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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level

ACCOUNTING 9706/11

Paper 1 Multiple Choice October/November 2013

1 hour

Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Do not use staples, paper clips, highlighters, glue or correction fluid.

Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.

DO NOT WRITE IN ANY BARCODES.

There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D.

Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.

Any rough working should be done in this booklet.

Calculators may be used.

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1 A non-current asset costs $250 000 and has a useful economic life of 25 years. The estimated residual value is $10 000.

Depreciation is provided on a straight line basis.

After 10 years the asset is sold for $120 000. Disposal costs of $20 000 are incurred.

What is the loss on disposal?

A $30 000 B $34 000 C $50 000 D $54 000 2 Goods that had previously been purchased on credit have been returned to the supplier.

How should this be recorded in the purchaser’s books of account?

account to be debited account to be credited

A bank purchases returns

B trade payable bank

C creditor purchases returns

D purchases returns trade payable

3 On 1 January 2012 a business had prepaid rent of $50. During 2012, it made three rent

payments of $250 each. On 31 December 2012, the business owed $200 rent for 2012.

The business owner only charged the rent payments made during 2012 in the income statement.

What is the effect on profit for the year?

A $200 overstated

B $200 understated

C $250 overstated

D $250 understated 4 A computer used for demonstration to customers was treated as capital expenditure.

The following year a customer purchased the computer in the ordinary course of business.

Which entries are needed to adjust the cost of sales?

account to be debited account to be credited

A inventory computers

B purchases computers

C sales inventory

D selling expenses sales

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5 The table shows information about a business.

$

provision for doubtful debts at 1 January 2012 700

trade receivables at 31 December 2012 (after writing off a bad

debt of $30)

15 000

charge to income statement for bad and doubtful debts for year

ended 31 December 2012 (including the bad debt written off)

200

What is the total percentage provision that has been made for doubtful debts at 31 December 2012?

A 3.5% B 4.7% C 5.8% D 6.0% 6 The following information is extracted from the statement of financial position of a business.

$

bank loan (repayable 2019) 16 200

bank loan interest owing 1 880

bank overdraft 11 600

capital 20 710

drawings 19 100

inventory 14 610

prepayments 1 420

trade payables 14 110

trade receivables 9 050

What is the value of the net current liabilities?

A $1590 B $2510 C $18 710 D $20 320 7 A business sells computers. When they value their inventory they exclude the value of the

inventory that is over one year old, as they may be obsolete.

Which accounting principle does this demonstrate?

A going concern

B historical cost

C prudence

D realisation

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8 When preparing a bank reconciliation statement, the following information is available.

$

bank balance shown by the cash book 20 000 debit

unpresented cheques 2 500

uncleared bankings 1 400

standing order shown on the bank statement

(not in the cash book)

300

What is the balance on the bank statement?

A $18 600 B $19 200 C $20 800 D $21 400 9 The following financial information has been extracted from the books of account.

$

bad debts written off 7 000

cash from credit customers 925 000

credit sales 900 000

opening trade receivables 300 000

discounts allowed 10 000

discounts received 25 000

increase in provision for doubtful debts 9 000

returns inwards 8 000

returns outwards 5 000

What is the closing balance on the sales ledger control account?

A $235 000 B $241 000 C $250 000 D $253 000 10 Discount received of $280 has been incorrectly posted to the credit of the discount allowed

account.

Which entry must be made to the discount received account to correct the error?

A credit $280 B credit $560 C debit $280 D debit $560

5


11 A trader provides the following financial information for the year.

$

direct costs 210 000

indirect costs 55 000

increase in work in progress 7 000

raw materials taken for own use 2 000

Which figures should appear in the manufacturing account?

prime cost $

overheads $

transfer to trading account of income statement

$

A 208 000 55 000 256 000

B 208 000 55 000 270 000

C 210 000 53 000 256 000

D 210 000 53 000 270 000

12 Which item appears in a company’s income statement?

A dividends

B inventory

C trade payables

D transfer to reserves 13 The table shows the following balances for a business.

start

of year $

end of year

$

inventory 6 000 9 000

trade payables 8 000 10 000

Total payments to trade payables were $20 000.

What is the cost of sales for the year?

A $15 000 B $19 000 C $21 000 D $25 000

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14 X and Y are in partnership sharing residual profits and losses in the ratio 7 : 3.

Their fixed capital accounts have balances of X $40 000; Y $60 000. Interest is allowed on these at the rate of 10% per year.

X is paid a salary of $40 000 per year. Profit for the year was $200 000.

What was the division of profits between the partners?

X $

Y $

A 137 000 63 000

B 140 000 60 000

C 149 000 51 000

D 152 000 48 000

15 X, Y and Z are in partnership, sharing profits, X 40%, Y 20% and Z 40%. Existing goodwill is

shown in the ledger as $10 000.

The partners agree that the goodwill is now worth $40 000 and they agree to share future profits equally. They also agree that, in future, goodwill is not to appear in the ledger.

Which journal entry will record this change?

debit

$ credit

$

A X

Y Z goodwill

1 334

7 333 1 333

10 000

B X

Y Z goodwill

10 000

10 000 10 000

30 000

C X

Y Z goodwill

12 000

6 000 12 000

30 000

D X

Y Z goodwill

13 334

13 333 13 333

40 000

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16 A trader provides the following information.

$

opening inventory 6 000

closing inventory 4 000

purchases 15 000

He uses a uniform gross profit margin of 20%.

What was the sales figure for the trading period?

A $16 250 B $18 750 C $20 400 D $21 250 17 A club supplies refreshments for its members at a uniform gross profit margin of 30%. The

following information is available.

$

receipts 62 000


purchases 45 000

What is the value of closing inventory?

A $10 000 B $11 600 C $16 500 D $18 600 18 Y sells goods to X on credit. Details of X’s account are as follows.

$

trade discount 250

closing balance 750

opening balance 1500

payment received 2000

contra to purchases ledger 2500

What was the value of sales?

A $3500 B $3750 C $4000 D $5250

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19 The following information has been taken from the books of accounts of a limited company for the year ended 31 December 2012.

$

bank loan interest for the year 1 650

bank overdraft interest for the year 2 150

ordinary dividends paid during the year 900

8% debenture taken out on 1 October 2012 30 000

What are the total finance costs in the income statement for the year ended 31 December 2012?

A $4400 B $4700 C $5300 D $6200 20 A company has 1 000 000 ordinary shares of $1 issued at $2.50. It also has a 5% debenture of

$300 000.

Profit from operations for the year was $465 000.

The directors paid an 8% ordinary dividend during the year.

What is the retained profit for the year?

A $250 000 B $370 000 C $385 000 D $400 000 21 The following information was extracted from the books of a trader.

$

revenue for the year 126 000

purchases for the year 87 000



What is the rate of inventory turnover?

A 4 times B 6 times C 8 times D 12 times 22 A company wishes to improve its current ratio and its liquid (acid test) ratio.

How can this be done?

A increasing discounts to trade receivables

B increasing the provision for doubtful debts

C purchasing additional inventory on credit

D selling non-current assets

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23 Which of the following measures a business’ average credit period?

A current ratio

B inventory turnover

C liquid (acid test) ratio

D trade receivables turnover 24 Which expense would be classified as a variable cost of a furniture manufacturer?

A factory manager’s salary

B plant depreciation

C royalties

D vehicle insurance 25 A company has the following annual costs.

$

purchases of raw materials during the year 53 000

wages and salaries: production staff 110 000

administration staff 56 000

production overheads 16 000

administration expenses excluding wages 42 000

selling and distribution overheads 34 000

What is the total indirect cost for the year?

A $132 000 B $148 000 C $163 000 D $258 000 26 Which statement is correct?

A Fixed costs per unit decrease as production increases.

B Total fixed costs decrease as production increases.

C Total variable costs decrease as production increases.

D Variable costs per unit decrease as production increases.

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27 Which statements about absorption costing are correct?

1 It apportions overheads between production and service departments.

2 It enables a company to know its break-even level of production.

3 It leads to higher inventory valuations than marginal costing.

4 It is used by management for make or buy decisions.

A 1, 2 and 3 B 1 and 3 only C 2 and 4 only D 3 and 4 only 28 An accountant prepared the following break-even chart.

10

8

6

4

2

00 1 2 3 4 5sales volume (millions of units)

costsandrevenues($m)

sales revenue

total costs

fixed costs

budget

The budgeted sales volume is 4.5 million units.

Which profit can be anticipated at this level?

A $2.5 million B $4.5 million C $7 million D $9 million 29 Which statement best describes job costing?

A a costing method that calculates the cost of meeting a specific customer order

B a costing method that calculates the cost of producing a number of identical units for a customer

C a costing method that enables overheads to be absorbed into the cost of the product

D a costing method that separates fixed costs from variable costs 30 Which item would appear in a cash budget?

A bad debts

B cash discounts

C depreciation

D loan repayments

11

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University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

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ACCOUNTING 9706/12


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1 The following information is taken from a trader’s statement of financial position.

$

non-current assets 80 000

capital at start of year 75 000

drawings 16 000

profit for the year 13 000

non-current liability 6 000

current assets 12 700

What is the amount of trade payables?

A $8700 B $11 700 C $14 700 D $26 700 2 A business wishes to create a new provision for doubtful debts.

Which effect will this have in the financial statements of the business?

in the income

statement in the statement of financial position

A increase profit increase current assets

B increase profit reduce current liabilities

C reduce profit increase current liabilities

D reduce profit reduce current assets

3 Anna owns a plumbing business. Costs for the year were $49 500 for wages and $95 000 for

materials. These included $2200 labour and $540 materials used by Anna in the extension of the business premises. Additional planning and legal costs of the extension were $450.

What was Anna’s total revenue expenditure for the year?

A $141 310 B $141 760 C $142 300 D $144 500 4 A building cost $340 000. The accumulated depreciation on the building was $47 600. It was

decided to revalue the building to its market value of $560 000.

What is the balance on the revaluation reserve?

A $172 400 B $220 000 C $267 600 D $512 400

3


5 The table shows extracts from the statements of financial position of a business.

2011

$ 2012

$

non-current assets (at cost) 190 000 245 000

less accumulated depreciation 75 000 90 000

115 000 155 000

Other information for the financial year 2012 is as follows.

$

depreciation charged 40 000

new non-current assets purchased (at cost) 105 000

loss on sale of non-current assets 10 000

Which amount was received from the sales of the non-current assets?

A $15 000 B $25 000 C $30 000 D $35 000 6 An item can be converted easily into cash.

In which section of the statement of financial position would this item appear?

A capital

B current assets

C current liabilities

D non-current assets 7 A company’s financial year ends on 31 December.

At 31 December Year 1 the company carried forward a debit balance of $36 200 on the rent account.

During Year 2 payments made for 12 months’ rent, to 31 March Year 3, were $157 200.

What is the amount of rent to be charged in the income statement in Year 2?

A $121 000 B $154 100 C $160 300 D $193 400

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8 A trader buys inventory costing $6000.

He is entitled to trade discount at 10% and cash discount of 5%.

On the same day he discovers that he can only sell the inventory for $5000.

Which amount should he record as the purchase price of the inventory?

A $5000 B $5130 C $5400 D $6000 9 A business is preparing a bank reconciliation and finds the following.

$

unpresented cheques 3190

uncredited bankings 1949

The cash book has a debit balance of $5000.

Which adjustments should be made to the cash book balance to reconcile it to the bank statement?

A minus $3190, minus $1949

B minus $3190, plus $1949

C plus $3190, minus $1949

D plus $3190, plus $1949 10 A company’s trial balance includes a suspense account. It was found that the only errors were

discounts received of $240 and discounts allowed of $312, which had both been entered on the incorrect sides of the respective ledger accounts.

What is the double entry required to clear the suspense account balance?

account debit

$ credit

$

A

discounts allowed

discounts received suspense

312

240 72

B

discounts allowed

discounts received suspense

624

480 144

C

discounts received

suspense discounts allowed

240

72

312

D

discounts received

suspense discounts allowed

480

144

624

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11 During the month a company lost a quantity of inventory in a burglary. The table shows the company’s results for the month.

$

opening trading inventory, at cost 30 000

purchases 210 000

revenue 330 000

closing trading inventory, at cost 4 000

A gross profit on all sales of 30% has been achieved.

What was the cost of the inventory lost in the burglary?

A $4000 B $5000 C $9000 D $13 000 12 During the financial year a business receives $620 000 from its trade receivables after allowing

cash discounts of $30 000.

At the start of the year trade receivables owed $47 000. At the end of the year trade receivables owed $40 000.

What was the amount of credit sales made during the year?

A $613 000 B $627 000 C $643 000 D $657 000 13 A business had a profit for the year of $450 000 before correcting the following errors.

1 Closing inventory was undervalued by $15 000.

2 Sales returns of $5000 had been recorded as purchases returns.

3 The charge for depreciation was overstated by $20 000.

What was the corrected profit?

A $435 000 B $445 000 C $475 000 D $495 000

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14 The following departmental accounts have been prepared for a limited company for the year ended 30 September 2013.

department X

$ department Y

$

revenue 810 000 515 000

cost of sales 470 000 265 000

gross profit 340 000 250 000

overheads 210 000 295 000

profit / (loss) for the year 130 000 (45 000)

The following errors have been found.

1 Department X overheads include $10 000 for the purchase of goods for resale of

department X.

2 Revenue of $40 000 has been credited to department X when it should have been credited to department Y.

What is the corrected profit for the year for department X?

A $80 000 B $90 000 C $100 000 D $170 000 15 A company has the following expenses for the year.

$

directors’ salaries 140 000

depreciation of delivery vehicles 87 000

office salaries 90 000

loan interest 33 000

discounts allowed 12 000

What is the total of the administration overheads?

A $242 000 B $263 000 C $329 000 D $362 000 16 Which items appear in the manufacturing account of a business?

1 closing inventory of finished goods

2 closing inventory of work in progress

3 carriage inwards

4 carriage outwards

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

7


17 X becomes a partner in a business receiving a 25% share in the profits. He pays in $60 000 as his capital. The goodwill of the business is valued at $40 000.

What is the balance on X’s capital account, if goodwill is not included in the books?

A $20 000 B $50 000 C $60 000 D $70 000 18 A club has 190 members. The club charges an annual subscription of $240 per member.

At the start of the year, 11 members had paid their subscriptions for the current year in advance. At the end of the year, 8 members had paid their subscriptions for the next year in advance, but 3 members had not yet paid their current year subscriptions.

Which figures are recorded in the current year?

income and

expenditure account $

receipts and payments account

$

A 44 160 45 600

B 45 600 44 160

C 45 600 41 760

D 41 760 45 600

19 The following financial information was provided at 31 December 2012.

$

purchases 95 000

returns inwards 3 300

returns outwards 2 100

inventory withdrawn for personal use 5 000

Inventory on 31 December 2012 was valued at $1000 more than on 1 January 2012.

What was the cost of sales?

A $85 700 B $86 900 C $89 000 D $97 100

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20 A vehicle is sold for $1500. It cost $5000 and $3000 depreciation had been provided on it.

Which entry is needed to close the disposal account?

debit $ credit $

A disposal account 500 income statement 500

B disposal account 3500 income statement 3500

C income statement 500 disposal account 500

D income statement 3500 disposal account 3500

21 A business is reviewing credit limits for its customers.

What would result in a customer’s credit limit being reduced?

A Cash discounts are always taken by the customer.

B Sales have increased to that customer.

C The customer always pays their debt on time.

D The customer has lost a major contract. 22 The table shows extracts from the trial balance of a business at 31 December 2012.

$

ordinary share capital 20 000

share premium 40 000

long-term loan (repayable 2022) 30 000


4% non-redeemable preference share capital 50 000

7% debentures 2017 70 000

What is the total of non-current liabilities in the statement of financial position?

A $100 000 B $150 000 C $160 000 D $210 000

9


23 The trade receivables turnover for a company was 100 days in 2011. This reduced to 90 days in 2012, with no change in the sales revenue.

Which statement explains this change?

A Credit customers are paying earlier.

B Credit customers are paying later.

C Credit suppliers are being paid earlier.

D Credit suppliers are being paid later. 24 A company provides the following information.

$

trade payables at start of year 38 000

trade payables at end of year 49 000

payments to credit suppliers 210 000

cost of sales 250 000

What was the trade payables turnover?

A 72 days B 81 days C 86 days D 90 days 25 A company makes three products.

contribution per unit $

contribution per hour $

product 1 14 2.1

product 2 13 2.6

product 3 8 2.4

Total available labour hours are insufficient to make enough of each product to meet demand.

In what order should the products be produced to maximise profit?

A 1, 2, 3 B 1, 3, 2 C 2, 3, 1 D 3, 2, 1

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26 The cost of using a mobile phone is made up of a monthly rental charge and the cost of individual phone calls.

What type of cost is this?

A fixed

B semi-variable

C stepped

D variable 27 A business sells its product for $10 per unit and has variable costs of $6 per unit. The table

shows the fixed costs for the year.

$

factory rent 30 000

other fixed costs 70 000

What is the break-even point?

A 10 000 units B 16 667 units C 17 500 units D 25 000 units 28 A company’s financial information is as follows.

$

selling price per unit 55

variable costs per unit 15

total fixed costs 33 000

If the selling price is reduced to $40, how many extra units need to be sold to break-even?

A 495 B 825 C 1320 D 2200 29 A company is asked to make a new machine for a customer. It provides the following estimates.

materials will cost $1100

labour will be 30 hours at a cost of $14 per hour

The company charges overheads at $10 per labour hour and has a mark up of 30% on total cost.

What is the price on the job cost sheet?

A $1520 B $1820 C $1976 D $2366

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30 Ted plans to buy a motor vehicle for $12 000 on 1 May 2014. He intends to pay half in cash at the time of purchase and to take out a loan at 6% interest a year to finance the balance. This will be repaid on 1 November 2014.

Which figures does Ted include in his cash budget for 2014?

May

$ November

$

A 6 000 6 000

B 6 000 6 180

C 12 000 0

D 12 000 180

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Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2013 9706/12/O/N/13

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ACCOUNTING 9706/13


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1 A customer paid a deposit in advance for goods to be supplied at a later date.

How should this be recorded in the seller’s books?

debit credit

A cash customer

B cash sales

C customer cash

D customer sales

2 A company calculates a draft profit for the year of $98 000. This includes the profit margin of

$3000 on goods sold on credit but not yet paid for. It also includes $500 profit taken on goods sold to a customer on a sale or return basis.

What is the correct gross profit?

A $94 500 B $95 000 C $97 500 D $98 000 3 A trader provides the following information.

$

prepaid rates at 1 October 2012 400

rent and rates paid during the year 16 200

accrued rates at 30 September 2013 600

prepaid rent at 30 September 2013 1 200

Which charge for rent and rates appears in the income statement for the year ended 30 September 2013?

A $15 200 B $16 000 C $16 400 D $17 200 4 A business wishes to record the following transactions in its books of account.

contra between sales ledger control account and purchases ledger control account

depreciation charge for the year

increase in provision for doubtful debts

purchase of non-current asset on credit

How many transactions require an entry in the general journal?

A 1 B 2 C 3 D 4

3


5 At the beginning of the year a company has a provision for doubtful debts of $1000. At the end of the year the required provision is $2500. During the year debts of $1500 are written off and $100 is received in respect of a debt written off many years ago.

What is the net amount charged to the income statement for bad and doubtful debts?

A $1500 B $2500 C $2900 D $3000 6 What would be treated as part of the capital cost of the purchase of a building?

1 legal costs of the purchase

2 redecoration of the building

3 installation of air conditioning needed for the machinery in the building

A 1 only B 1, 2 and 3 C 1 and 3 only D 2 and 3 only 7 Ryan purchased a van for $16 000 on 31 December 2010. It is his policy to apply 25% per annum

reducing balance depreciation for each part of the year the asset is held. Ryan traded the vehicle in on 1 July 2013 for a $6150 reduction on the cost of a new vehicle.

What was the profit or loss made on the disposal of the van?

A $600 loss B $1725 loss C $150 profit D $2150 profit 8 On 30 September 2012 a manufacturer’s current assets totalled $28 000. The next day, only two

transactions took place.

1 Inventory was bought for cash. The price of $2000 was subject to a trade discount of 20% and a cash discount of 5%. Payment was made immediately.

2 A bad debt of $400 was written off.

What was the total of current assets on 2 October 2012?

A $27 680 B $28 080 C $29 520 D $29 600 9 The table shows information from the books of a business at 30 April 2013.

details $

credit sales invoiced during financial year 79 000

goods sent to customers on 28 April 2013 and invoiced 4 May 2013 6 100

goods sent to customers during April 2013 on sale or return basis but

not sold by 30 April 2013 8 300

What is the value of sales for the year ended 30 April 2013?

A $76 800 B $85 100 C $87 300 D $93 400

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10 The following information relates to a company’s non-current assets at 31 December.

cost price

$ disposal value

$

motor vehicles 25 000 18 000

equipment 48 000 36 000

fixtures and fittings 12 000 5 000

The company has a serious cash shortage and will cease to trade within the next two months.

What is the total value for non-current assets in the company’s statement of financial position at 31 December?

A $26 000 B $59 000 C $85 000 D $144 000 11 Which statements about a bank reconciliation are correct?

1 Cleared cheques are excluded.

2 It can be computerised.

3 It locates all errors.

4 Uncredited deposits are included.

A 1, 2 and 4 B 1 and 2 only C 2, 3 and 4 D 2 and 3 only 12 A trial balance does not balance and a suspense account is opened.

On investigation, the following errors are found.

1 The debit balance of $450 on the carriage outwards account has been brought down as $540.

2 The purchases returns journal has been overcast by $100.

3 A cheque for $50 received from Alan Green has been posted to the credit account of Brian Green.

4 Rent received of $350 has been posted to the debit of rent paid account.

What is the opening balance on the suspense account?

A credit $690 B credit $740 C debit $690 D debit $740

5


13 In reconciling the sales ledger control account with the balances in the sales ledger, it was noticed that there was an error in the sales journal. This had been overcast by $740. In addition, the total receipts from customers of $940 were recorded in the control account as $490.

Which correcting entry must be made?

control account list of balances

A $290 credit increase by $290

B $290 debit no effect

C $1190 credit decrease by $1190

D $1190 credit no effect

14 Which error would give rise to a difference in a trial balance?

A bringing forward an opening balance of $9590 instead of $9950

B debiting interest paid in the cash book and crediting it to ‘interest received’ account

C debiting ‘repair to motor vehicles’ account with $11 250 for a new motor vehicle

D entering the sale of an item for $300 in the books as $3000 15 Which group of items are included in the prime cost?

A inventories of finished goods, purchases of raw materials, direct wages

B inventories of raw materials, purchases of raw materials, direct wages

C inventories of raw materials, purchases of raw materials, indirect wages

D inventories of work in progress, purchases of raw materials, indirect wages 16 A business provides the following information for the year.

$

prime cost 165 000

factory overheads 43 000

opening work in progress 6 000

closing work in progress 15 000

What is the cost of goods transferred to the trading account of the income statement?

A $113 000 B $199 000 C $208 000 D $217 000

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17 Which statement about goodwill is correct?

A Internally generated goodwill should be omitted from the statement of financial position.

B Purchased goodwill should be classed as a tangible non-current asset.

C Purchased goodwill should be omitted from the statement of financial position.

D The value of goodwill should never be included in the statement of financial position. 18 W, X, Y and Z are in partnership.

What would be shown in the partnership appropriation account?

A drawings made by W

B goods taken for the personal use of Y

C interest on a loan made by Z

D interest on drawings made by X 19 A trader uses the revaluation method of depreciation for loose tools.

On 1 January loose tools were valued at $4620 and on 31 December at $5740. During the year $2010 was spent on purchasing new loose tools.

Which amount was charged to the income statement?

A $890 B $1120 C $2010 D $3130 20 What is the reason for providing depreciation on non-current assets?

A to provide sufficient funds to replace the non-current assets

B to show the assets at replacement cost on the statement of financial position

C to show the fall in value of the assets in the income statement

D to spread the cost of the assets over their estimated useful lives 21 When is a share premium account opened?

A when shares are issued at a price above nominal value

B when shares are issued at a price below nominal value

C when shares are sold by a shareholder at a price above their nominal value

D when shares are sold by a shareholder at a price below their nominal value

7


22 On 1 May, a trader lost all of his inventory in a fire. He has figures for sales and purchases and wishes to calculate the value of the inventory lost.

Which ratio should he use?

A gross profit percentage

B net profit percentage

C trade payables turnover

D trade receivables turnover 23 The following information is available about two similar businesses.

X Y

sales $30 000 $35 000

gross profit percentage 60% 62%

net profit percentage 30% 8%

Which business is better at controlling its costs?

cost of sales expenses

A X X

B X Y

C Y X

D Y Y

24 A business has a non-current asset turnover of two times, based on non-current assets valued at

$250 000 at the end of 2011. The company uses the reducing balance method to depreciate its non-current assets at 25% per annum.

In 2012 sales revenue increased by 20%. There were no purchases or disposals of non-current assets during the year.

What is the non-current asset turnover for 2012?

A 2.13 times B 2.40 times C 2.67 times D 3.20 times 25 Which cost will fall as production is reduced?

A fixed costs per unit

B total fixed costs

C total variable costs

D variable costs per unit

8

© UCLES 2013 9706/13/O/N/13

26 A company makes and sells one product incurring the following costs.

12 kilos of material at $3 per kilo

4.5 labour hours at $12 per hour

production overheads $6 per unit

selling overheads $5 per unit

What is the total direct cost per unit?

A $36 B $42 C $90 D $101 27 A company receives an order for 10 000 units.

The following information is available.

units produced per machine hour 500

labour costs per machine hour $25

raw material cost per unit $2

overheads recovered per machine hour $40

What is the cost of production?

A $11 300 B $21 300 C $33 500 D $52 500 28 The costs of a company that annually sells 10 000 units are as follows.

$

direct material 50 000

assembly labour 100 000

factory overheads 70 000

The normal selling price of each unit is $50.

If it was reduced to $35, how many more units need to be sold to break-even?

A 1500 units B 2000 units C 3500 units D 5000 units

9

© UCLES 2013 9706/13/O/N/13

29 A company manufactures four products.

Gamma Rho Theta Zeta

contribution per unit ($) 10 12 14 16

material required (litres) 5 4 6 7

If there is only enough material to make three of the products, which product should be discontinued?

A Gamma

B Rho

C Theta

D Zeta 30 Sales for January 2014 are expected to be $10 000 and these are expected to increase by $2000

each month. 10% of sales will be cash sales. Credit customers are expected to pay after one month.

Which amount will be shown in the cash budget for receipts from customers in March 2014?

A $12 000 B $12 200 C $13 800 D $14 000

10

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© UCLES 2013 9706/13/O/N/13

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This document consists of 11 printed pages and 1 blank page.


*6483509957*


ACCOUNTING 9706/21

Paper 2 Structured Questions October/November 2013

1 hour 30 minutes

Candidates answer on the Question Paper.

No Additional Materials are required.


Write your Centre number, candidate number and name on all the work you hand in.

Write in dark blue or black pen.

You may use a soft pencil for rough working.



Answer all questions.

All accounting statements are to be presented in good style.

International accounting terms and formats should be used as appropriate.

Workings must be shown.

You may use a calculator.

At the end of the examination, fasten all your work securely together.

The number of marks is given in brackets [ ] at the end of each question or part question.

2

© UCLES 2013 9706/21/O/N/13

1 Booksellers Limited prepared the following trial balance for the year ended 31 December 2012:

$000 $000

Gross profit for the year 415 Wages and salaries 127 Rent 44 Heating and lighting 15 Motor expenses 50 Office expenses 19 Insurance 15 Discount allowed 2 Other expenses 53 Inventory at 31 December 2012 37 Trade receivables 45 Provision for doubtful receivables 4 Bank 37 Trade payables 15 Goodwill 44 Motor vehicles at cost 176 Shop fittings at cost 42 Office fittings at cost 25 Provision for depreciation on motor vehicles 46 Provision for depreciation on shop fittings 12 Provision for depreciation on office fittings 3 5% Debentures 20 Ordinary share capital 190 Retained earnings 26

731 731 Additional information:

1 Wages owing amounted to $23 000 at 31 December 2012. 2 Debenture interest for the year had not been paid. 3 Bad debts of $5000 were to be written off. 4 The provision for doubtful receivables was to be 5% of trade receivables. 5 Depreciation was provided on motor vehicles at 12½% on cost and on shop fittings at

10% on net book value. 6 Office fittings had been revalued at $19 000. 7 Rent paid in advance was $8000.

3


For

Examiner's

Use

REQUIRED (a) (i) Prepare an income statement for the year ended 31 December 2012.

[12]

4

© UCLES 2013 9706/21/O/N/13

For

Examiner's

Use

(ii) Calculate the retained earnings of Booksellers Limited at 31 December 2012.

[2]

(b) Prepare, in as much detail as possible, a statement of financial position at

31 December 2012.

5


For

Examiner's

Use

[8]

(c) (i) The directors wish to raise funds to expand the business. State two sources of

finance they could use.

[2]

(ii) State the advantages and disadvantages to the company of the two sources of

finance you have chosen.

[6]

[Total: 30]

6

© UCLES 2013 9706/21/O/N/13

For

Examiner's

Use

2 (a) Complete the following table stating the formula used to calculate the ratio, what the ratio measures and reasons why it may change.

Ratio Formula What the ratio measures

Why the ratio may change

Gross profit ratio

Inventory turnover

Quick (acid test) ratio

Return on capital employed

Trade receivables turnover

[20]

7


For

Examiner's

Use

(b) State and explain five limitations of using ratio analysis as an indicator of business performance.

1

2

3

4

5

[10]

[Total: 30]

8

© UCLES 2013 9706/21/O/N/13

For

Examiner's

Use

3 Shostakovich Limited is a wholesale business selling three products: Preludes, Fugues and Sonatas.

At present they use the FIFO method of inventory valuation but are considering a change. At 31 March 2013, Shostakovich Limited provisionally calculated its profit for the year at

$86 300 using closing inventory valued at $10 200 under the FIFO method. The following information is also available at 31 March 2013: 1 Different methods of inventory valuation for the three products provide the following

closing inventory values: FIFO AVCO $ $ Preludes 4600 4300 Fugues 3900 3750 Sonatas 1700 1500

2 Owing to a flood during the financial year it has been found that the total inventory of

Sonatas has been damaged. It is estimated that the inventory could be sold by Shostakovich Limited at a selling price of $1200. This adjustment has not been accounted for in the inventory calculated above.

REQUIRED (a) (i) Calculate the revised inventory valuation at 31 March 2013 using FIFO and AVCO.

[4]

9


For

Examiner's

Use

(ii) Calculate the revised profit for the year at 31 March 2013 using FIFO and AVCO.

[6]

(b) Explain three reasons why a business cannot normally use the latest selling price of its

products to value the inventory.

1

2

3

[6]

10

© UCLES 2013 9706/21/O/N/13

For

Examiner's

Use

(c) Advise Shostakovich Limited on why the distinction between capital and revenue expenditure is important when preparing financial statements.

[6]

Shostakovich Limited’s statement of financial position at 31 March 2013 showed the

following: $ Property 200 000 Accumulated depreciation 14 000 The value of the property is split equally between land and buildings. They had been owned

for 7 years. On 1 April 2013 its property was revalued at $315 000. REQUIRED (d) (i) Prepare the journal entry to record this revaluation. A narrative is not required.

[3]

(ii) Name the section in Shostakovich Limited’s financial statements where the surplus

will appear.

[1]

11

© UCLES 2013 9706/21/O/N/13

For

Examiner's

Use

(iii) Shostakovich Limited will continue to use the same rate of straight line depreciation for its buildings. Calculate the depreciation charge for the year on buildings after the revaluation.

[4]

[Total: 30]

12

Permission to reproduce items where third party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2013 9706/21/O/N/13

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*0271924287*


ACCOUNTING 9706/22


1 hour 30 minutes
















2

© UCLES 2013 9706/22/O/N/13

1 Joe Brown has a petrol station which has three departments, fuel, car wash and café. The following information is available for the year ended 31 December 2012.

Fuel Car wash Cafe $ $ $ Revenue 735 600 30 650 61 300 Inventory at 1 January 2012 38 700 3 650 4 725 Purchases 454 320 7 240 9 620 Inventory at 31 December 2012 39 760 2 480 4 820 Direct wages 36 000 3 000 12 000 Non-current assets at cost 120 000 15 000 2 760 Accumulated depreciation 6 000 1 200 850 Additional information Depreciation rate 10% 15% 15% Depreciation method Straight line Reducing balance Straight line Floor area (square metres) 3 400 850 425 Other expenses for the year are: $ Rent of premises 46 288 Electricity 18 300 Administration charges 17 119 Other expenses 54 023 The expenses are split between the departments on the following basis: Rent of premises in the ratio of floor area, Electricity in the ratio 4:1:1 between fuel, car wash and café, Administration charges in the ratio of wages, Other expenses in the ratio of sales.

3


For

Examiner's

Use

REQUIRED (a) Prepare a departmental income statement for the year ended 31 December 2012.

[18]

4

© UCLES 2013 9706/22/O/N/13

For

Examiner's

Use

(b) Joe is considering closing the car wash department due to its poor profitability. Advise Joe on the long term effects of this decision.

[6]

(c) Joe is looking for funds to improve the business. He is considering applying for either a

bank loan or an overdraft. Explain three differences between a bank loan and an overdraft.

[6]

[Total: 30]

5


For

Examiner's

Use

2 Alec and Jean were in partnership with capitals of $90 000 and $60 000 respectively. On 1 June 2012 Alec had a debit balance on his current account of $2900 and Jean had a

credit balance on her current account of $3100. On 31 May 2013 Alec had a credit balance on his current account of $3000 and Jean had a

credit balance on her current account of $340. The partnership agreement stated: 1 Interest on capital is payable at 5% per annum. 2 Interest on drawings is charged at 8% per annum. 3 Annual partnership salaries were Alec $14 000 and Jean $12 000. 4 Profits and losses are to be shared in the ratio of capital invested. Alec withdrew $20 000 and Jean $22 000 during the year. REQUIRED (a) Prepare the current account of each partner for the year ended 31 May 2013.

[10]

6

© UCLES 2013 9706/22/O/N/13

For

Examiner's

Use

(b) Calculate the profit for the year ended 31 May 2013 before appropriation.

[6]

(c) Explain the term goodwill.

[4]

7


For

Examiner's

Use

On 1 June 2013 Alec and Jean agreed to admit Chris as a new partner. It was agreed that Chris would pay cash into the business for goodwill.

Goodwill was valued at $36 000. In addition Chris also introduced a motor vehicle valued at $12 150 and inventory of $5850. The partners agreed that profits and losses are to be shared between Alec, Jean and Chris

in the ratio of 3:2:1. No goodwill account is to be maintained on the books. REQUIRED (d) Prepare the capital accounts of Alec, Jean and Chris after Chris’s admission to the

partnership.

[10]

[Total: 30]

8

© UCLES 2013 9706/22/O/N/13

For

Examiner's

Use

3 Kirkton manufactures a single product, the Kirk. The following information relates to one unit of Kirk:

Per unit $ Selling price 35.00 Variable production costs 13.50 Fixed production costs 3.50 Variable selling costs 1.50 Fixed selling costs 1.00

Kirkton produces and sells 800 Kirks a week. REQUIRED (a) (i) Calculate the weekly breakeven point in units.

[3]

(ii) Calculate the weekly breakeven point in revenue.

[2]

(iii) Calculate the margin of safety in revenue.

[3]

(iv) Calculate the margin of safety as a percentage.

[2]

9


For

Examiner's

Use

Additional information: Kirkton has four different machines that are used in the production of the Kirk. One of the

machines has broken down, causing production to stop completely. The company will be without the machine for a period of four weeks and the owners have two alternatives.

1 Lease a machine at a cost of $2000 per week. Staff will need to be trained on the

new machine. This will cost $3000. Production will reduce from the current level of 800 units each week to 500 units each week.

2 Buy in the Kirks from a competitor. Each Kirk will cost $26.25. The competitor is able to supply 800 units each week and will charge Kirkton $50.00 delivery for each 100 units.

REQUIRED (b) Calculate the profit for the four weeks if Kirkton decide to lease a machine.

[9]

10

© UCLES 2013 9706/22/O/N/13

For

Examiner's

Use

(c) Calculate the profit for the four weeks if Kirkton decide to buy the Kirks from the competitor.

[7]

(d) State two advantages if Kirkton decides to buy the Kirks from the competitor rather than

lease the machine.

[2]

(e) State two disadvantages if Kirkton decides to buy the Kirks from the competitor rather

than lease the machine.

[2]

[Total: 30]

11

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© UCLES 2013 9706/22/O/N/13

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*9854853085*


ACCOUNTING 9706/23


1 hour 30 minutes
















2

© UCLES 2013 9706/23/O/N/13

1 The Cardio Health Club operates a fitness centre and a shop and has the following assets and liabilities.

1 June 2012 31 May 2013 $ $

Premises 100 000 100 000 Sports equipment (at cost) 30 000 115 000 Sports equipment – depreciation provision 5 000 14 400 Shop inventory 8 500 4 800 Cash 250 250 Bank (current account) 10 000 ? Bank (deposit account) 2 000 ? Subscriptions outstanding 4 200 5 600 Subscriptions paid in advance 4 000 3 500 Shop staff wages accrued 1 000 3 000 Insurance paid in advance 1 000 Loan from sports association 40 000 The receipts and payments in the bank current account for the year ended 31 May 2013 were:

Receipts $ Shop revenue 120 000 Subscriptions 44 000 Loan from sports association 40 000 Donations 450 Payments $ Wages of fitness coaches 16 000 Sports equipment 85 000 Printing and stationery 5 500 Transfer to deposit account 300 Sundry expenses 800 Insurance 12 000 Heating and lighting 20 000 Wages of shop staff 27 000 Shop purchases for resale 32 500 Additional information 1 The wages of shop staff are treated as a direct cost. 2 Insurance and heating and lighting are apportioned 80:20 between the fitness club and

the shop. 3 The loan from the sports association was received on 1 December 2012. Interest is

payable at 6% per year. 4 Donations are treated as revenue. 5 During the year interest amounting to $90 had been credited to the bank deposit

account.

3


For

Examiner's

Use

REQUIRED (a) Prepare the shop income statement for the year ended 31 May 2013.

[8]

4

© UCLES 2013 9706/23/O/N/13

For

Examiner's

Use

(b) Prepare the income and expenditure account of the Cardio Health Club for year ended 31 May 2013.

[14]

5


For

Examiner's

Use

(c) Prepare the statement of financial position of the Cardio Health Club at 31 May 2013.

[8]

[Total: 30]

6

© UCLES 2013 9706/23/O/N/13

For

Examiner's

Use

2 Luing Limited’s financial information for the year ended 31 December 2012 revealed the following:

Gross profit ratio 35% Net profit ratio 14% Rate of inventory turnover 10 times Trade payables turnover 42 days Trade receivables turnover 58 days Current ratio 3:1 Inventory at 1 January 2012 $7 800 000 Total revenue (all on credit) for 2012 $85 000 000 All purchases were on credit. REQUIRED (a) For the year ended 31 December 2012, calculate (i) Gross profit

[2]

(ii) Cost of sales

[2]

(iii) Closing inventory

[4]

(iv) Ordinary goods purchased

[3]

7


For

Examiner's

Use

(v) Profit for the year

[2]

(vi) Expenses

[2]

(vii) Trade payables

[3]

(viii) Trade receivables

[3]

8

© UCLES 2013 9706/23/O/N/13

For

Examiner's

Use

(b) Identify three possible users of accounting ratios other than the directors of the company. State what information the users would obtain from the ratios.

1

2

3

[9]

[Total: 30]

9


For

Examiner's

Use

3 Argon is a manufacturing business divided into three separate departments, machining, finishing and stores.

The total estimated costs for the three months ending 31 October 2013 are as follows:

$ Depreciation of plant 6 000 Lighting and heating 4 500 Plant insurance 4 800 Rent 18 000 Supervision 25 000

The following information is available for the three departments:

Machining Finishing Stores Floor area (sq metres) 5000 4500 500 Number of employees 12 8 5 Value of plant ($000’s) 86 8 2 Number of orders from Stores 3600 1480 - Budgeted machine hours 4250 820 - Budgeted direct labour hours 1200 4950 -

REQUIRED (a) (i) Apportion the costs to the three departments using the most suitable basis. Clearly

state the basis you have used.

[5]

10

© UCLES 2013 9706/23/O/N/13

For

Examiner's

Use

(ii) Re-apportion stores costs to each production department on the basis of the number of orders.

[5]

(b) Calculate to two decimal places the forecast overhead absorption rate for the

machining and finishing departments for the three months ending 31 October 2013.

[6]

11


For

Examiner's

Use

Actual figures for the three months ended 31 October 2013 are:

Machining Finishing Direct labour hours 1 430 5 000 Machine hours 6 000 805 Overheads incurred $48 340 $22 780

REQUIRED (c) Calculate the amount of overhead absorbed for each production department for the

three months ended 31 October 2013.

[6]

(d) Calculate the amount of under or over absorption for each production department.

[4]

12


© UCLES 2013 9706/23/O/N/13

For

Examiner's

Use

(e) Explain what is meant by over and under absorption of overheads and how each will arise.

[4]

[Total: 30]

This document consists of 12 printed pages.


*3428434152*

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Advanced Level

ACCOUNTING 9706/31


1 hour













2

© UCLES 2013 9706/31/O/N/13

1 The financial year of a manufacturer ends on 31 December. Finished goods are valued at factory cost plus 20%.


1 January 31 December

inventory of finished goods at cost plus 20% $2400 $3000

How much should be deducted from the closing inventory of finished goods for unrealised profit?

A $100 B $400 C $500 D $600 2 Which item would be included in a company’s income statement?

A depreciation

B goodwill

C provision for doubtful debts

D trade receivables 3 X, Y and Z are in partnership and they have the following assets and liabilities.

$

property 400 000

fixtures and fittings 350 000


trade receivables 45 000


The partnership was dissolved on the following terms.

X took the property and half the fixtures and fittings at a valuation of $560 000.

The remaining fixtures and fittings and the entire inventory were sold for $140 000.

The trade receivables paid in full with the exception of one debt of $4700.

The total cost of dissolution was $2500.

What was the loss on dissolution of the partnership?

A $57 700 B $60 200 C $77 500 D $82 200

3


4 What type of capital must all limited companies have?

A convertible loan stock

B debentures

C ordinary shares

D preference shares 5 The following information is included in a company’s financial statement.

$

ordinary share capital (at $1 each) 120 000

redeemable preference shares 40 000

retained earnings 65 000

share premium 8 000

balance at bank 65 000

The following transactions took place.

1 There was an issue of 25 000 ordinary shares at par.

2 The preference shares were redeemed at a premium of 5%.

What was the bank balance after the transactions took place?

A $23 000 B $48 000 C $50 000 D $63 000 6 A private limited company is considering purchasing some of its own shares.

1 The shares must have been issued as redeemable.

2 After the purchase, the company must have other shares in issue.

3 After the purchase, the company must have at least one shareholder.

4 The purchase cannot be financed by a new issue of shares.

Which statements are correct?


4

© UCLES 2013 9706/31/O/N/13

7 When a business is purchased, the price paid is sometimes less than the fair value of the net assets acquired.

What is the difference known as?

A a revaluation reserve

B a share premium account

C negative purchased goodwill

D positive purchased goodwill 8 X and Y agree to merge their businesses and show the following balances on their books.

X $

Y $

non-current assets 20 000 35 000

current assets 7 000 10 000

current liabilities 3 000 5 000

goodwill 5 000 6 000

non-current liability nil 8 000

They wish to commence business with a total capital of $66 000 shared in the ratio 1 : 2.

Which bank adjustment will each have to carry out to complete this arrangement?

X Y

A pays in $7000 withdraws $6000

B withdraws $2000 pays in $12 000

C withdraws $7000 pays in $6000

D withdraws $13 000 withdraws $4000

5


9 A company’s statement of financial position at 1 January included the following.

$ million

ordinary share capital 500

retained earnings 200

The company results for the year to 31 December included the following.

$ million

profit before taxation 50

taxation 15

dividends proposed 10

revaluation surplus on land 12

What are the retained earnings at 31 December?

A $225 million B $235 million C $237 million D $247 million 10 Which items will be shown in the statement of changes in equity?

1 dividends proposed

2 interest paid on debentures

3 issues of share capital

4 transfers to reserves

A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4 11 At the year end a company had total net assets of $230 000.

The financial statements have not yet been approved by the directors and the following matters have come to light.

There is an unpaid legal charge of $10 000 which will have to be paid if the case is lost.

The inventory at the year end was valued at $45 000 but it is now discovered that, due to damage, it should have been $38 000.

What will be the value of the net assets after any necessary adjustments have been made?

A $175 000 B $185 000 C $213 000 D $223 000

6

© UCLES 2013 9706/31/O/N/13

12 What is the correct treatment of non-purchased goodwill?

A Do not recognise it as an asset.

B Include it in the statement of financial position as an asset at valuation.

C Include it in the statement of financial position as an asset, to be amortised.

D Write it off through impairment provision. 13 A limited company has the following capital at 31 December.

$000

ordinary shares of $1 each fully paid 5000

7.5% preference shares of $1 each fully paid 200

The market price of the company’s ordinary shares at 31 December is $1.45.

Other financial information is as follows.

$000 $000

profit after tax 470

preference dividend 15

ordinary dividend 52 67

retained profit for the year 403

What is the price earnings (P / E) ratio at 31 December?

A 15.4 B 15.9 C 16.6 D 18.0 14 The following information relates to a company.

per share

$

dividends paid during the year 3

dividends proposed at the year end 1

market price 50

nominal price 100

What is the company’s dividend yield?

A 3.0% B 4.0% C 6.0% D 8.0%

7


15 Which transaction will increase a company’s working capital?

A The bank overdraft is increased.

B There is a bonus share issue.

C There is a rights issue.

D There is a transfer to the general reserves. 16 Which action will increase company profits in the short term?

A accepting deposits for customers’ orders

B decreasing rates of depreciation

C increasing the value of opening inventory

D writing down the value of closing inventory 17 A company values its work in progress and finished goods in the way set out by IAS2. The

following information is available for the year.

1 4000 items manufactured and sold in the year

2 400 fully completed items of inventory at the end of the year

3 200 items half complete in respect of direct materials and direct labour at the end of the year

Costs incurred during the year were as follows.

$

direct material 67 500

direct labour 22 500

production overheads 11 250

non-production overheads 45 000

How much per unit should the closing inventory be valued?

A $15 B $20 C $22.50 D $32.50

8

© UCLES 2013 9706/31/O/N/13

18 A company issues a debenture.

Which row shows the impact of this on the company’s financial statements?

gearing return on capital

employed working capital

A decrease decrease no effect

B increase decrease increase

C increase no effect increase

D no effect decrease decrease

19 The equity section of the statement of financial position of a company at 1 May 2013 is as

follows.

$

ordinary shares of $0.50 each fully paid 220 000



374 250

On 31 May 2013, the directors made a bonus issue of ordinary shares on the basis of six new shares for every eleven existing shares held.

What is the number of bonus shares issued?

A 60 000 B 120 000 C 240 000 D 806 667 20 A company has fixed costs of $5000. Sales for 600 units have been made. The budgeted unit

details are as follows.

$

selling price 26

variable costs 19

fixed costs 2

profit 5

At what minimum price should an order for 200 additional units be accepted in order to break even?

A $19 B $23 C $24 D $26

9


21 A company is considering opening a new division of the business.

Which cost will not be relevant to the decision?

A a consultancy fee of $1000 that has been paid to a market research company for advising on the proposed new division

B fixed overheads of $2000 per month on an office building that will be sold immediately if the company opens the new division

C running costs of $5000 per month for equipment in the new division

D the salary of $30 000 per annum for a manager appointed to run the new division 22 A product passes through two processes. Information for process 2 is given.

$

production transferred from process 1 (2000 units) 40 000

added material 2 400

labour 16 000

overheads (based on 50% of labour) 8 000

At the end of the period, 400 units were complete as to 100% of materials and 50% labour.

What was the total value of the closing inventory of work-in-progress?

A $2080 B $2880 C $10 080 D $10 880 23 Which objectives are achieved by the introduction of a budgetary control system?

1 co-ordinating of the businesses activities

2 encouraging communications between departments

3 ensuring wage rises do not occur

4 setting standard costs for the period

A 1, 2 and 3 only

B 1, 2 and 4 only

C 1, 3 and 4 only

D 1, 2, 3 and 4

10

© UCLES 2013 9706/31/O/N/13

24 A unit of a product uses 3 kilos of raw material. The year’s production budget is shown:

budgeted sales 12 000 units

increase in raw materials inventory 2 000 kilos

decrease in finished goods inventory 1 000 units

What are the budgeted purchases of raw materials for the year?

A 35 000 kilos B 36 000 kilos C 38 000 kilos D 39 000 kilos 25 Which statement about budgeting is correct?

A A budget should always be produced based on last year’s actual results.

B Evaluation of performance should take actual operating conditions into account.

C The budget should always be set at an ideal level of performance.

D The budget should not be changed once agreed. 26 Which factor could account for an adverse labour rate variance and a favourable material usage

variance occurring at the same time?

A Cheaper labour was used and less material utilised.

B The company purchased cheaper material and the workforce has been awarded a pay increase.

C The company purchased cheaper material and the workforce has taken more time.

D Workers are more highly skilled than expected and have used less material. 27 A company uses 3000 direct labour hours, at a standard cost of $10 per hour.

This resulted in a favourable labour efficiency variance of $20 000.

How many standard hours were produced?

A 1000 hours B 2000 hours C 3000 hours D 5000 hours

11


28 A company produces a single product and details of the production and budget are as follows.

actual output 10 000 units

standard material cost 2 kilos × $4 $80 000

actual usage of material 18 000 kilos

total material variance $6200 favourable

What are the direct material price and direct material usage variances?

material price

variance material usage

variance

A $1800 adverse $8000 favourable

B $1800 favourable $8000 favourable

C $8000 adverse $1800 favourable

D $8000 favourable $1800 adverse

29 A business uses a range of investment appraisal techniques for individual projects.

Which statement is correct?

A Projects with a negative net present value should not be rejected.

B The internal rate of return for an acceptable project is always zero.

C Use of the payback method always considers the time value of money.

D Use of the payback method can lead to projects with negative net present values being selected.

12



© UCLES 2013 9706/31/O/N/13

30 The following information relates to a capital investment, costing $900 000.

year cash flow

$

discounted cash flow at 6%

$

discounted cash flow at 8%

$

0 (900) (900) (900)

1 400 377 370

2 600 534 514

100 11 (16)

The company has a cost of capital of 8%.

Which statements about the project are correct?

1 The project has an internal rate of return greater than the cost of the capital.

2 The project has an internal rate of return less than the cost of capital.

3 An increase in the cost of capital will make the project viable.

4 A decrease in the cost of capital will make the project viable.




*8995523676*



ACCOUNTING 9706/32


1 hour













2

© UCLES 2013 9706/32/O/N/13

1 What will not appear in a statement of cash flows?

A changes in inventory levels

B interest payable

C issue of bonus shares

D purchase of plant and machinery 2 A market trader has not kept any books of account.

Which formula should be used to establish his profit or loss for the year?

A net assets at end of year – net assets at start of year – new capital + drawings

B net assets at end of year – net assets at start of year + new capital – drawings

C net assets at start of year – net assets at end of year – new capital + drawings

D net assets at start of year – net assets at end of year + new capital – drawings 3 A company transfers manufactured items from factory to warehouse at cost plus 10%. This year

the transfer value was $93 500 and at the end of the year the closing inventory was 20% of the year’s production.

How will the inventory of finished goods be shown?

trading account

$

statement of financial position

$

A 17 000 17 000

B 18 700 16 830

C 18 700 17 000

D 18 700 18 700

4 Which list contains only items that appear in the equity section of the statement of financial

position?

A share capital, retained earnings and long-term loans

B share capital, share premium and long-term loans

C share premium, retained earnings and debentures

D share premium, share capital and retained earnings

3


5 A company’s statement of financial position shows the following.

$000

$1 ordinary shares 500

retained earnings 400

10% debentures 300

1 200

net assets 1 200

A fully subscribed 1 for 4 rights issue at $2 per share is made and 50% of the debentures are repaid at par.

What are the net assets following these changes?

A $1 100 000 B $1 175 000 C $1 225 000 D $1 300 000 6 When must a capital redemption reserve be set up?

A ordinary shares are issued at a premium

B ordinary shares are redeemed without a new issue of shares

C preference shares are issued at a premium

D preference shares are redeemed from the proceeds of a new issue of shares 7 A company purchases the business of a sole trader for $5 000 000.

The value of the assets and liabilities are shown.

assets

$ liabilities

$

at book value 5 000 000 3 000 000

at fair value 5 300 000 3 100 000

How much did the company pay for goodwill?

A $2 700 000 B $2 800 000 C $3 000 000 D $3 100 000 8 What is included in the directors’ report?

A directors’ salaries

B principal activities of the company

C trade receivables

D turnover

4

© UCLES 2013 9706/32/O/N/13

9 A company is carrying out an impairment review of its plant and machinery. The following information is revealed.

1 Original cost of plant and machinery $50 000. Accumulated depreciation $15 000.

2 Undiscounted value of future cash flows from using the machinery $60 000. Present value of future cash flows from using the machinery $40 000.

3 Sales proceeds from disposing of the plant and machinery $48 000. Cost of disposing of the plant and machinery $10 000.

At what value should the plant and machinery be shown in the statement of financial position?

A $35 000 B $38 000 C $40 000 D $50 000 10 A company’s directors have been advised that there is a 40% chance that they will lose a legal

case over the sale of faulty goods to a customer.

How should the directors treat this in the financial statements?

A Ignore it by not including a contingency or explaining it with a note to the financial statements.

B Include an amount as a contingency in the accounts but do not include a note to the financial statements.

C Include an amount in the accounts as a contingency and explain this by a note to the financial statements.

D Include a note to the financial statements, but not include an amount as a contingency. 11 An ordinary share in a company has a nominal value of $0.50. The latest financial statements

show earnings per share of $0.10 and a price-earnings ratio of 15.

What is the market value of an ordinary share?

A $0.50 B $1.50 C $2.00 D $2.50 12 The directors of a company want to reduce the company’s gearing ratio. They can take the

following actions.

1 make a rights issue of ordinary shares

2 make a bonus issue of five new shares for every six currently held

3 transfer $90 000 to the general reserve

4 repay a debenture of $600 000

Which combination of measures will reduce the company’s gearing ratio?

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

5


13 A business experienced the following events during the year.

1 an increased level of bad debts written off

2 an increase in the bank overdraft

3 an increase in inventory levels

4 trade payables were paid more quickly

Which combination of events would cause cash flow from operating activities to fall?

A 1, 2, 3 and 4

B 1, 3 and 4 only

C 2, 3 and 4 only

D 3 and 4 only 14 A company makes a rights issue of 10 000 ordinary shares of $1 each at a premium of $0.50. The

issue is fully subscribed.

What is the effect of this transaction on the following ratios?

gearing return on

capital employed

A decrease decrease

B decrease increase

C increase decrease

D increase increase

15 Which transaction will cause an increase in shareholders’ capital?

A disposal of a non-current asset for more than its book value

B increase the provision for doubtful debts

C receipt of a loan

D receipt of payment from a trade receivable in cash

6

© UCLES 2013 9706/32/O/N/13

16 The net assets of X Limited are shown below.

$ million

net assets at original cost 100

net book value 50

fair value 70

Y Limited pays $100 million cash plus $20 million in shares for all the net assets.

Y Limited applies a ten year economic life to goodwill.

What will the annual goodwill amortisation charge be?

A $2 million B $3 million C $5 million D $7 million 17 How is inventory valued under IAS2?

A purchase cost

B purchase cost + carriage in

C purchase cost + carriage in + conversion costs

D purchase cost + carriage in + conversion costs + storage costs 18 A company installing a new machine has the following costs.

$

purchase price 200 000

delivery charges 5 000

preparing the site 35 000

training the workers 4 500

assembly and testing 8 000

advertising the new product 10 000

What is the total cost of the asset under IAS16?

A $240 000 B $248 000 C $252 500 D $262 500

7


19 A company produces a product using a single process. In a period it put 600 kilos of material into a process at a cost of $2.50 per kilo, and conversion costs were $348.

The normal loss is 20% with no scrap value. The output was 470 kilos. There was no opening and no closing work-in-progress.

What is the price per kilo of the normal output?

A $3.08 B $3.23 C $3.85 D $3.93 20 The following information relates to the sales and production of a product.

$


direct material and direct labour per unit 3

production overheads at 10 000 units 40 000

production overheads at 15 000 units 55 000

other factory fixed costs 8 000

What is the break even point in units?

A 3600 B 4000 C 9000 D 11 500 21 A cost centre uses an overhead absorption rate of $5 per direct labour hour based on a budgeted

level of 6000 direct labour hours per month.

Last month, actual direct labour hours worked were 3% more than budget and the actual overhead incurred was $32 000.

What was the total over or under absorption of overheads for the month?

A $1100 over absorbed

B $1100 under absorbed

C $2000 over absorbed

D $2000 under absorbed

8

© UCLES 2013 9706/32/O/N/13

22 The following information is provided by a business.

budgeted output for the month 1000 units

actual output for the month 1150 units

direct material cost per unit $15

total actual direct material costs for the month $18 400

What was the total direct material variance for the month?

A $1150 adverse

B $1150 favourable

C $3400 adverse

D $3400 favourable 23 A company has forecast the following sales for the first three months of next year.

month units

1 2000

2 2100

3 2400

At the start of month 1 there were 300 units of inventory. The company requires that the closing inventory at the end of each month should be equal to one third of the sales for the following month.

How many units must be produced in month 2?

A 2000 units B 2200 units C 2400 units D 2900 units 24 What is a flexed budget?

A a budget based on expected level of production

B a budget based on past performance but updated to take account of present conditions

C a budget that reflects changes in activity levels

D a budget that links fixed overheads to production 25 The production of an item in March has a budgeted total cost of $43 200 for 2400 units.

The fixed costs make up 24% of the total cost and the balance is variable.

What is the expected expenditure for March if actual production is 2200 units?

A $30 096 B $39 600 C $40 464 D $43 200

9


26 The following material costs relate to the manufacture of 100 units of a product.

kilos cost per kilo

$ total cost

$

standard 1500 5.50 –

actual 1650 – 9570

What is the material price variance?

A $495 adverse

B $495 favourable

C $1320 adverse

D $1320 favourable 27 A company uses standard costing. During an operating period there has been an adverse

materials usage variance of $15 000.

What is a valid reason for the variance?

A Material was purchased from an alternative supplier who charged higher prices.

B Several new, untrained, employees started during the period leading to wastage of material.

C The company installed more efficient manufacturing machinery.

D The company over-estimated the quantity of material to be used. 28 What will give an adverse labour rate variance?

A Actual production was more than budget.

B Fewer labour hours were worked than budget.

C Wage rates were higher than budget.

D Wage rates were lower than budget.

10

© UCLES 2013 9706/32/O/N/13

29 A company is considering an investment costing $20 000.

The budgeted costs and revenues of the investment are as follows.

year 1

$ year 2

$ year 3

$

sales income 17 000 20 000 22 000

variable costs 7 000 9 000 12 000

Fixed costs are $3000 per year.

What is the payback for the project?

A 1 year 55 days

B 1 year 332 days

C 2 years 122 days

D 2 years 261 days 30 A business changes its depreciation policy.

Which investment appraisal measure will this change affect?

A accounting rate of return

B discounted payback

C internal rate of return

D payback

12

Permission to reproduce items where third party owned material protected by copyright is included has been sought and cleared where possible. Every

reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the

publisher will be pleased to make amends at the earliest possible opportunity.

University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of

Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2013 9706/32/O/N/13

BLANK PAGE

2

© UCLES 2013 9706/33/O/N/13

1 A trade receivable’s balance of $720 has been set-off against the purchase ledger. It has been entered on the wrong side of the purchase ledger control account.

The purchase ledger control account had a closing balance of $92 460 before correcting the error.

What is the correct balance on the purchase ledger control account?

A $91 020 B $91 740 C $93 180 D $93 900 2 A company manufactures tractors. Each tractor is sold for $12 000, inclusive of a 50% mark-up on

cost.

At the year end, costs relevant to the company’s inventory were:

$

components, at cost 15 000

storage costs 5 000

ten tractors 120 000

Which valuation for inventory should be included in the company’s statement of financial position?

A $95 000 B $100 000 C $135 000 D $140 000 3 A manufacturing company’s income statement shows a profit from operations of $9000. The

following errors are then discovered.

1 Opening inventory of finished goods has been valued at transfer price of $12 000.

2 Closing inventory of finished goods has been valued at transfer price of $6000.

3 Goods at transfer price have been entered in the income statement at their transfer value of $120 000. No adjustment has been made in respect of factory profit.

4 The company transfers goods from the factory to finished goods at cost plus 20%.

What is the correct profit from operations?

A $28 000 B $29 000 C $30 000 D $31 000

3


4 The financial statements of a public limited company includes the following information.

$000

retained earnings at the start of the year 43

profit from operations 14

ordinary dividends paid during the year 5

dividends on redeemable preference shares paid during the year 2

proposed final dividend on ordinary shares 8

What is the figure for retained earnings at the end of the year?

A $42 000 B $50 000 C $52 000 D $57 000 5 How can a company increase its liquidity?

A by making a bonus issue

B by making a rights issue

C by transfers from the general reserve

D by transfers from the share premium account 6 The statement of financial position of a company is as follows.

$


bank 14 000

other net current assets 24 000

8% debentures (4 000)

119 000

ordinary share capital 100 000

share premium 2 000


119 000

The 8% debentures are redeemed at a premium of 20%.

What is the total equity balance after the redemption?

A $114 200 B $115 000 C $118 200 D $119 000

4

© UCLES 2013 9706/33/O/N/13

7 $100 000 is available for investment.

The table shows details of three businesses available for purchase.

business purchase price

$

estimated future profits

$

1 50 000 8 500

2 70 000 10 500

3 90 000 12 600

Funds not used in the purchase of a business are invested at an interest rate of 13% per annum.

Which course of action will give the highest annual return?

A investing $100 000

B purchasing business 1

C purchasing business 2

D purchasing business 3 8 A company purchases the non-current assets, inventory and trade receivables of another

business. It pays more than the book value for these items. The purchase price is paid partly by a debenture. The balance is paid by the issue of ordinary shares of $1 each at a premium of $0.20.

Which row shows the effect of these transactions in the financial statements of the purchaser?

non-current assets working capital equity

A decrease decrease decrease

B increase decrease increase

C increase increase increase

D increase no effect decrease

5


9 A company agrees to purchase the assets and liabilities of another business.

The book value of the net assets acquired was:

$


current assets 50 000

current liabilities 15 000

It is agreed that the fair value of the non-current assets is $155 000 and goodwill is valued at $20 000.

The purchase price of the business is to be settled as follows.

$

cash 40 000

5% debenture 20 000

The balance of the purchase price is to be settled by the issue of $1 ordinary shares at a premium of 25%.

By how much will the company’s share premium account increase as a result of the purchase?

A $23 000 B $30 000 C $37 500 D $42 000 10 Which is an example of an adjusting event?

A change in interest rates

B the insolvency of a major customer

C the issue of loan stock

D the purchase of a new vehicle 11 Which item will not be shown in the statement of changes in equity?

A debenture interest paid

B ordinary share dividends paid

C profit for the year

D revaluation surplus

6

© UCLES 2013 9706/33/O/N/13

12 A company has purchased a computer with associated costs, as follows.

$

additional memory 750

carriage inwards 250

computer hardware 5000

maintenance contract 1200

residual value 1000

Which amount should be capitalised in the statement of financial position?

A $5000 B $6000 C $7200 D $8200 13 The table shows extracts from a company’s income statement for 2011 and 2012.

2011

$ 2012

$

sales 50 000 100 000

cost of sales 15 000 34 000

What might explain the change in the gross profit margin?

A a cut in unit selling price

B an increase in unit sales

C the loss of a major customer

D use of cheaper suppliers 14 The financial statements of a company show the following.

$m

non-current assets 210

non-current liabilities 15

ordinary share capital 100

preference share capital 25

reserves 45

What is the gearing ratio?

A 10.52% B 21.62% C 27.58% D 28.57%

7


15 The following information is taken from the financial statements of a company.

$

profit attributable to equity holders 2 000 000

ordinary share dividend paid 200 000

non-redeemable preference share dividend paid 100 000

10% non-redeemable preference share capital 1 000 000

ordinary shares of $1 each 5 000 000

What are the earnings per share for the year to the nearest cent?

A $0.28 B $0.32 C $0.34 D $0.38 16 The information relates to a company.

$

share premium account 240 000

10% debentures 100 000


The company redeems the debentures at a premium of 10%.

Which values will the statement of financial position show after this transaction?

retained earnings

$

share premium account

$

A 70 000 240 000

B 80 000 230 000

C 170 000 240 000

D 180 000 230 000

8

© UCLES 2013 9706/33/O/N/13

17 The following are extracts from the statement of financial position of a company.

$

bank 8 500

issued ordinary shares of $1 each 50 000


The company makes a bonus issue of one share for every five held.

How will this affect the following accounts?

ordinary

share capital share

premium bank

A increase decrease no effect

B increase increase increase

C increase no effect increase

D no effect decrease no effect

18 The non-current assets of a company include a machine which has the following values.

$

carrying amount 55 000

fair value 60 000

costs of sale 6 000

value in use 42 000

Which value will be shown in the statement of financial position?

A $42 000 B $54 000 C $55 000 D $60 000 19 The data relates to two different levels of output in a department.

machine hours 16 000 20 000

overheads $214 000 $230 000

What is the amount of fixed overheads?

A $16 000 B $64 000 C $150 000 D $198 000

9


20 A company currently manufactures and sells 2000 units of a product. The following are the selling price and costs of the product.

$


variable costs per unit 12

fixed costs 8000

The company has received a request for a special order for 200 units. The customer will pay $15 per unit. To manufacture the order the company will have to hire a machine at a cost of $1500.

What is the profit the company will earn if it accepts the order?

A $7100 B $8000 C $8600 D $9500 21 A company has no work in progress at the start of the month.

During the month, 4000 completed units were produced. At the end of the month, there was work in progress of 400 units.


total cost

$ percentage completion

of work in progress

materials and labour 8640 80%

overheads 6360 60%

What is the total value of work in progress at the end of the month?

A $1000 B $1073 C $1363 D $1500

10

© UCLES 2013 9706/33/O/N/13

22 A business has an opening bank balance of $10 000 and makes the following forecasts for the next three months.

per month

$

credit sales 2000

cash sales 5000

expenses 1000

depreciation of non-current assets 1000

Credit customers pay in the month following the sale. Expenses are paid one month in arrears.

Which row shows the forecast net profit for the three months and the closing bank balance at the end of month 3?

forecast net profit

$

closing bank balance

$

A 15 000 24 000

B 15 000 27 000

C 18 000 17 000

D 18 000 27 000

23 A company adjusts its budget to take account of changes in costs as a result of changes in the

level of activity.

Which type of budget is the company using?

A fixed budget

B flexed budget

C incremental budget

D zero based budget

11


24 A business is preparing its budget. The following information is available for month 1.

budgeted sales 10 800 units

opening inventory 2 000 units

budgeted closing inventory 1 080 units

normal loss in the production process 5%

What is the budgeted production for month 1?

A 9880 units B 10 374 units C 10 400 units D 11 720 units 25 The cost of sales for a business comprises direct materials and direct labour. At the end of a

trading period the following variances are calculated.

$

direct materials price variance 800 adverse

direct materials usage variance 700 favourable

direct labour rate variance 650 favourable

direct labour efficiency variance 750 adverse

If the actual cost of sales was $12 220, what is the standard cost of sales?

A $12 020 B $12 120 C $12 320 D $12 420 26 Which formula would be used to calculate the labour efficiency variance?

A (actual hours less standard hours) × standard rate

B (actual rate less standard rate) × actual hours

C (standard hours less actual hours) × standard rate

D (standard rate less actual rate) × actual hours 27 A company uses standard costing. During an operating period there has been a favourable

material usage variance of $20 000.

What is a valid reason for this variance?

A the actual cost of material purchased decreased

B the actual cost of material purchased increased

C the company used less material per unit than budgeted

D the company used more material per unit than budgeted

12

© UCLES 2013 9706/33/O/N/13

28 The figures for the budgeted and actual sales per unit are as follows.

budget actual

selling price $38 $40

units sold 9500 9000

Which row shows the sales price and sales volume variances?

sales price variance

$

sales volume variance

$

A 18 000 adverse 19 000 adverse

B 18 000 adverse 19 000 favourable

C 18 000 favourable 19 000 adverse

D 18 000 favourable 19 000 favourable

29 Which statements about investment appraisal are correct?

1 The internal rate of return is the discount rate that gives a positive net present value of a project.

2 The accounting rate of return takes interest rates into account.

1 2

A false false

B false true

C true false

D true true

13

© UCLES 2013 9706/33/O/N/13

30 Discounted cash flow has been used to evaluate an investment project over a three year life. The project will produce annual net cash inflows of $2 m.

$500 000 of the initial investment can be recovered at the end of the third year.

Discount factors at 10% are as follows.

year discount

factor

1 0.91

2 0.83

3 0.75

Total 2.49

What is the present value of project cash inflows correct to two decimal places?

A $4.98 m B $5.36 m C $5.48 m D $6.38 m



*7392798573*



ACCOUNTING 9706/41

Paper 4 Problem Solving (Supplementary Topics) October/November 2013

2 hours

Additional Materials: Answer Booklet/Paper


If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet.



You may use a soft pencil for any diagrams, graphs or rough working.





Workings should be shown.




2

© UCLES 2013 9706/41/O/N/13

1 Manchi plc are preparing their budgets for the forthcoming year ending 30 September 2014. They provide the following information.

Statements of Financial Position at 30 September

2013

(actual) 2014

(budgeted) $000 $000 Assets Non-current assets Property plant and equipment 3050 3190 Goodwill 400 450 Investments 300 240 3750 3880 Current assets Inventories 750 790 Trade and other receivables 460 425 Cash and cash equivalents 210 574 1420 1789 Total assets 5170 5669

Equity

Ordinary shares 1200 1400 Non-redeemable preference shares 500 500 Revaluation reserve 300 400 Retained earnings 930 834 Total equity 2930 3134 Liabilities Non-current liabilities 7% debentures 1000 1300 Current liabilities Trade and other payables 960 1075 Current tax liabilities 280 160 1240 1235 Total liabilities 2240 2535 Total equity and liabilities 5170 5669

Budgeted Statement of Changes in Equity For Year Ending 30 September 2014

$000

Retained earnings at 1 October 2013 930 Budgeted profit for year 214 1144 Dividends payable (110) Transfer to share capital (bonus issue) (200) Retained earnings at 30 September 2014 834

3


Additional information 1 The tax charge for the year ending 30 September 2014 has been budgeted as $160 000. 2 Income from investments is budgeted at $40 000. 3 Manchi plc issued additional 7% debentures on 1 October 2013. Interest for the year will be

paid on all the issued debentures on 30 September 2014. 4 A bonus issue of 1 new ordinary share for every 6 held is budgeted for 1 April 2014. 5 The following note was extracted from the financial statements at 30 September 2013. Non-current assets Cost Depreciation Net book value $000 $000 $000 Property plant and equipment Land 1500 – 1500 Buildings 800 250 550 Plant and equipment 1500 600 900 Motor vehicles 150 50 100 Total 3950 900 3050 6 The land is expected to increase in value by $100 000 during the year. 7 Budgeted capital expenditure for the year on buildings is $80 000; plant and equipment

$280 000; motor vehicles $30 000 and goodwill $50 000. 8 Budgeted depreciation for the year on buildings is $50 000; plant and equipment $255 000

and motor vehicles $25 000. 9 Plant and equipment with an original cost of $35 000 and depreciation of $15 000 is budgeted

to be disposed of for proceeds of $10 000. 10 An impairment review has shown that the carrying value of the investments should be

$240 000 at 30 September 2014. REQUIRED (a) Calculate the company’s budgeted profit from operations for the year ending 30 September

2014. [5] (b) Prepare a budgeted statement of cash flows for the year ending 30 September 2014 in

accordance with IAS 7. [25] (c) Prepare the property, plant and equipment section of the non-current assets note to the

budgeted statement of financial position at 30 September 2014. [10] [Total: 40]

4

© UCLES 2013 9706/41/O/N/13

2 Dilip, Ephraim and Fonzie have been in partnership for many years preparing accounts to 30 June and sharing profits and losses in the ratio 3:2:1. Due to declining profits they decided to dissolve the partnership on 30 June 2013.

Statement of Financial Position at 30 June 2013

$ $ Non-current assets Land and buildings 195 000 Motor vehicles 43 750 Fixtures and fittings 32 645 271 395 Current assets Inventories 29 875 Trade receivables 19 765 Cash and cash equivalents 6 850 56 490 Total assets 327 885 $ $ Capital account Dilip 60 000 Ephraim 50 000 Fonzie 40 000 150 000 Current account Dilip 33 865 Ephraim 24 910 Fonzie (1 875) 56 900 Non-current liabilities Bank loan 100 000 Current liabilities Trade payables 14 650 Bank interest accrual 6 335 20 985 327 885

The terms of the dissolution were: 1 The land and buildings were sold for 10% above their net book value. Fixtures and fittings

realised 80% of their net book value. 2 Ephraim took over a motor vehicle at an agreed valuation of $10 000. Fonzie took over a

motor vehicle at a valuation of $7500. The other vehicles realised $18 500. 3 The inventories realised $21 000. 4 The trade receivables raised $15 750 whilst the partners were able to settle the trade payables

in full for $12 500. 5 The dissolution costs totalled $3450. 6 The partners closed the business bank account by drawing the balances due to them after the

above took place.

5


REQUIRED (a) Prepare the partnership realisation account for the dissolution. [14] (b) Prepare the partnership bank account. [10] (c) Prepare the partners’ capital accounts. [10] (d) State three other reasons why a partnership may be dissolved apart from a decline in profit.

[6] [Total: 40]

6

© UCLES 2013 9706/41/O/N/13

3 Honeybush Limited operates a standard costing system. Monthly standard data is as follows. Sales are 6000 units with a selling price of $26 per unit Each unit requires 2.4 kilos of raw material costing $3 per kilo Each unit requires 1.5 hours of direct labour time costing $7 an hour REQUIRED (a) Calculate the expected monthly contribution per unit and in total. [8] (b) Calculate the quantity of raw materials in kilos normally purchased each month. Assume

inventory levels remain constant. [2] Early in 2013 a new supplier entered the market, selling the required raw material at $1.80 per

kilo. In April Honeybush Limited bought all its raw material from this new supplier. This raw material was more difficult to work with. Therefore each unit required 2.6 kilos and

labour took 40% longer than usual to produce each unit. Overtime premiums caused the average wage rate to rise to $7.80 an hour.

Honeybush Limited managed to produce and sell the usual 6000 units. The selling price had

risen by $0.50 per unit. REQUIRED (c) Calculate the following variances for April 2013: (i) Sales price (ii) Direct materials usage (iii) Direct materials price (iv) Total direct materials (v) Direct labour efficiency (vi) Direct labour rate (vii) Total direct labour [14] (d) Starting with the original expected total contribution from (a) use these variances to calculate

the actual total contribution. [7] (e) Calculate the change in contribution for Honeybush Limited arising from its decision to

change supplier. [5] (f) Explain what is meant by the expression ‘flexing a budget’. [4] [Total: 40]



*3618881357*



ACCOUNTING 9706/43

Paper 4 Problem Solving (Supplementary Topics) October/November 2013

2 hours

Additional Materials: Answer Booklet/Paper


If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet.



You may use a soft pencil for any diagrams, graphs or rough working.





Workings should be shown.




3


1 Alicia, Beatrice and Chandra have been in partnership for many years sharing profits in the ratio 3:2:1. They prepare their annual accounts to 30 June. Interest on capital was charged at 9%.

The balances on their capital accounts at 1 July 2012 were:

$ Alicia 45 000 Beatrice 35 000 Chandra 27 500

Chandra decided to retire on 31 March 2013. At that date: 1 Goodwill was valued at $24 000. Goodwill is not maintained in the books of account. 2 All of the assets were revalued to reflect a fall of $7500. 3 The balance on Chandra’s account was transferred to a loan account. Interest is to be paid

quarterly at 8% per annum commencing on 30 June 2013. 4 In the new partnership Alicia and Beatrice share profits in the ratio 3:2, interest on capital is

paid at 8% per annum and no salaries are paid. REQUIRED (a) Prepare the partners’ capital accounts at 31 March 2013 in columnar form. [12] Additional information 1 A debt of $6000 which had been written off in the previous year was received on

1 February 2013. 2 The gross profit for the year ended 30 June 2013 was $318 000 and this accrued evenly

throughout the year. The following amounts were paid during the year:

$ Wages 150 000 Rent 30 000 Heat and light 12 000 Sundries 3 000

At 30 June 2013 rent of $2500 had been prepaid and $600 for heat and light was accrued. REQUIRED

(b) Prepare the partnership income statement and appropriation account for the year ended 30 June 2013. [22]

(c) State three advantages to Alicia and Beatrice of replacing Chandra with another partner. [6] [Total: 40]

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© UCLES 2013 9706/43/O/N/13

2 On 1 July 2011 Voronez plc issued 120 000 ordinary shares of $1 each at a premium of $0.10 per share and 40 000 5% redeemable preference shares of $1 each at a premium of $0.15 per share.

The company made a profit for the year ended 30 June 2012 of $100 000. On 30 June 2012 the company: 1 paid the dividend on the redeemable preference shares (treated as a financing cost); 2 paid a dividend of $0.10 per share on the ordinary shares; 3 made a bonus issue of one new fully paid ordinary share for every 4 shares held;

4 made a rights issue of one new ordinary share for every 6 shares held after the bonus issue at a price of $1.60 per share. The rights issue was fully subscribed.

REQUIRED (a) Calculate the amounts which will be included in the company’s statement of financial position

at 30 June 2012 for each of the following: Ordinary share capital, Preference share capital, Share premium, Retained earnings. [17] Additional information The company made a profit for the year ended 30 June 2013 of $86 000 before paying any dividends. On 30 June 2013 the company: 1 paid the dividend on the redeemable preference shares;

2 purchased 80 000 of its own ordinary shares at a price of $1.125 each and cancelled them.

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REQUIRED (b) Calculate the amounts which will be included in the company’s statement of financial position

at 30 June 2013 for each of the following:

Ordinary share capital, Share premium, Capital redemption reserve, Retained earnings. [12] (c) Explain the circumstances in which the directors of a company would be unable to pay a

dividend on ordinary shares. [5] (d) (i) State one reason why a capital redemption reserve is created. [2] (ii) Explain the way in which you have created the capital redemption reserve. [2] (iii) State for what purposes a capital redemption reserve may be used. [2] [Total: 40]

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© UCLES 2013 9706/43/O/N/13

3 Riffatulah, a retailer, is preparing his budgets for the year ending 31 May 2014. He provides the following information.

Statement of Financial Position at 31 May 2013

$ $ $ Assets Non-current assets Cost Depreciation Net book valueFixtures and fittings 19 200 7 100 12 100 Vehicle 15 100 11 200 3 900 34 300 18 300 16 000 Current assets Inventories 4 800 Trade receivables 11 900 Other receivables (insurance) 350 Cash and cash equivalents 6 600 23 650 Total assets 39 650 Capital Total capital 25 550 Liabilities Non-current liabilities Bank loan (6%) 8 000 Current liabilities Trade payables 6 100 Total liabilities 14 100 Total capital and liabilities 39 650

He prepares budgets using three month periods as follows: Period

1 1 June to 31 August 2 1 September to 30 November 3 1 December to 28 February 4 1 March to 31 May

He provides the following budgeted information for the year ending 31 May 2014.

Period 1 2 3 4 Sales (units) 4200 4800 4600 4500 Unit selling price $3.10 $3.20 $3.40 $3.30 Purchases (units) 4700 4600 4500 4500 Unit purchase price $1.20 $1.30 $1.30 $1.40

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© UCLES 2013 9706/43/O/N/13

Schedule of receipts and payments

1 2 3 4 $ $ $ $

Receipts Customer receipts 16 500 14 200 14 000 15 000 Proceeds of vehicle sale 3 400 Legacy from uncle 5 000 Total receipts 16 500 19 200 17 400 15 000 Payments Supplier payments 5 800 5 700 5 200 4 000 Purchase of new vehicle 18 000 Purchase of fixtures 3 800 Rent 2 500 2 500 2 500 2 500 Loan interest 240 Drawings 3 000 4 000 3 000 5 000 Insurance 2 000 Administration costs 2 400 2 600 2 600 2 700 Total payments 13 700 20 840 31 300 14 200

Additional information 1 Inventory on 31 May 2014 is expected to have a value of $5100. 2 Discount allowed for the year is expected to be 2% of total sales. Bad debts are expected to be 1% of total sales. 3 Discount received is expected to be 1% of purchases. 4 Riffatulah depreciates vehicles at a rate of 40% a year on the reducing balance basis. He depreciates fixtures and fittings at a rate of 10% a year on cost. He provides a full year’s depreciation in the year of purchase and none in the year of disposal. He only keeps one vehicle at a time. 5 The insurance policy runs from 1 September to 31 August each year. REQUIRED (a) Prepare a budgeted income statement for the year ending 31 May 2014. [13] (b) Prepare a budgeted statement of financial position at 31 May 2014. [17] (c) Using only figures from your answers to (a) and (b), calculate Riffatulah’s working capital

cycle. [7] (d) Suggest three ways Riffatulah could improve his working capital cycle and reduce his bank

overdraft. [3] [Total: 40]

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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2013 9706/43/O/N/13

BLANK PAGE

accounting allpapers

Documents

d purchases

bank purchases

overstated b

correct answer

understated c

separate answer sheet

wrong answer

overstated d