5
Additional information
The directors plan to buy new motor vehicles in 2021.
(d) Explain to the directors why they need to depreciate motor vehicles.
[3]
(e) Explain to the directors the impact on the profit of using each of the straight-line and the
reducing balance method of depreciation.
[4]
[Total: 25]
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Question 3
Source A3
Tan normally sells motors in country A. During the year ended 31 March 2021, he also made sales on
a consignment basis in country B.
Tan sent 400 motors to Nadeem in country B on a consignment basis during the year ended
31 March 2021. The cost of each motor is $500. The normal selling price of each motor is $700 but
Tan asked Nadeem to sell at $650 each.
The following information is also available.
1
Nadeem is allowed a commission of 8% of net sales revenue.
2
Tan received a $5000 deposit from Nadeem before the goods were sent.
3
Expenses incurred by Tan:
Freight
Insurance
Packing
4
$
4600
1200
600
Expenses incurred by Nadeem:
Import duty
Storage
Transportation – from port to warehouse
Transportation – from warehouse to customers
Selling expenses
5
$
1800
2700
2200
2600
4400
Nadeem sold 300 motors at $650 each and another 60 were sold with a trade discount of 5%. Out
of the motors sold, two motors were returned. The two returned motors were replaced by two new
motors which had been delivered to the customers. The two returned motors remained unsold at
31 March 2021 and each had a net realisable value of $450.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain two disadvantages to a consignor in making sales on a consignment basis.
[4]
(b) Prepare the consignment account in the books of Tan for the year ended 31 March 2021. [10]
(c) Explain three reasons why Tan sells motors at a lower selling price for the consignment sales.
[6]
Additional information
Tan finds that his products are well received in country B. He plans to set up a company in
country B to sell his products.
(d) Advise Tan whether or not he should set up a company in country B to sell his products.
Justify your answer.
[5]
[Total: 25]
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Question 4
Source A4
G Limited has prepared the draft financial statements which are to be audited.
The draft statement of financial position at 31 December 2020 is as follows.
Non-current assets
Goodwill
Property, plant and equipment
Current assets
Inventory
Trade receivables
Cash and cash equivalents
Total assets
$
$
80 000
544 000
624 000
88 000
187 200
34 800
Equity
Ordinary share capital ($1 share)
Revaluation reserve
Retained earnings
310 000
934 000
500 000
85 000
153 000
738 000
Non-current liabilities
Bank loan (2021–2025)
100 000
Current liabilities
Trade payables
Total equity and liabilities
96 000
934 000
The following information is available.
1
Goodwill is comprised of two elements.
i
On 1 January 2020 G Limited acquired a partnership business and goodwill valued at $30 000
was recorded. The value of goodwill at 31 December 2020 should be $24 000.
ii
An advertising campaign two years ago had boosted the sales. The directors believe that
the products are getting more popular and the company has a good reputation. Goodwill of
$50 000 and the associated revaluation reserve of $50 000 have been created and recorded.
2
Included in the property, plant and equipment is a specialised machine with a net book value
of $32 400. This machine is used exclusively to produce a particular product whose production
will be stopped two years later. The fair value and value in use of the specialised machine are
$29 000 and $28 600 respectively. If the specialised machine is to be sold, a selling cost of $2000
is expected to be incurred.
3
Inventory includes one product which had been accounted for at the selling price of $40 000. The
mark-up for this product is 25%.
4
G Limited started providing for doubtful debts in 2020. A provision of 4% had been made. A credit
customer owing $15 000 had been declared bankrupt and the whole amount had to be written off.
5
One-fifth of the bank loan will be repaid in 2021.
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Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) State three features of financial statements which show a ‘true and fair view’.
[3]
(b) Explain to the directors the appropriate accounting treatments for information items 1i, 1ii
and 2, making reference to the relevant International Accounting Standards (IAS).
[9]
(c) Prepare the revised statement of financial position at 31 December 2020 using all the
available information.
[10]
Additional information
A director of G Limited says ‘whether the financial statements show a true and fair view does not
really matter to the company’.
(d) Comment on whether or not the director’s statement is correct. Justify your answer.
[3]
[Total: 25]
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Section B: Cost and Management Accounting
Question 5
Source B1
D Limited produces two products : sofas and tables. Budgeted data for the coming year related to the
two products are as follows.
Sofas
2000
$300
$250
$50
30%
Sales and production (units)
Direct materials per unit
Direct labour per unit
Direct labour rate per hour
Mark-up
Tables
5000
$190
$160
$40
20%
Budgeted fixed overhead costs are $600 000. D Limited uses direct labour hours to absorb fixed
overhead costs.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Calculate the overhead absorption rate.
[2]
(b) Calculate the budgeted unit cost and the unit selling price of each product.
[6]
(c) Calculate the budgeted total profit of D Limited for the coming year.
[3]
Additional information
A newly recruited management accountant advises that D Limited should use activity based
costing (ABC) to allocate fixed overhead costs to the two products. The management accountant
has provided the following information relating to sofas and tables.
Activity
Setups
Machine operations
Materials cutting
Inspection
Overhead
costs
$
100 000
320 000
120 000
60 000
600 000
Cost driver
Sofas
Tables
Number of setups
Machine hours
Cutting hours
Inspection hours
600
5 000
400
500
400
3 000
200
500
(d) Calculate the budgeted unit cost and the unit selling price for each product using ABC.
[7]
(e) Explain the reason for the change in the budgeted selling price between (b) and (d) for each
product.
[2]
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Additional information
The directors decide to adopt ABC in the coming year.
Due to a higher mark-up on sofas, the directors plan to make a change to the budgeted production
volume for each product. They want to shift the direct labour resources to produce more sofas
and produce only 3000 tables in the coming year. However, additional $90 000 training costs and
$110 000 for converting the existing machines would be incurred.
(f)
Advise the directors whether or not they should make the change. Justify your answer with
reference to the financial factors only.
[5]
[Total: 25]
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Question 6
Source B2
W Limited is a retail business. The directors of W Limited are preparing the budgets for the month of
July.
The company makes all sales on credit. The company’s policy is to allow a credit period of one month.
Actual sales
$
240 000
250 000
300 000
April
May
June
An analysis of the pattern of collection from trade receivables for sales in April and May is as follows.
50% are collected in the first month after sale.
30% are collected in the second month after sale.
20% are collected in the third month after sale.
The same pattern is expected to apply to June and July sales.
Budgeted sales
July
August
$
280 000
320 000
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) State two benefits to a business of preparing budgets.
[2]
(b) Prepare the trade receivables budget for July.
(c) (i)
(ii)
[10]
Comment on W Limited’s existing management of trade receivables.
[3]
Suggest three ways to improve management of trade receivables.
[3]
Additional information
W Limited purchases goods one month before sale. 40% of goods purchased are paid for in the
month of purchase to get a discount of 2%. The remaining are paid for in the next month following
purchase. A mark-up of 25% is applied on all sales.
(d) Prepare the trade payables budget for July.
[7]
[Total: 25]
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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
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.
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Cambridge International AS & A Level
ACCOUNTING
9706/32
Paper 3 Structured Questions
October/November 2021
3 hours
INSERT
*1736965905-I*
INFORMATION
●
This insert contains all of the required information and questions. The questions are provided in the
insert for reference only.
●
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insert.
This document has 12 pages. Any blank pages are indicated.
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Section A: Financial Accounting
Question 1
Source A1
LC plc provided the following summarised trial balance at 31 December 2020 after the draft gross profit
had been calculated. Depreciation for the year had already been charged.
Summarised trial balance at 31 December 2020
$
Gross profit
Inventory
Administrative expenses
Distribution costs
Finance costs
Final dividend (2019)
Interim dividend (2020)
Ordinary share capital ($1 shares)
Retained earnings
Long-term bank loan
Trade receivables
Trade payables
Bank
Premises
Provision for depreciation of premises
Fixtures and fittings
Provision for depreciation of fixtures and fittings
Motor vehicles
Provision for depreciation of motor vehicles
$
96 200
6 212
32 700
19 405
4 410
7 000
5 000
100 000
54 732
50 000
25 400
16 200
11 200
200 000
4 000
27 600
5 520
18 000
345 727
7 875
345 727
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) Calculate the draft profit for the year based on the trial balance figures.
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Additional information
The following took place on 31 December 2020 after the trial balance had been prepared.
1
The bank informed the company that its account was being debited with $120 in relation to a
dishonoured cheque from a credit customer, and with $150 and $110 for bank charges and
bank interest.
2
A bonus issue of 10 000 ordinary shares of $1 each was made.
3
It was decided to create a general reserve of $14 000.
4
The premises were revalued to $244 000. The fixtures and fittings and motor vehicles were
deemed to have a recoverable amount of $22 300 and $9200 respectively.
5
It was decided to provide $5000 for compensation to customers arising from the use of
damaged goods sold to them by the company.
6
It was discovered that the trial balance figures included values arising from the supply of
goods to a credit customer on a sale or return basis. The customer had not declared an
intention to buy the goods by the year end. They were included in sales at a value of $4600
and had an original cost of $2100.
(b) Calculate the corrected profit for the year ended 31 December 2020. Start your calculation
with your answer to (a).
[5]
(c) Prepare the statement of financial position at 31 December 2020 after taking into account all
necessary information.
[17]
(d) Explain how your treatment of the bonus issue might have been different if the trial balance
had contained a balance of $8000 on a share premium account.
[2]
[Total: 25]
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Question 2
Source A2
The AB Club has 200 members who pay an annual subscription of $100 each. It provides social facilities
to its members and also rents and operates two vending machines to sell soft drinks to members. The
statement of financial position at 30 June 2020 showed the following assets and liabilities.
Equipment at valuation
Furniture at valuation
Subscriptions in arrears
Bank balance
Cash
Inventory of soft drinks
Owing to suppliers of soft drinks
$
2100
1050
400
1420
180
210
290
The following information was available.
1
Equipment and furniture were valued on 30 June 2021 at $1700 and $1500 respectively.
2
All subscriptions are received by cheque and banked immediately. On 30 June 2021, there were
no arrears of subscriptions and three members had paid in advance for the coming year.
3
All takings from the vending machines are in cash. Some are used to pay club expenses and
some are paid into the bank. Soft drinks are sold at a mark-up of 100%.
4
The inventory of soft drinks on 30 June 2021 was valued at $490 at selling price. On that date, the
amount owing to suppliers of soft drinks was $305.
5
Cash in hand on 30 June 2021 amounted to $150. The balance on the bank account on that date
was $2290.
6
Payments made through the bank during the year ended 30 June 2021 were:
Purchase of new furniture
Rent of premises
Rent of vending machines
Club expenses
Payments to suppliers of soft drinks
Total bank payments
© UCLES 2021
$
720
12 000
6 000
5 140
12 600
36 460
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Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) Calculate the profit from the vending machines for the year ended 30 June 2021.
[5]
(b) Calculate for the year ended 30 June 2021:
(i)
the value of subscriptions received and banked
[3]
(ii)
cash takings banked
[4]
(iii)
club expenses paid by cash.
[4]
(c) Prepare the income and expenditure account for the year ended 30 June 2021.
[6]
Additional information
It has been suggested to the managing committee that the club starts to rent a third vending
machine selling soft drinks.
(d) Advise the committee whether or not to start renting a third vending machine. Justify your
answer.
[3]
[Total: 25]
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Question 3
Source A3
CT plc has an accounting year end of 31 December. The directors provided the following information.
Profit from operations
Finance costs
Long-term bank loan (10%)
Ordinary share capital ($0.50 shares)
2020
$
2019
$
310 000
280 000
30 000
Nil
400 000
Nil
1 000 000
1 000 000
2.00
1.60
150 000
150 000
Market value of one share
Dividends
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) (i)
(ii)
Calculate the earnings per share for 2019.
[2]
Explain why the value of earnings per share is the same for 2020 as for 2019.
[2]
(b) Calculate, to two decimal places, for 2019 and 2020:
(i)
the price earnings ratio
[4]
(ii)
the dividend yield.
[4]
(c) State the date on which the bank loan was received.
[1]
(d) Explain the significance of the changes which have taken place between the two years.
[7]
(e) (i)
(ii)
Name the two financial statements in which a company would record dividends paid. [2]
State how a company would record a proposed dividend in its financial statements.
[1]
Additional information
A company will often mention its dividend policy in its directors’ report.
(f)
State two other items which may be contained in a directors’ report.
[2]
[Total: 25]
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Question 4
Source A4
Chin is a trader in Jakarta who uses the services of an agent, Benny, in Phnom Penh.
During the year ended 31 December 2020, Chin sent 200 units of his product, at a cost of $90 each, to
Benny. Chin paid the freight charges and Benny paid the import duties. At the year end Benny reported
that he had sold 164 units for $120 each.
Chin’s books of account at the year end included the following ledger account.
Consignment account
$
Goods on consignment
Bank (freight)
Benny (import duties)
Benny (commission on sales)
18 000
3 000
600
2 952
$
Benny (sales)
Loss on consignment
Balance c/d
24 552
19 680
984
3 888
24 552
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) State two costs (other than import duties) which a consignee might pay in relation to a
consignment.
[2]
Additional information
After the account had been prepared, Benny sent a further message saying that he had previously
reported in error, and in fact he had sold 120 units for $146 each.
(b) Prepare the consignment account as it would have been prepared if the revised sales
information had been available from the start.
[8]
Additional information
At the end of the year, and after correcting the sales figures, Benny owed Chin $1292.
(c) Calculate the amount Benny remitted to Chin during the year.
[4]
(d) Explain why the loss on consignment turned into a profit when sales had fallen. Support your
answer with relevant profit calculations.
[7]
(e) Explain how your answer to (b) would have been different if 120 units had been sold and 44
units had been stolen from the warehouse.
[2]
(f)
Explain how the task of an auditor is affected if inventory is being held by a consignee.
[2]
[Total: 25]
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Section B: Cost and Management Accounting
Question 5
Source B1
R Limited produces two products, Product A and Product B.
The following monthly budgeted information is available.
Product A
Units produced and sold
Product B
5000
1000
$124 000
$94 000
1 kilo at $10/kilo
3 kilos at $12/kilo
30 minutes at $8/hour
1 hour at $10/hour
Total production overheads of
$60 000 allocated
50%
50%
Total administrative and distribution
overheads of $28 000 allocated
50%
50%
Sales revenue
Direct material per unit
Direct labour per unit
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) Prepare a statement showing the total budgeted profit or loss made in a month by each
product.
[5]
Additional information
The directors are considering applying activity based costing (ABC) techniques. They have three
objectives.
1
To be more accurate in setting selling prices which will cover all costs.
2
To be able to make decisions on when to make goods and when to buy them in.
3
To know how to allocate resources such as materials or labour when there is a shortage of
supply.
(b) Advise the directors whether or not using ABC would help them achieve their objectives.
Justify your answer.
[7]
Additional information
Analysis of monthly budgeted production overheads revealed the following:
Machine set-up costs
Quality inspections
Factory supervisors’ salaries
Other production overheads
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$
12 000
7 000
14 000
27 000
60 000
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The directors decided to allocate or apportion these costs using the following information.
Machine set-up costs
Machine set-ups take place 60 times a month for
product A and 40 times a month for product B.
Quality inspections
Quality inspections take place 18 times a month
for each product.
Factory supervisors’ salaries
to be absorbed on the basis of direct labour hours
Other production overheads
to be split on a per unit basis
(c) State one advantage and one disadvantage to a business of splitting overheads on a per unit
basis.
[2]
(d) Prepare a revised statement showing the total budgeted profit or loss made in a month by
each product, using the additional information about production overheads. The allocation of
administrative and distribution costs is unchanged.
[8]
(e) Advise the directors whether or not they should change the selling prices of the products.
Justify your answer.
[3]
[Total: 25]
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Question 6
Source B2
Kurt runs a manufacturing business. He has decided to invest in some new machinery so that he can
produce a new product. He anticipates that the net cash inflows resulting from the manufacture and
sales of the new product would be as follows:
Year
1
2
3
4
$
89 000
76 000
63 000
41 000
Answer the following questions in the question paper. Questions are printed here for
reference only.
(a) Explain what is meant by the term ‘net cash inflow’.
[2]
Additional information
Kurt uses a cost of capital of 12%. The discount factors for this are as follows:
Year
1
2
3
4
0.893
0.797
0.712
0.636
Kurt is considering two options for the purchase of the machinery to make the new product.
Option 1: The purchase of machinery costing $150 000 which would have no scrap value at the
end of year 4. This would result in the manufacture of the new product having a net present value
(NPV) of $60 981.
Option 2: The purchase of machinery costing $290 000 which would have a scrap value at the
end of year 4, although as yet this scrap value has not been estimated.
(b) Calculate the scrap value of the machinery at the end of year 4 which would result in Option 2
having an NPV:
(i)
of zero
[8]
(ii)
equal to the NPV of Option 1.
[4]
(c) Explain why the payback period is shorter for Option 1 than it is for Option 2 when the net
cash flows are the same.
[2]
(d) Explain why a shorter payback period is preferable to a longer one.
[2]
(e) Explain why a project having a zero NPV is not the same as its having a zero total profit. [2]
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Additional information
It was later determined that under Option 2 the machinery could be sold at the end of year 4 for
proceeds of $225 000. With this value the accounting rate of return for Option 2 would be lower
than the accounting rate of return for Option 1.
(f)
Advise Kurt which option he should implement. Justify your answer.
[5]
[Total: 25]
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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
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 2021
9706/32/INSERT/O/N/21
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Cambridge International AS & A Level
ACCOUNTING
9706/32
Paper 3 Structured Questions
February/March 2022
3 hours
INSERT
*4273076519-I*
INFORMATION
●
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.
This document has 12 pages. Any blank pages are indicated.
DC (PQ) 303843/3
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Section A: Financial Accounting
Question 1
Source A1
T Limited buys and sells standard furniture. Due to the increasing demand for furniture, T Limited
rented a factory and also started manufacturing luxury furniture from 1 January 2021.
The draft income statement for the year ended 31 December 2021 is shown as follows.
Sales revenue – standard furniture
– luxury furniture
$
Opening inventory at cost – standard furniture
Purchases – standard furniture
292 000
– direct materials
76 500
Closing inventory at cost
Direct materials
14 200
Work in progress
12 500
Finished goods – standard furniture
66 500
– luxury furniture
35 000
Cost of sales
Gross profit
Wages and salaries
Depreciation
Other expenses
Carriage outwards
Profit for the year
$
510 000
484 000
994 000
71 000
368 500
128 200
311 300
682 700
366 000
28 100
188 000
18 500
600 600
82 100
Further information is also available.
1
The directors consider that a manufacturing account should be prepared and the factory profit
should be 20% on cost of goods produced.
2
Wages and salaries comprised of:
Factory workers
Factory manager
Office staff
Salespeople
3
$
119 000
36 000
167 000
44 000
366 000
Depreciation comprised of:
Office equipment
Motor vehicles for transportation of finished goods
Factory machines
$
8 600
10 500
9 000
28 100
The newly acquired factory machines had been depreciated at the annual rate of 25% by using
reducing balance method. It was decided that the annual rate should have been 20% instead and
the draft income statement is to be amended.
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4
Other expenses included $32 000 factory rent and $46 000 office rent. The remaining was 20%
attributable to indirect manufacturing costs and 80% to office administrative expenses.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain the term ‘indirect manufacturing costs’.
[2]
(b) Prepare the manufacturing account for the year ended 31 December 2021.
[7]
(c) Prepare the revised income statement for the year ended 31 December 2021.
Your statement should show separately the gross profit for each of standard furniture and
luxury furniture.
It should also show expenses split into ‘total administrative expenses’ and ‘total selling and
distribution costs’.
[11]
(d) Assess the impact on the profitability of T Limited for the year ended 31 December 2021 of
manufacturing luxury furniture. Support your answer with appropriate calculations.
[5]
[Total: 25]
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Question 2
Source A2
X Limited provided the following information relating to its non-current assets at 1 January 2021.
Cost
Accumulated depreciation
Net book value
Building
$
600 000
150 000
450 000
Plant and
Machinery
$
400 000
160 000
240 000
Motor
Vehicle
$
60 000
24 000
36 000
The following transactions took place during the year ended 31 December 2021.
1
The building, which has a useful life of 20 years, was purchased on 1 January 2016. It was
revalued to $750 000 on 1 January 2021.
2
A new machine was purchased on 1 March 2021 costing $200 000. Other related costs were also
incurred as follows:
Installation
Delivery
Pre-production testing
Repair and maintenance for a 5-year contract
3
$
11 000
8 000
5 000
30 000
54 000
The motor vehicle is a diesel lorry which was bought on 1 January 2019. It has an estimated
useful life of 5 years with no residual value. A recent government environmental policy urged X
Limited to review the value of this lorry. Further information at 31 December 2021 relating to the
lorry was as follows:
Estimated value in use
Expected selling price, before incurring selling costs of $4000
4
$
18 500
21 000
The depreciation policy of X Limited is as follows:
Building
Plant and machinery
Motor vehicles
straight-line method
reducing balance method at an annual rate of 25%
straight-line method
A full year’s depreciation is charged in the year of purchase.
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Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain why a business may need to impair its non-current assets.
[3]
(b) Explain to what extent the value of the diesel lorry is to be impaired. Support your answer
with calculations.
[6]
(c) Prepare the non-current assets schedule in a format suitable for inclusion in the notes to the
financial statements for the year ended 31 December 2021. A total column is not required.
[11]
Additional information
The repair and maintenance cost of $30 000 for the 5-year contract for the new machine was paid
on 1 March 2021.
(d) Advise the directors whether or not X Limited should have entered into the contract. Justify
your answer.
[5]
[Total: 25]
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Question 3
Source A3
The statements of financial position for W Limited are as follows:
31 December
2021
2020
$000
$000
Non-current assets
Land and buildings
Cost/valuation
Accumulated depreciation
Plant and equipment
Cost
Accumulated depreciation
Current assets
Inventory
Trade receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Ordinary share capital ($1 shares)
Share premium
Revaluation reserve
Retained earnings
Non-current liabilities
12% debenture (2030)
Current liabilities
Trade payables
Bank overdraft
Total liabilities
Total equity and liabilities
1150
201
949
650
160
490
539
326
213
1162
454
274
180
670
117
135
–
252
1414
89
103
37
229
899
600
120
80
136
936
400
70
–
109
579
150
200
86
242
328
478
1414
120
–
120
320
899
The following information is also available.
1
The cost of land and buildings at 31 December 2020 comprised of land $250 000 and buildings
$400 000. The land, which is not depreciated, had been revalued to $330 000 on 1 July 2021.
2
On 1 March 2021, a final dividend for 2020 of $0.20 per share was paid.
3
An additional 200 000 ordinary shares were issued on 1 April 2021.
4
On 1 September 2021 an interim dividend of $0.10 per share was paid on all shares in issue on
that date.
5
During the year ended 31 December 2021, an item of plant and machinery, costing $12 000, was
sold for $3000 at a profit of $2000.
6
In the year to 31 December 2021, all interest due, $44 000, has been paid.
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Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain what is meant by the term ‘cash equivalents’.
[2]
(b) Prepare the statement of cash flows for the year ended 31 December 2021 in accordance
with IAS 7.
[14]
(c) Explain two reasons why a business prepares a statement of cash flows in addition to an
income statement and a statement of financial position.
[4]
Additional information
During a directors’ meeting, the finance director had been asked why he had raised a bank
overdraft to finance the acquisition of non-current assets.
(d) Advise the directors whether or not the finance director was correct in raising a bank overdraft
to finance the acquisition of non-current assets. Justify your answer.
[5]
[Total: 25]
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Question 4
Source A4
G Limited operates a trading business. During the year ended 31 December 2021, G Limited appointed
an overseas agent, Javeed, to sell goods on its behalf. G Limited shipped 300 units of inventory costing
$115 each to Javeed. G Limited also paid freight charges of $7200.
G Limited received a proforma statement from Javeed on 1 January 2022 as follows.
Gross sales 254 units at $250 each
Goods returned 18 units at $250 each
Net sales
Import duties
Assistant’s salary
Transportation to warehouse
Transportation to customers
Advertising
Commission
Amount due to G Limited
$
63 500
4 500
59 000
2 100
4 500
3 600
6 000
4 800
?
?
?
Defects had been found in the returned goods. In the agreement between G Limited and Javeed, it
was stated that the commission earned by Javeed would be 8% of sales. Due to the uncertainty in
the agreement, Javeed was not sure whether the commission should be based on gross sales or net
sales.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain two reasons why Javeed should ask for commission based on gross sales.
[4]
Additional information
1
Both parties later agreed that the commission of Javeed should be based on gross sales.
2
After incurring repair costs of $5 for each defective unit, all the returned goods can be sold for
$160 each.
(b) Calculate the value of inventory held by Javeed at 31 December 2021.
[6]
(c) Prepare the consignment account in the books of G Limited for the year ended
31 December 2021.
[7]
(d) Complete the table in the question paper to show the effect of the consignment to Javeed
on each item in G Limited’s financial statements and state the reason.
[8]
[Total: 25]
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Section B: Cost and Management Accounting
Question 5
Source B1
Y Limited produces one product.
Budgeted units produced and sold for the month of July were 1000.
Further budgeted information for July was also available.
$
250 000
(60 000)
(100 000)
(24 000)
66 000
Sales
Direct material ($12 per kilo)
Direct labour ($25 per labour hour)
Fixed overhead
Budgeted profit
Fixed overhead is to be absorbed on the basis of direct labour hours.
The actual units produced and sold for July were 1120.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare the flexed budget to show the budgeted profit for the month of July.
[5]
Additional information
The actual result for the month of July is also available.
Sales
Direct material ($11.80 per kilo)
Direct labour ($25.50 per labour hour)
Fixed overhead
Actual profit
$
277 760
(72 688)
(128 520)
(25 600)
50 952
The cost accountant is going to conduct a variance analysis for the July performance.
(b) State what is meant by the term ‘variance analysis’.
[2]
(c) Calculate the following:
(i)
sales price variance
[1]
(ii)
sales volume variance
[1]
(iii)
direct material total variance
[1]
(iv)
direct labour total variance
[1]
(v)
fixed overhead total variance.
[1]
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Additional information
The directors are interested in further analysis of the variances in direct materials.
(d) (i)
(ii)
Calculate the two variances which combine to give the direct material total variance. [4]
Explain the likely causes of the variances calculated in (d)(i).
[4]
Additional information
In July, Y Limited had adopted a new strategy to increase sales by reducing the selling price.
(e) Advise the directors of Y Limited whether or not the company should continue the strategy in
the long run. Justify your answer.
[5]
[Total: 25]
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Question 6
Source B2
The directors of J Limited plan to buy a machine costing $550 000. The machine has a useful life of
four years with no residual value.
It is expected that the machine will generate a net cash inflow of $200 000 for each of the first two
years, followed by a decrease of 10% in year 3 and a further decrease of 10% in year 4. The cost of
capital will be 10%.
The discount factors at 10% and 16% are
Year 1
Year 2
Year 3
Year 4
10%
0.909
0.826
0.751
0.683
16%
0.862
0.743
0.641
0.552
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain what is meant by the term ‘cost of capital’.
[2]
(b) Calculate for the proposed investment:
(i)
payback period (in years and months)
[2]
(ii)
accounting rate of return (to two decimal places)
[3]
(iii)
net present value (NPV)
[3]
(iv)
internal rate of return (IRR) (to two decimal places).
[4]
(c) Advise the directors whether or not the company should purchase the machine. Justify your
answer.
[3]
Additional information
The directors decide to use the NPV method for investment appraisal. Due to recent adverse
economic conditions, the directors think that they should use a cost of capital of 16%.
(d) Explain the impact on the directors’ decision to purchase the machine if the cost of capital is
16%.
[2]
Additional information
In view of the increase in the cost of capital to 16%, the directors consider that net cash inflows for
each year need to be improved.
(e) Calculate the net cash inflows for each of the four years so that the NPV of the proposed
investment is zero.
[6]
[Total: 25]
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BLANK PAGE
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2022
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Cambridge International AS & A Level
ACCOUNTING
9706/32
May/June 2022
Paper 3 Structured Questions
3 hours
INSERT
*9000105337-I*
INFORMATION
●
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.
This document has 12 pages.
DC (LK) 303157/7
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Section A: Financial Accounting
Question 1
Source A1
MN Drama Club was formed in 2017 with the objective of promoting modern performances. The
treasurer of the club resigned on 31 December 2021. The chairman prepared a draft income and
expenditure account which was based on the receipts and payments account.
Draft Income and Expenditure account for the year ended 31 December 2021
$
Subscriptions
Tuition fees
Ticket income from performances
Donation
Expenses for performances
Office equipment (first payment)
Administrative expenses
Heating and lighting
Building extension
Building maintenance
11 500
2 000
30 100
13 200
16 000
4 600
Deficit for the year
$
40 400
8 000
14 200
7 500
70 100
77 400
(7 300)
The draft income and expenditure account had been presented to a member of the club who is an
accountant.
Further information was available.
1
There is a great demand for after-school tutorial classes in the local community. In October 2021
the club started running after-school tutorial classes. The club targeted the classes at children
from poor families. A maximum of 20 children could join these classes. Children were required to
join as student members of the club and pay the following fees in advance:
i
student membership fee of $100, which is one-third of an ordinary member’s subscription
ii
a tuition fee of $400 covering the period from 1 October 2021 to 31 May 2022.
Student membership fees paid by children are included in subscriptions in the draft income and
expenditure account.
The tuition fee is refundable on a monthly basis if the student withdraws. The student membership
fee is non-refundable.
The tutors are volunteers and have experience in teaching.
The classes were popular and were fully booked.
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2
Information relating to ordinary members’ subscriptions at 31 December 2021 and at 31 December
2020 is as follows:
Number of members paid in advance
Number of members in arrears
3
31 December
2021
0
24
31 December
2020
9
4
Building
$
200 000
110 000
Straight-line
10%
Equipment
$
120 000
85 000
Reducing balance
20%
Information relating to non-current assets:
Cost at 31 December 2020
Accumulated depreciation at 31 December 2020
Depreciation method
Annual rate
A full year’s depreciation is charged in the year of purchase of the asset.
An item of office equipment was purchased on credit during the year. The debt was repayable in
three equal instalments at intervals of four months, with the first payment made in October 2021.
4
During the year a member donated $7500 which is to be used to sponsor the club’s participation
in a national event for the coming five years.
5
Other prepaid and accrued expenses at 31 December 2021 and at 31 December 2020 are as
follows:
Accrued
Administrative expenses
Heating and lighting
31 December
2021
$
31 December
2020
$
9000
–
6200
1500
700
–
Prepaid
Heating and lighting
6
Cash at bank at 31 December 2021 amounted to $6400.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) State two reasons why a club needs to have a clear objective.
[2]
(b) Explain how the tuition fees of $8000 should be treated in the revised financial statements of
MN Drama Club. Support your answer with reference to the relevant accounting concept. [4]
(c) Prepare the revised income and expenditure account for the year ended 31 December 2021.
[12]
Additional information
The chairman has received many requests from local parents for the tutorial classes because the
fee charged by the club is 50% lower than other organisations. He has a plan to admit 60 students
in October 2022. To increase the capacity, he estimates that an expenditure of $30 000 would be
incurred in an extension of the club’s building.
(d) Advise the chairman whether or not he should carry out the plan. Justify your answer.
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[Total: 25]
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Question 2
Source A2
AB plc is a trading company. The draft profit from operations for the year ended 31 December 2021
was $98 000 before the following items were considered.
1
On 1 September 2021, AB plc issued a 6% debenture for $200 000. Interest is payable half-yearly.
2
Revaluation reserve at 1 January 2021, $72 000, arose from the revaluation of a property on
1 January 2017. The property was purchased on 1 January 2013. It is depreciated using the
straight-line method over its useful life of 40 years with no residual value.
On 1 January 2017, the market value of the property was $432 000.
On 1 January 2021, the property was revalued again at $296 000. No accounting entries had been
made to record this.
The book-keeper had continued to provide depreciation for the property based on the value of
$432 000.
3
In the financial statements of 2020, a non-current asset was wrongly classified, with the effect that
depreciation had been overcharged by $20 000 in 2020 and $14 000 in 2021.
4
AB plc sells goods at a mark-up of 60%. In December 2021, defective goods with a sales value
of $28 000 were returned by customers. The cost value of the returned goods had been included
in inventory at 31 December 2021. It is expected that if $6000 is incurred to repair the returned
goods, they can be sold at 80% of normal selling price.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare a statement to show the ‘profit for the year’ for the year ended 31 December 2021.
[8]
(b) Explain the accounting treatment of the following, with reference to the relevant international
accounting standards (IAS):
(i)
item 3
[3]
(ii)
item 4.
[3]
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Additional information
Equity of AB plc at 31 December 2020 was as follows:
Ordinary share capital ($1 shares)
Share premium
Revaluation reserve
Retained earnings
$
500 000
86 000
72 000
192 000
850 000
During the year ended 31 December 2021, the following transactions took place.
1
On 1 February, the final dividend of $0.08 per share was paid from the 2020 profit.
2
On 5 March, a bonus issue of one ordinary share for every ten ordinary shares held was
made. It is the policy of the company to keep its reserves in the most flexible form.
3
On 1 June, 100 000 new ordinary shares were offered to the public at $1.80 each. AB plc
received subscriptions for 80 000 shares which were fully paid.
4
On 1 September, an interim dividend of $0.02 per share was paid on all shares held at
31 March 2021.
5
On 31 December, a final dividend of $0.09 per share was proposed on all shares held at
31 December 2021.
(c) State one difference between a rights issue and a bonus issue of shares.
[2]
(d) Prepare the statement of changes in equity for the year ended 31 December 2021. A total
column is not required.
[9]
[Total: 25]
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Question 3
Source A3
The directors of K plc provide the following information at 31 December 2021.
$
114 000
90 000
600 000
38 000
75 000
80 000
150 000
Profit for the year
Dividend paid
Ordinary share capital ($1 shares)
Retained earnings at 1 January 2021
General reserve
Revaluation reserve
8% debenture (2025)
The market price of one ordinary share on 31 December 2021 was $2.40.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain two ways in which accounting ratios may be used by potential investors to assess
the performance of a business.
[4]
(b) Calculate to two decimal places the following:
(i)
price earnings ratio
[2]
(ii)
dividend yield
[2]
(iii)
income gearing
[2]
(iv)
gearing ratio
[4]
(v)
return on capital employed.
[2]
Additional information
The directors are considering declaring a proposed dividend of $0.20 per ordinary share. Due
to the low level of retained earnings at 31 December 2021, they ask the accountant whether the
dividend can also be paid out of other reserves.
(c) Discuss how the accountant should reply to the directors.
[4]
Additional information
The directors are thinking of investing $100 000 in a new project in 2022. The project will generate
a profit of $24 000 before interest in 2022. They have two options to raise $100 000:
option 1: issue of new ordinary shares
option 2: issue of a further 8% debenture.
(d) Advise the directors which option they should choose. Justify your answer.
[5]
[Total: 25]
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Question 4
Source A4
Alan and Bobby were in partnership sharing profits and losses in the ratio of 3:2. The partnership’s
statement of financial position at 31 March 2022 was as follows:
Non-current assets
Land and buildings
Equipment
Motor vehicles
$
$
350 000
158 000
57 000
565 000
Current assets
Inventory
Trade receivables
Bank
75 000
93 000
52 000
Capital accounts
Alan
Bobby
Current accounts
Alan
Bobby
400 000
320 000
220 000
785 000
720 000
(6 000)
25 000
Current liabilities
Trade payables
19 000
46 000
785 000
A company, MM Limited, acquired Alan and Bobby’s partnership business on 1 April 2022. The company
acquired all the assets except the bank account and a motor vehicle. The motor vehicle was taken over
by Alan at the value of $18 000. The partnership paid $45 000 in full settlement of trade payables.
The value of assets taken over by MM Limited was:
Land and buildings
Equipment
Motor vehicles
Inventory
Trade receivables
$
410 000
132 000
30 000
70 000
88 000
730 000
The goodwill of the partnership was also agreed at $40 000. The purchase consideration was settled
by $1 ordinary shares in MM Limited at the value of $1.40 per share. The shares were split between
Alan and Bobby equally.
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Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare a statement showing the partners’ share of profit or loss on realisation.
[6]
(b) Prepare the partners’ capital accounts in columnar form to show the closing entries.
[5]
(c) Prepare the journal entries in MM Limited’s books to record the acquisition of the partnership
business.
[3]
(d) Define the term ‘intangible asset’.
[2]
(e) Discuss the reasons why the purchase consideration was more than $730 000.
[6]
(f)
Advise the directors whether or not they should have paid more than $730 000 for the
partnership. Justify your answer.
[3]
[Total: 25]
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Section B: Cost and Management Accounting
Question 5
Source B1
The directors of V Limited are concerned about the company’s future cash position. They have asked
the management accountant to prepare a cash budget for the 3 months ending on 31 August 2022.
The following information is available.
1
Actual sales
April
May
Budgeted sales
June
July
August
September
$
234 000
210 000
195 000
207 000
228 000
216 000
2
All sales are on credit. All customers pay two months after purchase.
3
Goods are sold at a mark-up of 50%. Goods are purchased one month before sales. 60% of the
purchases are paid for in the month of purchase to get a 2% cash discount. The remainder is paid
in the following month.
4
V Limited keeps no inventory at the end of each month apart from the goods purchased for the
following month’s sales.
5
Wages of $50 000 and overheads of $20 000 are paid in the month in which they are incurred.
Wages are expected to increase by 10% from 1 July 2022.
6
Rent, $60 000 per annum, is payable half-yearly in advance in July and January.
7
The balance at bank on 1 June 2022 is expected to be $33 000.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain one purpose of preparing a cash budget.
[2]
(b) Prepare the cash budget for each of the three months ending 31 August 2022.
[11]
(c) Prepare the budgeted income statement for the three month period ending 31 August 2022.
[5]
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Additional information
The directors suggest a new credit policy to improve the cash position of the company for the
three months ending 31 August 2022. A 3% cash discount is to be allowed to customers who pay
one month after sales. It is estimated that 50% of the customers will take the cash discount. This
new credit policy would apply to all sales made in May and thereafter.
(d) Calculate the effect of the new credit policy on the company’s cash receipts for each of the
three months ending 31 August 2022.
[5]
(e) Comment on the effect of the new credit policy on the company’s profitability for the three
month period ending 31 August 2022. Support your answer with calculations.
[2]
[Total: 25]
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Question 6
Source B2
The directors of M Limited plan to buy a machine for a new product at the cost of $160 000. It has a
useful life of four years with no residual value.
The number of units produced and sold are expected to be as follows.
Year 1
5000
Year 2
7500
Year 3
8500
Year 4
4200
Total
25 200
The unit selling price is $28 and the variable cost is $10 per unit. Annual fixed costs including
depreciation are $90 000 up to the level of 6500 units. The fixed costs will increase by $10 000 each
time the production level increases by up to 1500 units.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Calculate the net cash flows for each year throughout the life of the machine.
[4]
Additional information
The cost of capital is 10%. Relevant discount factors are:
Year 1
Year 2
Year 3
Year 4
10%
0.909
0.826
0.751
0.683
16%
0.862
0.743
0.641
0.552
(b) Calculate for the proposed purchase:
(i)
the net present value (NPV)
[4]
(ii)
the internal rate of return (IRR).
[4]
(c) Advise the directors whether or not the machine should be purchased. Justify your answer.
[3]
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Additional information
The directors decide that the NPV method should be adopted. One of the directors has concerns
about the total sales target. To achieve the total sales of 25 200 units, he has the following
suggestion.
1
The selling price should be reduced by $1.
2
Advertising costs of $8000 should be incurred in both Year 1 and Year 3.
3
The units produced and sold for each year should be the same. This would also keep the
fixed cost to its minimum.
(d) Explain what is meant by the term ‘sensitivity analysis’ for investment appraisal.
[3]
(e) Assess the impact of the director’s suggestion on the decision to buy the new machine.
Support your answer with calculations.
[7]
[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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2022
9706/32/INSERT/M/J/22
Paperland - 0761099116
Cambridge International AS & A Level
ACCOUNTING
9706/32
Paper 3 Structured Questions
October/November 2022
3 hours
INSERT
*1184573046-I*
INFORMATION
●
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●
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Section A: Financial Accounting
Question 1
Source A1
Ajlal’s hobby was making chocolates. She was considering giving up her employment to run a business
selling her own chocolates.
She decided to sell them from a market stall for a month to assess the level of demand and entered
into a joint venture with Daneen. They agreed to split the profit equally, as they planned to spend an
equal number of hours running the stall.
They started running the stall on 1 August 2022. They opened a joint venture bank account. Ajlal paid
in $1000 and Daneen paid in $1200.
On that date they paid rent for the stall of $800, and purchased fittings for the stall costing $420, paying
both amounts from the joint venture bank account.
During the month the cost of ingredients amounted to $1650. Ajlal paid $550 of this from her own funds
and the remainder was paid from the joint venture bank account.
By the end of the month sales had totalled $3900. All receipts were paid into the joint venture bank
account.
On 31 August 2022 the joint venture finished. Ajlal took over the fittings at a value of $400. The profit
on the joint venture was calculated and the bank account was closed.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Calculate:
(i)
the profit on the joint venture
[3]
(ii)
the amount paid to each party when the joint venture bank account was closed.
[5]
(b) Prepare the joint venture bank account for the month of August 2022.
[6]
(c) Discuss whether the decision to share the profit equally was reasonable.
[3]
Additional information
Ajlal was considering running another stall at a market in a different location, to assess whether
demand might be stronger there.
(d) Advise Ajlal whether or not she should enter into another joint venture, or operate alone whilst
employing an assistant to help her run the stall. Justify your answer.
[4]
Additional information
Ajlal was considering if a joint venture requires the services of an auditor.
(e) Explain which business entities would require the services of an auditor.
[2]
(f)
[2]
State two points which should be covered in an unqualified audit report.
[Total: 25]
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Question 2
Source A2
Sarah was a sole trader who agreed to sell her business to DB plc on 31 October 2021.
Their summarised statements of financial position immediately prior to the sale of Sarah’s business
showed the following:
Non-current assets at net book value
Current assets
Inventory
Trade receivables
Bank
Total current assets
Total assets
Capital
Ordinary shares of $1 each
Retained earnings
Sarah
$
120 000
DB plc
$
722 000
17 000
15 000
12 000
44 000
164 000
101 000
76 000
24 000
201 000
923 000
123 000
123 000
Current liabilities
Trade payables
Short-term bank loan
Total current liabilities
Total capital and liabilities
21 000
20 000
41 000
164 000
400 000
464 000
864 000
59 000
59 000
923 000
The terms of the sale of the business were as follows:
1
The purchase consideration was $240 000. This was settled with $30 000 in cash and 150 000
ordinary shares of $1 each in DB plc.
2
DB plc took over all the assets and liabilities of Sarah’s business except for the loan and the
bank account.
3
Non-current assets were taken over at a value of $203 000 and inventory at a value of
$14 000.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare the following ledger accounts in the books of Sarah to record the sale of her business
and the settlement of the amount due to her.
(i)
DB plc account
[3]
(ii)
Bank account
[4]
(iii)
Capital account
[4]
(b) Prepare the statement of financial position of DB plc immediately after the purchase of
Sarah’s business.
[7]
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Additional information
A year later the market price of one ordinary share in DB plc had risen to $1.80, but the dividend
yield had fallen to 3%. Sarah was able to earn interest of 4% on funds she invested elsewhere.
(c) Advise Sarah whether or not she should sell her shares in DB plc and invest the proceeds to
earn interest. Justify your answer.
[5]
(d) Explain how stewardship affects a business purchase by a limited company.
[2]
[Total: 25]
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Question 3
Source A3
The accountant of PS plc prepared draft financial statements for the year ended 31 March 2022. The
following information was based on these draft statements.
Purchases
Purchases returns
Inventory at 1 April 2021
Inventory at 31 March 2022
Mark-up
Operating expenses to revenue ratio
Expenses to revenue ratio (includes finance costs)
$361 000
$8 560
$68 210
$71 650
60%
25%
28%
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare a summarised version of the draft income statement for the year ended
31 March 2022.
[4]
Additional information
The draft financial statements did not take into account the following information items.
1
During the year one of the company’s delivery drivers had caused an accident resulting in
repairs to another vehicle costing $7000. Of this, $5000 will be covered by the company’s
insurance. No payments have yet been made.
2
Another vehicle is recorded in the books with a book value of $27 000. It is now estimated that
it has a value in use of $22 000 and could be sold for $19 000.
3
A credit customer who owed the company $1000 at the year-end was discovered to have
gone bankrupt and was not expected to pay any of the debt.
4
A dissatisfied customer was taking legal action and was suing the company for damages of
$10 000. The company had estimated that the customer had a 35% chance of success.
5
Goods with a selling price of $7200 were held by a credit customer on 31 March 2022 on a
sale or return basis. These goods were treated in the draft financial statements as having
been sold.
6
The premises were revalued on 31 March 2022 from $400 000 to $580 000.
7
The draft financial statements showed a value of $24 000 for an intangible asset which had
been bought by the company on 1 April 2021. The directors were of the opinion that this
should be amortised (depreciated) over 20 years from the date of purchase.
8
A fire on 4 April 2022 destroyed the company’s entire inventory.
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(b) Identify the two items from the information items 1 to 8 which should be disclosed by way of
a note to the accounts. Explain the reason for their treatment.
[6]
(c) State what is meant by the term ‘contingent asset’. Illustrate your answer with an example. [2]
(d) Calculate the correct profit for the year. Start your answer with the draft profit from your
answer to (a).
[7]
(e) Prepare the journal entry to record information item 6 from the list given. A narrative is
required.
[3]
Additional information
The value of trade receivables in the draft statement of financial position was $81 900.
(f)
Calculate the correct value of trade receivables at 31 March 2022.
[3]
[Total: 25]
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Question 4
Source A4
AZ Limited is a manufacturing business which adds factory profit to its cost of production. It
manufactures and sells one product. It provided the following information.
Year ended
31 December
2019
2020
2021
Cost of
production
(before factory
profit)
$
600 000
714 000
765 000
Annual
production
(units)
Units in
inventory at
year-end
Rate of factory
profit
15 000
17 000
18 000
500
850
480
20%
20%
25%
No units remained in the inventory for more than two months.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare the provision for unrealised profit account for each of the years ended
31 December 2020 and 2021.
[8]
(b) Complete the table (on the question paper). Identify which figures connected to factory
profit were recorded in AZ Limited’s income statement for the year ended 31 December 2021.
State the amounts and their position in the income statement.
[9]
(c) Name two costs which might be included in a manufacturer’s cost of production but would
not be included in prime cost.
[2]
Additional information
1
The directors use the value of factory profit to set the bonuses for senior factory staff.
2
In 2020 the units could have been bought in for $44, and in 2021 for $41.65.
(d) Discuss whether the rates of factory profit being applied by AZ Limited are suitable.
[6]
[Total: 25]
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Section B: Cost and Management Accounting
Question 5
Source B1
DY Limited manufactures and sells one product. Each unit is sold in the month in which it is
manufactured. Its budgeted information for the period from April to August is as follows:
April
May
June
July
August
Production
units
4000
5000
5500
4500
4200
Unit selling price
$
25
25
28
28
26
Basic wage hourly rate
$
10
10
10
11
11
Each unit takes 1 hour and 30 minutes of direct labour to complete.
Basic wages are paid in the month when they are earned, and overtime payments are paid one month
in arrears. Overtime is payable on any hours above 6500 worked in the month. The overtime premium
is 20%.
One quarter of sales are made for cash. Half of sales are paid in the month after sale and receive a
cash discount of 5%. The remaining quarter is paid two months after sale.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Prepare the labour wages budget for each of the months June, July and August.
[4]
(b) Prepare extracts from the cash budget showing entries relating to sales and labour for each
of the months June, July and August.
[13]
(c) State two advantages to a business of preparing a cash budget.
[2]
Additional information
One of the directors has suggested adding a fixed amount of profit per unit when calculating the
selling price so that profit is not affected by changes in production cost.
(d) Advise the directors whether or not they should adopt this suggestion. Justify your answer.
[4]
(e) Name two budgets which would be affected by the creation of a provision for doubtful debts.
[2]
[Total: 25]
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Question 6
Source B2
GH Limited is a manufacturing business which uses activity based costing (ABC).
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) Explain why ABC is often considered a better costing method than absorption costing.
[2]
Additional information
The company manufactures two products. The following information is available for the year.
1
Direct costs
Production (units)
Direct material per unit
Direct labour per unit
2
Product A
1500
3 kilos at $7.20 per kilo
2 hours at $10.50 per hour
Product B
4500
5 kilos at $4.80 per kilo
3 hours at $10.50 per hour
Production overheads
Overhead
Machine servicing
Total cost
$
13 700
Order processing
6 400
Orders processed amount to 27 for product A and 93 for
product B.
11 200
Product A is subject to 34 quality inspections and
product B to 126.
Quality inspections
Three machines are used to manufacture product A and
eight to manufacture product B. They are all serviced
once a month.
3
Rent costs $48 000 a year and is apportioned on the basis of floor area, 30% for product A
and 70% for product B.
4
The business applies a mark-up of 50% on total cost when calculating selling price.
(b) Calculate the selling price of one unit for each product.
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Additional information
The company’s selling price for product B is $3 higher than that of a competitor. The directors are
worried that because of this the company will start to lose sales.
They are considering doubling production of product B whilst maintaining the same percentage
mark-up. They believe that because of the increase in production they would be able to negotiate
a purchase price for direct material of $4.40 per kilo. There would be an increased requirement for
labour and therefore the rate of pay would increase to $11.50 per hour for all factory workers.
The increase in production would cause the following production overheads for product B to
become:
Machine servicing
Order processing
Quality inspections
Total
$
27 900
8 100
16 560
52 560
The rent and its apportionment would be unchanged.
(c) Calculate the selling price of one unit of product B which would be charged if its production
was doubled in this way.
[4]
(d) Advise the directors whether or not they should double production of product B. Justify your
answer.
[7]
[Total: 25]
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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2022
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ACCOUNTING
9706/32
Paper 3 Financial Accounting
February/March 2023
1 hour 30 minutes
INSERT
*4403712611-I*
INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
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Source A for Question 1
J Limited is a manufacturing business. It applies a rate of factory profit of 20%.
The following information is available for the year ended 31 December 2022.
$
Sales revenue
936 000
Purchases of direct materials
216 000
Direct labour
196 200
Factory overheads
85 000
Administrative expenses
234 000
Selling and distribution costs
97 000
Increase in direct materials inventory
1 160
Decrease in work in progress inventory
960
Increase in provision for unrealised profit
600
Finished goods inventory at 1 January 2022 (at transfer value) was $26 400.
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Source B for Question 2
X plc started its information technology business on 1 January 2022. Its statement of financial position
at 31 December 2022 included the following balances.
$
Ordinary share capital ($2 shares)
800 000
Share premium
60 000
Revaluation reserve
70 000
Retained earnings
24 000
5% debenture (2026)
Bank overdraft
100 000
14 000
The following information was also available.
1
The 5% debenture was issued on 1 July 2022.
2
The freehold property was revalued upward by $70 000 on 1 August 2022.
3
An interim dividend of $0.12 per share was paid on 1 October 2022.
4
The market price per share at 31 December 2022 was $3.35.
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Source C for Question 3
The draft statement of financial position of T Limited at 31 December 2022 is as follows:
$
Non-current assets
Property, plant and equipment
425 000
Current assets
Inventories
Trade receivables
Other receivables
Cash and cash equivalents
42 000
225 000
6 000
74 000
347 000
Total assets
772 000
Equity
Ordinary share capital ($1 shares)
Share premium
Revaluation reserve
Retained earnings
Total equity
400 000
35 000
60 000
86 000
581 000
Current liabilities
Trade payables
Other payables
Total liabilities
152 000
39 000
191 000
Total equity and liabilities
772 000
The following information is also available.
1
A proposed dividend of $0.05 per share had been accounted for and set against the retained
earnings accordingly.
2
A machine, cost $42 000, was purchased on 1 July 2022. On the same date, T Limited also paid
$8000 for a 4-year repairing contract starting on that date. The total amount, $50 000, had been
included in the machinery account. Depreciation on machinery is provided at 20% per annum
using the reducing balance method with a full year’s depreciation in the year of purchase.
3
The only property of T Limited was revalued upward by $60 000 two years ago. This property was
revalued again on 31 December 2022. The decrease in value of $35 000 had been set against the
retained earnings.
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4
The carrying value of a motor van, $27 000, was included in the value of the non-current assets on
31 December 2022. The value of the motor van was reviewed on that date. It had a value in use of
$23 200. If it were sold, it could be sold for $24 500 but a selling cost of $1800 would be incurred.
5
In December 2022, an employee was injured on the office premises. Legal proceedings have
started. The company’s lawyer has advised that T Limited will probably be found liable and the
compensation would be $9000. As the case will be heard in court in April 2023, the directors had
not accounted for the compensation in the draft financial statements.
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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
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Cambridge International AS & A Level
ACCOUNTING
9706/42
Paper 4 Cost and Management Accounting
February/March 2023
1 hour
INSERT
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INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
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insert.
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Source A for Question 1
AD plc uses a system of budgetary control. Its budgeted data for 2024 included the following:
January
February
March
April
$
$
$
$
sales
56 000
59 500
61 200
59 200
purchases
28 600
31 000
33 000
34 000
operating expenses
24 200
25 100
26 100
25 900
4 800
7 600
loan repayment
8 000
capital expenditure
The following information is also available.
1
The bank balance on 1 January 2024 is expected to be $3000 and the trade payables are expected
to amount to $27 100 on that date.
2
The company has agreed an overdraft limit of $2000 with the bank. It has a policy of never
exceeding that limit. The interest on any overdraft is paid in June and December.
3
All sales are made for cash. Operating expenses are paid in the month in which they are incurred.
4
All purchases are on credit. The company seeks to pay its suppliers in the month following
purchase, when funds allow. When there are insufficient funds to pay all the suppliers in the month
following purchase, the company pays the maximum possible and the balance is carried forward
and given priority for payment in the next month.
5
Loan repayment, $8000, includes the accrued loan interest.
6
Capital expenditure is paid in the month in which it is incurred.
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Source B for Question 2
Simran is a manufacturer who uses activity based costing (ABC).
She provided the following information for a year about the two products which she manufactures.
Product A
Product B
Units produced and sold
2500
4600
Units returned
500
600
Selling price per unit
$50
$72
1.5 kilos at $8.20 per kilo
3.5 kilos at $9.50 per kilo
2 hours at $10 per hour
2.5 hours at $12 per hour
Direct material per unit
Direct labour per unit
Information about production overheads was as follows:
Overhead
Total annual
cost
$
Machine set ups
4 480
Machines are set up 80 times for
product A and 200 times for product
B.
Quality inspections
8 000
There are 40 inspections for
product A and 60 for product B.
Order processing
5 500
190 orders for product A and 360
orders for product B are processed.
Depreciation of machinery
15 200
The net book value of machinery
used for product A is $45 000 and
for product B $55 000.
The units which were returned were all found to be faulty, and could only be sold for their scrap value
of $8 per unit.
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BLANK PAGE
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
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Cambridge International AS & A Level
ACCOUNTING
9706/32
May/June 2023
Paper 3 Financial Accounting
1 hour 30 minutes
INSERT
*1503317155-I*
INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
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insert.
This document has 4 pages.
DC (CJ) 311677/3
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Source A for Question 1
NT Sport Club runs a gym and operates a café. The treasurer provided the following list of balances of
some accounts.
Club equipment (cost $150 000) carrying value
Café equipment (cost $64 000) carrying value
Café wages in arrears
Heating and lighting in advance
Subscriptions owing
Subscriptions prepaid
Café payables
Café inventory (at cost)
Net total
31 December
2022
$
?
?
(3 250)
900
3 400
(1 400)
(14 800)
6 400
?
31 December
2021
$
76 000
22 000
(2 730)
1 900
2 000
(1 200)
(16 600)
5 900
87 270
The treasurer also prepared a summary of the bank account for the year ended 31 December 2022.
Balance b/d
Annual subscriptions
Life membership fees
Sale of club equipment
Café takings
$
76 800
68 000
24 000
2 000
55 000
225 800
Rent
Club administrative expenses
Heating and lighting
Purchase of club equipment
Purchase of café equipment
Payment for café suppliers
Balance c/d
$
18 000
40 150
7 500
13 000
8 800
31 600
106 750
225 800
The following information is also available.
1
All the café sales are made on a cash basis. Cash received from the café is banked.
2
Wages, $14 400, were paid out of the café’s takings before they were banked.
3
The café inventory at 31 December 2022 included items with a cost of $2200 and a net realisable
value of $300.
4
Life membership was introduced on 1 January 2020. Each life member has to pay $2000 on the
date of admission. The life membership fee is to be transferred to income over ten years in equal
amounts. The number of new life members admitted each year is as follows:
Year
New members
2020
6
2021
10
2022
12
5
Rent and also heating and lighting are apportioned 40% to the café and 60% to the club.
6
Club equipment with a carrying value of $4800 was sold for $2000.
7
Both the club equipment and café equipment are to be depreciated at 20% per annum using the
reducing balance method. A full year’s depreciation is provided in the year of acquisition and none
in the year of disposal.
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Source B for Question 2
M Limited’s statement of financial position at 31 December 2022 has been compared with the previous
year. The results are as follows:
Land and buildings (carrying value)
Increased
Decreased
$
$
77 800
Machinery (carrying value)
34 600
Inventory
3 600
Trade receivables
5 900
Cash and cash equivalents
55 000
Trade payables
5 600
Ordinary share capital ($1 shares)
140 000
Share premium
20 000
Retained earnings
34 900
8% bank loan
60 000
The following information is also available.
1
The carrying value of land and buildings at 31 December 2021 consisted of land at the cost of
$150 000 and a building at the cost of $400 000. No depreciation had been provided on either the
land or the building. The building was purchased on 1 January 2021.
2
A new building was acquired in 2022. On 31 December 2022, it was decided that depreciation
should have been provided for both buildings at an annual rate of 5% using the straight-line
method. The depreciation charge for 2022 was $26 200. The prior period adjustment had been
made accordingly.
3
A machine with carrying value of $28 600 was sold for $29 500. The depreciation charge of
machinery for 2022 was $42 600.
4
On 1 June 2022, an issue of 60 000 bonus shares was made on the basis of one ordinary share
for every ten shares held. The policy of M Limited is to keep its reserves in the most flexible form.
The bonus issue was fully covered by the share premium account.
On 1 August 2022, additional new shares were issued for cash at $1.50 per share.
5
On 1 March 2022, the 2021 final dividend of $0.08 per share was paid. On 1 October, an interim
dividend of $0.12 per share was paid on the shares held on that date.
6
The 8% bank loan of $100 000 was taken out in 2020. A partial repayment of $60 000 was made
on 1 April 2022.
7
Cash and cash equivalents at 31 December 2021 amounted to $42 000.
© UCLES 2023
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Source C for Question 3
Alice and Bob had been in partnership for many years, engaging in the trading of wood. They shared
profits and losses in the ratio of 3 : 2. The total contributed capital was $250 000. Each partner
contributed capital on the basis of the profit-sharing ratio. On 1 January 2023, they agreed to sell the
business to X Limited, also a trader of wood, for $420 000.
X Limited took over all the assets except cash at bank and a vehicle. The assets taken over were
revalued as follows:
Premises
Equipment
Vehicle (one of the two vehicles)
Inventory
Trade receivables
Carrying
value
$
124 000
38 000
23 000
32 000
73 000
290 000
Revalued
amount
$
186 000
32 000
18 000
45 000
71 000
352 000
Further information is also available.
1
Alice took over the second vehicle (carrying value $25 000) at the value of $23 800.
2
The trade payables of $44 000 were settled after taking a cash discount of 5% and were paid out
of the partnership’s bank account.
3
Cash at bank at 31 December 2022 amounted to $27 000.
4
The purchase consideration was settled by:
•
200 000 ordinary shares of $1 each at a value of $1.60 per share
•
the balance in cash.
5
The ordinary shares were issued to Alice and Bob equally.
6
Alice and Bob had a credit balance on their current accounts at 31 December 2022. The balance
on Alice’s account was twice that of Bob’s. Their current accounts were transferred to their
respective capital accounts on 1 January 2023.
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
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Cambridge International AS & A Level
ACCOUNTING
9706/42
Paper 4 Cost and Management Accounting
May/June 2023
1 hour
INSERT
*4041562800-I*
INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
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insert.
This document has 4 pages. Any blank pages are indicated.
DC (RW) 311679/2
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Source A for Question 1
Beachside is a village with 320 houses, the continued existence of which is threatened by rising sea
levels. The residents approached Hiram, a building contractor, to suggest a project for building a sea
wall to protect their village.
The cost to Hiram of building the wall would be $400 000 payable at the start of the project. The local
government was prepared to make a grant of $142 000 in year 1.
The residents had together decided that each household would pay Hiram a fee of $200 per annum,
for each of the years 1 to 4.
The residents believed that the village would become a more desirable place to live if the wall was
in place. They therefore told Hiram that they expected that 80 new houses would be built in each of
the years 2, 3 and 4, and that the new households would pay the same fee per year as the existing
households.
There would be no cash flows after the end of year 4.
© UCLES 2023
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Source B for Question 2
QW plc operates a system of standard costing. Standard data for one month in the fixed budget was
as follows:
Units produced
and sold
1000 units with a selling price of $190 per unit
Direct material
$72 000 for material costing $18 per kg
Direct labour
$36 000 for 3000 hours
Fixed overheads
charged at $16 per direct labour hour
As time went by the company found it increasingly difficult to sell its product as customers were
switching to a competitor’s product.
Trying to maintain demand, the company reduced its selling price. It kept the existing workforce but
reduced the hourly rate it paid.
Its actual results for April 2023 were as follows:
Sales revenue
$123 750
Direct material
$47 250 for 3150 kg
Direct labour
$26 775 paid at $10.50 per hour
Fixed overheads
$46 200
In April 2023 the company had only sold 750 units. It prepared a flexible budget statement which
showed a budgeted profit of $25 500 for April 2023.
© UCLES 2023
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BLANK PAGE
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
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Cambridge International AS & A Level
ACCOUNTING
9706/32
October/November 2023
Paper 3 Financial Accounting
1 hour 30 minutes
INSERT
*6534477152-I*
INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
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insert.
This document has 4 pages.
DC (CE) 312020/2
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Source A for Question 1
H plc is a manufacturing company. It has applied a rate of factory profit of 25% for some years. Its draft
statement of profit or loss for the year ended 30 June 2023 was as follows:
Revenue
Inventory of finished goods at 1 July 2022
Cost of production
Inventory of finished goods at 30 June 2023
Cost of sales
Gross profit
Factory profit
Administrative expenses
Distribution costs
Profit for the year
$
25 000
237 500
(27 500)
40 500
31 000
$
370 000
235 000
135 000
47 500
(71 500)
111 000
The following information is also available.
1
The inventory values and cost of production were all shown at transfer value.
2
The increase in the provision for unrealised profit was included in the administrative expenses.
© UCLES 2023
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Source B for Question 2
The BU Club is a club providing sports facilities to its members. It also holds tournaments for which it
awards prizes. The club admits life members as well as ordinary members.
Its assets and liabilities were as follows:
31 May 2023
$
76 500
8 320
450
150
115
445
630
920
Non-current assets (Carrying value)
Cash at bank
Subscriptions in arrears
Subscriptions received in advance
Prepaid tournament expenses
Accrued tournament expenses
Inventory of tournament prizes
Accrued wages
31 May 2022
$
78 000
3 200
850
250
520
430
980
650
The following information is also available.
1
The life membership fund on 31 May 2022 amounted to $5100.
2
Total receipts of the club for the year were as follows:
Subscriptions from ordinary members
Life membership fees
Tournament entry fees
3
$
28 600
4 000
15 200
The payments made by the club for the year included the following:
Tournament prizes
Tournament expenses
$
2 800
11 520
4
On 31 May 2022 the club had seven life members. Four new members took out life membership
during the year. The life membership fund is released to the income and expenditure account
at the rate of $100 for each life member at the end of the year.
5
During the year ended 31 May 2023 overdue subscriptions, $500, were considered
irrecoverable and written off.
6
New non-current assets were bought during the year. The total depreciation charge for the
year was $8050.
7
The wages cost incurred during the year was $16 970.
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Source C for Question 3
TG plc is an expanding company with a financial year end of 31 December.
A junior member of the accounts staff took the statements of financial position of the company at
31 December 2022 and 2021 and prepared the following draft statement of cash flows.
$
76 000
(472 000)
(14 000)
(19 000)
11 000
6 000
(3 000)
30 000
400 000
300 000
(250 000)
65 000
(54 000)
11 000
17 000
28 000
Profit for the year
Increase in property, plant and equipment
Increase in inventory
Increase in trade receivables
Increase in trade payables
Increase in tax payable
Decrease in interest payable
Increase in long-term bank loan
Increase in ordinary share capital
Increase in revaluation reserve
Decrease in share premium
Cash flow from activities
Dividend paid
Net cash flow
Bank balance at 1 January 2022
Bank balance at 31 December 2022
Further information is available as follows:
1
The statement of profit or loss showed a tax charge of $32 000 and finance expenses of $15 000.
2
Share capital consists of ordinary shares of $1 each. Two share issues were made during the
year.
The first was a bonus issue of 300 000 shares which was funded entirely from the share premium
account.
The second was a rights issue of 100 000 shares at a premium.
3
New machinery, $348 000, was bought. Motor vehicles with a carrying value of $56 000 were sold
for $71 000.
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
9706/32/INSERT/O/N/23
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Cambridge International AS & A Level
ACCOUNTING
9706/42
Paper 4 Cost and Management Accounting
October/November 2023
1 hour
INSERT
*3612284865-I*
INFORMATION
●
This insert contains all of the sources referred to in the questions.
●
You may annotate this insert and use the blank spaces for planning. Do not write your answers on the
insert.
This document has 4 pages. Any blank pages are indicated.
DC (PQ) 312036/2
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Source A for Question 1
G Limited manufactures two products: M1 and V1.
The company is going to prepare the budget for the coming year. Currently one single overhead
absorption rate is used which is based on direct labour hours. Each product will have a mark-up of
50% in order to improve the setting of selling prices. In a recent budgeting meeting, the finance director
proposed to adopt an activity based costing (ABC) system in the future.
The annual budgeted data for each product is as follows:
Sales and production (units)
Direct materials (per unit)
Direct labour hours (per unit)
Direct labour rate per hour
Number of inspections
Number of purchase orders
Number of machine set-ups
M1
5 000
$35
4
$15
20
20
12
V1
8 000
$26
1.50
$15
30
25
18
The annual budgeted fixed overheads are as follows:
Handling the purchase of direct materials
Inspecting and testing of products
Supervising factory workers
Setting up and testing of machines
Total budgeted fixed overheads
© UCLES 2023
$
43 200
28 800
96 000
48 000
216 000
9706/42/INSERT/O/N/23
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Source B for Question 2
T Limited manufactures a single product. The budgeted information for March is as follows:
1
The selling price will be fixed at $20 per unit. March sales are expected to be 20 000 units. There
will be a 10% increase in sales volume in every month up to June and the sales of subsequent
months will remain at the sales level of June.
2
Credit sales are 75% of the total sales.
40% of credit customers will pay in the first month after the sale and receive a 5% cash discount.
The remainder of the credit customers will pay in the second month after the sale.
3
The finished goods inventory level is budgeted to be 25% of the following month’s sales volume.
4
Each unit requires 4 kg of direct material, which costs $1.50 per kg. The closing inventory of direct
material is expected to meet 50% of the production requirement in the following month.
© UCLES 2023
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BLANK PAGE
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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
© UCLES 2023
9706/42/INSERT/O/N/23
Paperland - 0761099116