained in future years then the business would generate more profits ($225 000 v
$195 000) by increasing capacity.
The margin of safety will also be higher in unit terms (15 000 v 13 000) but lower in
percentage terms (37.5% v 52%).
The business will make no profit following expansion if sales return to the previous level as
the new break-even is the same as the previous sales / output.
The capital cost of $3 000 000 is likely to result in interest payments which would have to be
met irrespective of profit performance.
(2 × 3 marks + 1 mark for evaluation)
[7]
[Total: 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/23
Paper 2 (Structured Questions – Core),
maximum raw mark 90
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
23
(a)
Carl and Daniel
Income Statement (Trading and Profit and Loss Account) and Appropriation account
For the year ended 31 December 2010
$
$
Revenue (sales) (–317 (1) + 44 049 (1) + 183 (1) + 332 467 (1))
Opening Inventory
$
376 382
14 003 (1)
Ordinary goods purchased (Purchases)
196 202
(–4 872 (1) + 195 911 (1) + 5 163 (1))
Less Closing Inventory
210 205
13 471 (1)
Cost of Sales
196 734
Gross Profit
179 648
Rent received (7 000 – 500 – 500)
6 000 (2)
185 648
Less Expenses
Wages (63 156 – 612 + 938)
General expenses
Depreciation of motor vehicle
Depreciation of machinery
Loss on disposal
63 482 (2)
56 676 (1)
8 000 (2)
10 000 (1)
800 (2)
138 958
Profit for the year (Net profit)
46 690
Interest on Drawings
330
47 020
Salary – Daniel
3000 (1)
Interest on capital – Carl
6 000 (1)
Interest on capital – Daniel
4 200 (1)
13 200
33 820
Share of profits – Carl
20 292
Share of profits – Daniel
13 528
33 820
[22]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
23
(b)
Current Accounts
Carl
$
Drawings
Int on
Drawings
Balance
c/d
Daniel
$
Carl
$
35 660
26 480 (1 for both)
230
100 (1 for both)
Balances
b/d
Interest
on capital
Salaries
Share of
Profit
Balances
c/d
35 890
Balances
b/d
26 580
6 388
Daniel
$
3 210
1 304 (1 for both)
6 000
4 200 (1 for both)
3 000 (1)
20 292
13 528 (1of for both)
6 388
4 548 (1of for both)
35 890
26 580
4 548 (1 for both)
[8]
[Total 30]
2(A)
(a) (i)
Motor vehicle account
$
371 000
(1) Disposal
15 000
(1) Balance c/d
386 000
Balance b/d
Bank
Balance b/d
$
9 200
(1)
376 800 (1of)
386 000
376 800
[4]
(ii)
Disposal
Balance c/d
Provision for depreciation account – motor vehicles
$
8 280
(1) Balance b/d
197 250 (1of) Profit and Loss
205 530
$
130 000
75 530
205 530
Balance b/d
(1)
(1)
197 250
[4]
(iii)
Motor vehicle
Motor vehicle disposal account
$
9 200 (1) Provision for Depreciation
Bank
Profit and Loss
9 200
$
8 280 (1of)
500
(1)
420 (1of)
9 200
[4]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 4
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
23
(b)
Balance Sheet Extract
Non-current Assets
Motor vehicles
Cost
$
376 800 (1of)
Depr
$
197 250 (1of)
NBV
$
179 550
[2]
(c) Depreciation is a bookkeeping entry. Debit profit and loss. Credit provision for depreciation.
It is not a movement of cash from the business.
Depreciation is an application of the matching/accruals concept. Depreciation is matched
with the benefit which the asset provides over each accounting period.
The provision for depreciation annually is intended to spread the cost over the useful life of
the asset. This is in accordance with the accruals/prudence concept.
(2 × 3 marks – 1 mark for each point plus 2 for development) [6]
2(B)
(a)
Hamilton Social Club
Balance Sheet as at 31 March 2011
Non-Current (Fixed) Assets
Equipment
$
Current Assets
Café inventory (stock)
Inventory (stock) of stationery
Subscriptions
Bank
Current Liabilities
Trade Payables (creditors)
Loan interest
$
$
9 360
9 360 (1)
3 860 (1)
85 (1)
340 (1)
120 (1)
4 405
880 (1)
250 (1)
1 130
Working Capital
Total Assets less current liabilities
Non-Current (long term) Liabilities
Loan
3 275
12 635
5 000 (1)
5 000
7 635
Financed by
Accumulated fund
Deficit for the year
9 380 (1)
1 745 (1of)
7 635
[10]
[Total 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 5
3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
23
(a) (i)
2008
480 000 (1)
Sales
Opening inventory
(stock)
Variable Costs
Closing inventory (stock)
0
405 000
405 000
81 000
2009
572 000 (1)
81,000
(1) 360,000
441,000
(1)
60,000
(1)
(1)
2010
736 000 (1)
60 000
512 000
572 000
64 000
(1)
(1)
Contribution
Fixed Costs
324 000
156 000
60 000 (1)
381 000
191 000
66 000 (1)
508 000
228 000
70 000 (1)
Gross Profit
96 000 (1)
125 000 (1)
158 000 (1)
[15]
(ii)
2008
2009
Sales
Opening
inventory
0
Variable
Costs
405 000
Fixed
Costs
60 000
Closing
inventory
Gross
Profit
480 000
2010
572 000
736 000
93 000
71 000
360 000
512 000
66 000
70 000
465 000
(1)
519 000
(1)
653 000
(1)
93 000
(1)
71 000
(1)
72 750
(1)
372 000
448 000
580 250
108 000 (1)
124 000 (1)
155 750 (1)
[9]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 6
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
(b) Reconciliation Statement
2008
Profit per marginal
96 000
costing
Add fixed costs in
closing inventory
Less inventory as per
81 000
marginal costing
Add inventory as per
absorption costing
93 000
12 000 (1)
108 000
Less fixed cost in
opening inventory
Add inventory as per
–
marginal costing
Less inventory as per
–
–
absorption costing
(1)
Profit as per
absorption costing
108 000
Syllabus
9706
2009
Paper
23
2010
125 000
60 000
71 000
64 000
11 000 (1)
136 000
81 000
93 000
158 000
72 750
8 750 (1)
166 750
60 000
12 000 (1)
124 000
71 000
11 000 (1)
155 750
[6]
[Total: 30]
© University of Cambridge International Examinations 2011
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/31
Paper 3 (Multiple Choice – Supplement),
maximum raw mark 30
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
Mark Scheme: Teachers’ version
GCE A LEVEL – October/November 2011
www.maxpapers.com
Syllabus
9706
Question
Number
Key
Question
Number
Key
1
2
C
B
16
17
A
B
3
4
5
D
B
D
18
19
20
D
B
C
6
7
A
A
21
22
C
D
8
9
10
B
C
C
23
24
25
D
D
C
11
12
A
B
26
27
A
C
13
14
15
B
A
A
28
29
30
B
C
A
© University of Cambridge International Examinations 2011
Paper
31
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/32
Paper 3 (Multiple Choice – Supplement),
maximum raw mark 30
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
Mark Scheme: Teachers’ version
GCE A LEVEL – October/November 2011
www.maxpapers.com
Syllabus
9706
Question
Number
Key
Question
Number
Key
1
2
B
A
16
17
B
A
3
4
5
B
B
C
18
19
20
D
B
D
6
7
A
D
21
22
A
B
8
9
10
A
B
D
23
24
25
C
D
C
11
12
A
B
26
27
A
C
13
14
15
C
A
C
28
29
30
C
C
D
© University of Cambridge International Examinations 2011
Paper
32
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/41
Paper 4 (Problem Solving – Supplement),
maximum raw mark 120
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Paper
41
(a) Capital Accounts
A
B
$
Goodwill
Reval.
Current a/c
Bal c/d
Syllabus
9706
33 000
75 500
(1)
C
$
66 000
22 000
$
33 000
11 000
D
A
$
33 000 (2)
(2)
38 000
6 000 17 000
(1) of
(1) of
(1) of
_______ ______ ______ ______
108 500 126 000 50 000 50 000
C
$
32 000
50 000
44 000
$
28 000
______ ______
108 500 126 000
Bal b/d
38 000
_____
50 000
6 000
Bal. b/d
Cash
Goodwill
$
42 500
B
66 000
22 000
D
$
(1)all
50 000 (1)all
(2)
_____
50 000
17 000 (1) of
[13]
(b) Appropriation account
1 July 2010 – 31 December 2010
A
B
$
$
Salary
9 000 (1)
Interest on capital 1 275 (1)
960 (1)
Profit 3: 2: 1
5 963 (1)
3 975 (1)
840 (1)
1 987 (1)
1 January 2011 – 30 June 2011
B
C
$
$
Salary
Interest on capital 1 140 (1)
180 (1)
Profit 2: 1: 1
8 585 (1) 4292.5 (1)
D
$
5000 (1)
510 (1)
4292.5 (1)
C
$
Total
$
9 000
3 075
11 925
24 000
Total
$
5 000
1 830
17 170
24 000
[14]
© University of Cambridge International Examinations 2011
www.maxpapers.com
Page 3
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
41
(c) Current Accounts
A
B
$
Bal b/d
Drawings
Drawings
Bank a/c
Bal c/d
Bal b/d
15 000
0
93590
(1)
C
$
7 482
10 000
10 000
D
$
5 000
5 000
A
$
Bal. b/d
0 (1) Salary
5 000 (1) Int. cap.
Capital a/c
9042.5 4802.5
______ ______ _______ ______
108590 27482 19042.5 9802.5
12822
Profit
Bal c/d
bal b/d
$
16 852
9 000
1 275
75500
(1)
5 963
B
C
$
$
11 743
2100
1020
D
$
(1)all
5 000
(1)
510 (1)of
12560 6279.5 4292.5
12822
______ ______ ______ ______
108590 27482 19042.5 9802.5
9042.5 4802.5
(1)
(1)
[9]
(d) Advantages:
Wider pool of knowledge/expertise.
Greater resources (capital etc.).
Share of losses when these arise.
Disadvantages:
All responsible for debts and errors of new partner.
Can slow decision making process.
Share of profits.
[4 marks]
(Maximum 2 for adv. & 2 for disadv.)
[Total:40]
2
(a) Phoenicia Ltd Income Statement for the year ended 30 June 2011
$
Revenue
381 538 (3)
Less: Cost of sales
Opening inventories
28 000
Purchases
254 000 (3)
282 000
Closing inventories
34 000 (1)both
248 000 (3)
Gross profit
133 538 (1)
Administrative expenses
(58 502)
Distribution costs
(29 251) (3)
Profit from operations/operating profit (1)
45 785 (1)of
Finance charges
(18 314) (1)of
Profit for the year
27 471
Dividends
(12 500) (1)of
Retained profit for the year (1)
14 971 (1)of
Cost of sales 31 000 (1) × 8 000 (1) = 248 000 (1)of
Purchases
248 000 (1)of + 6 000 (1) = 254 000 (1)of
Revenue
248 000 (1)of / 65 × 100 (1) = 381 538 (1)of
© University of Cambridge International Examinations 2011
[20]
www.maxpapers.com
Page 4
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
41
(b)
Gearing ratio
E.p.s.
P.E.ratio
Dividend cover
Dividend per share
Dividend yield
Algebra
64.52%
$0.52
4.81 times
2.60 times
$0.20
8.00%
(1)
(1)
(1)of
(1)
(1)
(1)
Vector
75.95%
$0.90
3.61 times
9.00 times
$0.10
3.08%
(1)
(1)
(1)of
(1)
(1)
(1)
[12]
(c) Both companies are a risky source of investment. (1)
Both are highly geared (1) with Vector being the higher. (1)
E.p.s. is higher for Vector (1) and as o.s.c. is the same this would indicate a safer
investment.
P.E. ratios are both relatively low (1) but Algebra is higher. (1)
Vector’s dividend cover is higher (1) so if future profits fall dividends safer. (1)
Algebra’s dividend per share is double Vector’s dividend per share. (1)
Dividend yield of Algebra is also much higher than Vector. (1)
Overall, interpretation gives mixed messages. (1)
One mark for recommendation and one mark for each point up to maximum seven.
[8]
[Total: 40]
3
(a)
Selling price
Direct labour
Direct material
Variable overheads
Contribution per unit
(b)
Contribution per unit
Fixed overheads
Profit per unit
Profit for November
Alpha
$
58
(12)
(21)
(12)
13 (1)of
Beta
Gamma
$
$
52
47 (1)
(15)
(9) (1)
(21)
(14) (1)
(10)
(10) (1)
6 (1)of 14 (1)of + (1)cf
[8]
Alpha
Beta
Gamma
$
$
$
13
6
14 (1)of
(3)
(2)
(3) (1)
10 (1)of
4 (1)of 11 (1)of
25 (1)of × 10 000 (1) = $250 000 (1)of
© University of Cambridge International Examinations 2011
[8]
www.maxpapers.com
Page 5
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
41
(c)
Contribution per unit
Kilos per unit
Contribution per kilo
Ranking
Kilos required for full production
Kilos available (80 000 × 70%)
Alpha
$
13
3 (1)
4.3
2
Beta
Gamma
$
$
6
14 (1)of
3 (1)
2 (1)
2
7 (1)of
3
1 (1)of
80 000
56 000
Allocation & optimum production plan:
Gamma
10 000 × 2 = 20 000
Alpha
10 000 × 3 = 30 000
Beta
2 000 × 3 = 6 000
(1)
(1)
(1)
Profit:
Gamma
Alpha
Beta
(1)of
(1)of
(1)of
Fixed costs
Profit
10 000 × 14 = 140 000
10 000 × 13 = 130 000
2 000 × 6 = 12 000
282 000
(80 000)
202 000
[9 marks for 10 000, 10 000 and 2000]
(1)
(1)
[14]
(110 000 + 100 000 + 8 000 – 16 000 under absorbed = 202 000)
(d) Allocation & optimum production plan:
Gamma
Alpha
Beta
10 000 × 2 = 20 000
7 000 × 3 = 21 000
5 000 × 3 = 15 000
(1)
(1)
(1)
Production plan:
Gamma
10 000 × 14 = 140 000 (1)of
Alpha
7 000 × 13 = 91 000 (1)of
Beta
5 000 × 6 = 30 000 (1)of
261 000
Fixed costs
(80 000) (1)
Profit
181 000 (1)of
Loss in profit = 202 000 – 181 000 = 21 000 (1)of + (1)cf
(110 000 + 70 000 + 20 000 – 19 000 under absorbed = 181 000)
[10]
[Total: 40]
© University of Cambridge International Examinations 2011
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/42
Paper 4 (Problem Solving – Supplement),
maximum raw mark 120
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
(a)
Syllabus
9706
Paper
42
Dissolution account
Land and buildings
Fixtures and fittings
Motor vehicles
Inventories
Bad debts
Bank
180 000
28 000
14 500
25 450
400
1 500
(1)
(1)
(1)
(1)
(1)
(1)
Capital – A (motor vehicle)
Capital – B (motor vehicle)
Bank:
Land and buildings
Fixtures and fittings
Inventories
Discounts
Loss on dissolution.
Anton
27 700 (1 of)
Bassini
13 850 (1 of)
Cartwright 13 850 (1 of)
249 850
(b)
6 000 (1)
4 500 (1)
142 500
22 500
18 750
200
(1)
(1)
(1)
(1)
55 400
249 850
[15]
Capital accounts
A
Current a/c
Diss. a/c (mv)
Loss
Bank
B
C
2 155 (1)
6 000 (1) 4 500 (1)
27 700
13 850
13 850 (1 of)
85 832 (1) 39 273 (1) 33 995 (1)
119 532
57 623
50 000
(c)
A
B
C
Bal. b/d
100 000 50 000 50 000 (1)
Current a/c 19 532 7 623
(1)
119 532 57 623 50 000
[9]
Bank account
Bal b/d
8 350 (1)
Trade receivables
13 500 (1)
Diss. a/c.:
L and b 142 500
F and f
22 500
Invents. 18 750 183 750 (1)
Trade payables
Diss. exps.
Anton – Loan a/c.
Capital a/c.:
A 85 832 (1 of)
B 39 273 (1 of)
C 33 995 (1 of)
205 600
10 000 (1)
1 500 (1)
35 000 (1)
159 100 (1 cf)
205 600
[10]
(d) (i) Option 1 200 000 × 6% = 12 000 (1)
Option 2 80 000 × 0.15 = 12 000 (1)
(ii) Both options give the same annual return. (1 of)
Option 1 is fixed. (1) Option 2 may fluctuate (depending on profit). (1)
Option 2 gives ownership rights (1) and voting rights (1).
Debentures are safer investment. (1) Max. 3 marks for reasons
© University of Cambridge International Examinations 2011
[6]
www.maxpapers.com
Page 3
2
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
(a)
Syllabus
9706
Paper
42
Ashbourne plc
Income statement
for the year ended 30 June 2011
$000
7 216 (1)
Revenue
Deduct: Cost of sales
Opening inventories
Purchases
Closing inventories
Gross profit
Distribution costs
Administrative expenses
Profit from operations (1)
Interest
Retained earnings for the year (1)
(b)
1 596 (1)
4 425 (1)
6 021
(1 730) (1)
4 291
2 925
(1 485)
(1 098)
342
(160)
182
(1 cf) and label
(1) both
(1 of)
(2)
(1 of)
[12]
Ashbourne plc
Statement of Financial Position
at 30 June 2011
ASSETS
Non-current assets
Land and buildings
Other non-current assets
Current assets
Inventories
Trade receivables
Prepaid expenses
Bank
Total assets
Cost
$000
9 473 (1)
1 058
Depn.
$000
2 173
236
1 730
897
265 (1) all
74 (1)
EQUITY AND LIABILITIES
Equity
Ordinary share capital:
10 000 000 ordinary shares of 50c
Share premium
Revaluation reserve (1)
Retained earnings
Total equity
Non-current liabilities
8% Debentures 2020
Current liabilities
Trade payables
Accrued expenses
Interest
Total liabilities
Total liabilities and equity
Retained earnings: 232 (1) + 182 (1 of) – 100 (1) – 125 (1) = 189 (1 of)
© University of Cambridge International Examinations 2011
NBV
$000
7 300 (1 of)
822 (1)
8 122
2 966 (1 cf)
11 088
5 000
2 500
1 000
189
8 689
(1)
(1)
(1)
(5)
(1 of)
2 000 (1)
2 000
173
146 (1)
80 (2)
399
2 399
11 088
[20]
www.maxpapers.com
Page 4
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
42
(c) Adjusting events provide evidence of conditions existing at the statement of financial position
date. (1)
Accounts should be adjusted. (1)
Non-adjusting events - conditions not existing at the statement of financial position date. (1)
Event should be noted in the accounts if material. (1)
[4]
(d) Flood is non-adjusting as condition did not exist at statement of financial position date. (1)
No adjustment required. (1)
Dividend declared after statement of financial position date. (1)
No adjustment required. (1)
[4]
3
(a)
Ada Campellini
Cash budget for November – January
Receipts
Cash sales
Sales 1 month
Sales 2 months
Payments
Cash purchases
Purchases 1 month
Purchases 2 months
General expenses
Storage system
Drawings
Bank:
Opening balance
Net cash flow
Closing balance
November
$
December
$
145 700 (1)
54 563 (1)
53 750 (1)
254 013
199 750 (1)
75 175 (1)
56 250 (1)
331 175
91 650 (1)
103 063 (1)
77 500 (1)
272 213
70 560
74 480
52 500
18 000
12 000
3 000
230 540
38 880
96 040
57 000
19 800
1 000
6 375
219 095
38 880
52 920
73 500
16 830
1 000
3 000
186 130
(1)
(1)
(1)
(1)
34 850
23 473
58 323 (1 of)
(1)
(1)
(1)
(1)
58 323 (1 of)
112 080
170 403 (1 of)
January
$
(1)
(1)
(1)
(1)
(1) both
(1) all three
170 403 (1 of)
86 083 (1 of) all three
256 486 (1 of) + (1 cf)
© University of Cambridge International Examinations 2011
[30]
www.maxpapers.com
Page 5
(b)
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
42
Ada Campellini
Budgeted Income statement for November – January.
$
Sales
Deduct: Cost of sales
Opening inventory
Purchases
Closing inventory
Gross profit
Discount received
Deduct: Expenses
Discount allowed
General expenses
Depreciation
Profit for the year
Discount received
Discount allowed
Depreciation
180 000
515 000
695 000
129 000
35 100 (2)
54 630 (1)
5 850 (2)
$
930 000 (1)
566 000 (1)
364 000
10 740 (2)
374 740
95 580
279 160 (1 of)
6 180 (1) + 4 560 (1) = 10 740
27 900 (1) + 7 200 (1) = 35 100
5 250 (1) + 600 (1) = 5 850
© University of Cambridge International Examinations 2011
[10]
www.maxpapers.com
UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
GCE Advanced Subsidiary Level and GCE Advanced Level
MARK SCHEME for the October/November 2011 question paper
for the guidance of teachers
9706 ACCOUNTING
9706/43
Paper 4 (Problem Solving – Supplement),
maximum raw mark 120
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the October/November 2011 question papers for most
IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
www.maxpapers.com
Page 2
1
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
43
(a) Ashburton Ltd. Statement of financial position after acquisition of the partnership
$
ASSETS
Non-current assets
Goodwill
Land & buildings
Fixtures & fittings
Motor vehicles
Current assets
Inventories
Trade receivables
Bank
$
26 950
240 000
99 750
39 975
406 675
(4)
(1)
(1)
(1)
Total assets
44 875 (1)
27 863 (1)
962 (3)
73 700
480 375
EQUITY AND LIABILITIES
Equity
Ordinary shares of $1
Share premium
Retained profit
300 000 (2)
70 000 (2)
48 795 (1)
Total equity
418 795
Non-current liabilities
8% debentures 2020
Current liabilities
Trade payables
Total liabilities
Total liabilities and equity
37 500 (4)
37 500
24 080 (1)
24 080
61 580
480 375
Goodwill:
215 000 (1) – 197 500 (1) + 9 450 (1) = 26 950 (1 of)
Bank:
28 462 (1) – 27 500 (1) = 962 (1 of)
Debentures:3 000 (1) / 0.08 (1) = 37 500 (1 of) + (1 cf)
© University of Cambridge International Examinations 2011
[22]
www.maxpapers.com
Page 3
(b)
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
43
Ashburton Ltd.
Income statement for the year ended 30 June 2012
Turnover
Cost of sales
Gross profit
Expenses
Operating profit
Interest payable (1)
Profit before taxation
Taxation
Profit after taxation
Dividend paid
Retained profit for yr.
$
617 194
344 859
272 335
137 599
134 736
3 000
131 736
33 500
98 236
15 000
83 236
(1)
(1)
(1 of)
(1)
(1 of)
(1)
(1)
(1 of)
(2)
(1)
[12]
(c) E.p.s. 2011 = 28 217 (1) / 200 000 (1) = 14.1c (1 of)
E.p.s. 2012 = 98 236 (1) / 300 000 (1) = 32.7c (1 of)
2
(a)
[6]
Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Depreciation
Profit on disposal of non current assets
Increase in inventories
Increase in trade receivables
Increase in trade payables
Cash from operations
Interest paid
Tax paid
Net cash from operating activities
$000
686
786
(15)
(214)
(278)
60
1 025
(225)
(94)
706
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1 of)
© University of Cambridge International Examinations 2011
[9]
www.maxpapers.com
Page 4
(b)
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
43
Cash Flow Statement of Sabrina plc for the year ended 30 June 2011
$000
$000
706 (1 of)
Net cash from operating activities
Cash flows from investing activities
Non-current assets
Payments
Receipts
Net cash used in investing activities
(3 439) (5)
30 (2)
(3 409)
Cash flows from financing activities
Equity dividends paid
Debentures
Share capital
Net cash from financing activities
(120) (4)
1 500 (1)
1 050 (2)
2 430
Net increase in cash and cash equivalents
(273) (1 of)
Cash and cash equivalents at beginning of period
78
Cash and cash equivalents at end of period
(c)
1) Return on equity
2) T.R. turnover
3) T.P. turnover
4) Income gearing
5) Gearing ratio
2011
11.7%
91.6 days
237.8 days
3.0 times
44.9%
(1)
(1)
(1)
(1)
(1)
(195) (1) both
2010
17.1%
90.4 days
204.6 days
6.1 times
35.4%
(1)
(1)
(1)
(1)
(1)
[17]
[10]
(d) The bank is not likely to authorise the loan. (1)
All of the ratios have worsened:
The company is generating less profit from the equity invested. (1)
Its collection period has worsened. (1)
It is taking longer to pay its debts and the period is now so long that it may lose its credit
facilities. (1)
Although the company can pay interest 3 times from profits it has deteriorated and if this
continued it may be unable to service interest in future. (1)
Gearing has increased to further indicate that should profits fall the interest payments may be
at risk. (1)
[4]
(One mark for decision and then maximum three marks for reasons.)
3
(a) Year
0
1
2
3
4
5
Cash flow
(800 000) {
235 000 {
258 500
284 350 {
312 785 {
160 000
Discount factor
1.000
(1 of) both
0.926
(1cf)
0.857
0.794
(1 of) both
0.735
(1 cf)
0.681
NPV
(800 000)
217 610
221 535
225 774
229 897
108 960
203 776
(1)
(1)
(1 of)
(1 of)
(1 of)
(1 of)
(1 of)
Project is feasible (1) of because there is a positive NPV. (1 of)
© University of Cambridge International Examinations 2011
[13]
www.maxpapers.com
Page 5
Mark Scheme: Teachers’ version
GCE AS/A LEVEL – October/November 2011
Syllabus
9706
Paper
43
(b) Payback occurs between years 3 & 4 (1)
3 yrs + 135 081 / 229 897 (1 of) × 365 (1)
3 yrs & 214 days (1 of)
800 000 – 664 919 = 135 081
(1)
(1 of)
(1 of)
[7]
(c) The internal rate of return is the rate which gives a zero net present value. (1)
Discount rates below the IRR will result in a feasible project and vice versa. (1)
(d) Year
0
1
2
3
4
5
Cash flow
(800 000)
235 000
258 500
284 350
312 785
160 000
(1 of)
Discount factor
NPV
1.000
(800 000)
0.870
204 450
0.756
195 426
0.658
187 102
0.572
178 913
0.497
79 520
45 411
[2]
(1)
(1)
(1 of)
(1 of)
(1 of)
(1 of)
(1 of)
IRR = 8% (1) + 203 776 (1) × 7 (1)
203 776 (1) – 45 411 (1)
= 17.0% (1 of)
(e) Environmental issues.
Political issues.
Is initial finance available – or can it be raised?
How reliable is forecast for long term projects?
Are existing projects being affected?
Any other reasonable point to be given credit.
1 mark for each point to maximum 4.
© University of Cambridge International Examinations 2011
[14]
[4]