Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level

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1 * * Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/11 Paper 1 Multiple Choice May/June 2017 Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 1 hour READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. Calculators may be used. This document consists of 11 printed pages and 1 blank page. IB17 06_9706_11/3RP UCLES 2017 [Turn over

2 2 1 A business s year end is 31 March. On 31 March 2016 the business received an order from a credit customer. The goods were not sent to the customer until 5 April This sale was not included in the financial statements for the year ended 31 March Which accounting concept(s) are being applied? 1 business entity 2 realisation 3 substance over form A 1 and 2 B 1 only C 2 and 3 D 2 only 2 Why does a business charge depreciation on its non-current assets? A B C D to retain profits for the replacement of worn out assets to show the value of the assets in the statement of financial position to show when an asset needs replacing to spread the cost of the assets over their useful lives 3 How is depreciation calculated using the straight-line method? A B C D as a fixed percentage of the asset s net book value as a fixed percentage of the asset s original cost as a variable percentage of the asset s net book value as a variable percentage of the asset s original cost 4 A business depreciates its machinery at 10% per annum using the straight-line method on a month-by-month basis. The business s financial year end is 30 June. Machinery which had cost $6600 on 1 April 2014 was sold on 30 November The profit on sale was $350. What were the sale proceeds? A $5150 B $5425 C $5850 D $6125 UCLES /11/M/J/17

3 3 5 The table shows information relating to the non-current assets of a business. $ net book value at beginning of year net book value at end of year depreciation charge for the year disposals at net book value What is the cost of the additions in the year? A $2000 B $6000 C $ D $ At the year end a cash book shows a credit balance of $4800. The bank statement included bank charges of $25 which had not been included in the cash book. Cheque payments entered in the cash book before the year end to the value of $250 had not yet cleared the bank. How would the bank balance be shown in the statement of financial position? A current asset 4775 B current liability 4825 C current asset 5025 D current liability 5075 $ 7 A purchases ledger control account has been reconciled with the purchases ledger balances as follows. balance of the control account $ total of a page in the purchases journal not posted to general ledger discount allowed by trade payables not posted to the purchases ledger total of balances in the purchases ledger Which value for trade payables should be shown in the statement of financial position? A $ B $ C $ D $ UCLES /11/M/J/17 [Turn over

4 4 8 Trade receivable balances at the start of a period were $ and were $ at the end. During that period: $ credit sales irrecoverable debt written off customer discounts allowed How much did the company receive from its customers in the period? A $ B $ C $ D $ At the start of the year the provision for doubtful debts was $ During the year irrecoverable debts of $ were written off. The provision for doubtful debts at the year end was $ What was the net effect of these items on the profit for the year? A B C D $4100 decrease $4100 increase $8200 decrease $8200 increase UCLES /11/M/J/17

5 10 The following financial information is available. 5 $ inventory at 1 January inventory at 31 December purchases carriage inwards 130 revenue discount received 700 other costs What are the values of gross profit and profit for the year? gross profit $ profit for the year $ A B C D The following information is extracted from the records of a business. $ at 1 January 2016 rent paid in advance during the year ended 31 December 2016 rent paid at 31 December 2016 rent paid in advance How much will be charged for rent in the income statement for the year ended 31 December 2016? A $ B $ C $ D $ UCLES /11/M/J/17 [Turn over

6 12 The assets of a partnership were revalued when a partner retired. Which ratio is used to divide the surplus or deficit on revaluation? 6 A B C D new capital accounts new profit sharing old capital accounts old profit sharing 13 X and Y are in partnership sharing profits and losses in the ratio 2 : 1 respectively. Capital account balances are X $ and Y $ Z joins as a new partner and introduces capital of $ Goodwill is valued at $ Goodwill is not to remain in the books of account. The new profit sharing ratio will be 5 : 3 : 2 respectively. What is the balance on X s capital account after the introduction of Z? A $ B $ C $ D $ L, M and N were in partnership sharing profit and losses in the ratio 4 : 3 : 1 respectively. N retired from the partnership on 31 October 2016 when the balance on her capital account was $ Goodwill was valued at $ and would not remain in the books of account. Non-current assets were revalued from $ to $ N was paid all amounts due to her from the business bank account. How much was N paid on retirement from the partnership? A $ B $ C $ D $ A company makes a 1 for 4 bonus issue of ordinary shares. What happens to share capital and total equity? share capital total equity A increase decrease B increase increase C increase no change D no change increase UCLES /11/M/J/17

7 7 16 A company has the following: ordinary shares of $1 each 10% debenture $ It made a loss of $ for the year ended 31 December An interim ordinary dividend of $0.20 per ordinary share was paid on 30 September An ordinary dividend of $0.40 per ordinary share was proposed at 31 December The retained earnings balance in the statement of changes in equity at 31 December 2016 was $ What was the retained earnings balance at 1 January 2016? A $ B $ C $ D $ On 1 May, a trader lost all of his inventory in a fire. He has values for sales and purchases and wishes to calculate the value of the inventory lost. Which ratio should he use? A B C D gross margin profit margin trade payables turnover trade receivables turnover 18 The following information was available for a business. $ equity non-current liabilities profit from operations profit for the year What was the return on capital employed? A 14.3% B 19.2% C 20% D 26.9% UCLES /11/M/J/17 [Turn over

8 19 A business provided the following information. 8 $ non-current assets at cost non-current assets at net book value revenue profit for the year What was the non-current asset turnover? A B C D 0.30 times 0.46 times 1.52 times 2.29 times 20 A company s sales during a 365-day year are shown. $ cash sales credit sales total sales The trade receivables turnover was 42 days. What was the value of trade receivables at the end of the year? A $ B $ C $ D $ The following details are for the inventory of a company. kilos cost per kilo $ total cost $ inventory 1 January purchased January purchased 1 February kilos remained as inventory at the end of February The company used FIFO to value its inventory. What was the value of inventory at the end of February? A $ B $ C $ D $ UCLES /11/M/J/17

9 9 22 Which item is a direct cost? A B C D carriage inwards on production materials cleaning materials for the factory factory rent wages of the factory manager 23 A business has the following information available. selling price per unit $35 direct labour per unit $9 direct material per unit $6 budgeted sales margin of safety 8000 units 2000 units What is the value of fixed costs? A $ B $ C $ D $ A company has allocated its costs between different departments as shown. details production department 1 production department 2 maintenance department allocated costs $ $ $ split of maintenance department costs 60% 40% direct labour hours What is the overhead absorption rate per labour hour for production department 1? A $3.70 B $4.00 C $4.20 D $ Vikram is paid $10 an hour for a 40-hour week and at time and a half for overtime. He is expected to produce four units an hour. If he produces more than this, a bonus of $2 per extra unit is paid. Last week Vikram worked 41 hours and produced 161 units. How much was Vikram paid? A $410 B $412 C $415 D $417 UCLES /11/M/J/17 [Turn over

10 10 26 A business operated a staff canteen at a cost of $ What is the most appropriate basis of apportioning this overhead cost? A B C D book value of canteen equipment direct labour hours floor area number of employees 27 A business apportions some of its overhead expenses across its production departments. Why might building maintenance costs not be included with the other overheads being apportioned? A B C D Building maintenance costs are fixed. Building maintenance is not necessary for production to take place. No suitable basis for apportionment can be found. They can be identified with specific cost centres. 28 The following information is available for a business. budgeted manufacturing overhead $ budgeted direct labour hours actual manufacturing overhead $ actual direct labour hours How much overhead was under or over absorbed? A B C D $ over absorbed $ under absorbed $ over absorbed $ under absorbed UCLES /11/M/J/17

11 11 29 A company manufactures and sells units. Details of the revenues and costs are as follows. What is the break-even point in units? total $ sales revenue variable costs fixed costs profit A 2500 B 4500 C 7500 D The data in the table relates to a business. $ sales 6000 variable costs 4500 fixed costs 900 profit for the year 600 What is the contribution to sales ratio? A 10% B 25% C 33.33% D 75% UCLES /11/M/J/17

12 12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at after the live examination series. 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 /11/M/J/17

13 * * Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/12 Paper 1 Multiple Choice May/June 2017 Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 1 hour READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. Calculators may be used. This document consists of 11 printed pages and 1 blank page. IB17 06_9706_12/4RP UCLES 2017 [Turn over

14 2 1 When a businessman introduces capital into his business, the transaction is debited in the cash book and credited to his capital account. Of which accounting concept is this an example? A B C D business entity going concern matching prudence 2 Which are examples of the accounting equation? 1 capital + assets = liabilities 2 capital = assets + liabilities 3 capital = assets liabilities A 1 and 3 B 1 only C 2 and 3 D 3 only 3 Amitav purchased a van costing $ He provided an old van with a net book value of $8000 in part exchange. There was a profit on disposal of $1500. What was the cash outflow arising from the purchase? A $9500 B $ C $ D $ The net book value of a company s non-current assets was as follows. $ at 1 January at 31 December During 2016 assets were sold for $20 000, realising a profit on disposal of $5000. Depreciation charged for 2016 was $8000. What was the expenditure on new assets in 2016? A $3000 B $5000 C $8000 D $ UCLES /12/M/J/17

15 5 The following errors were found after a suspense account was opened. 3 1 Motor repairs of $400 were credited to the motor vehicle at cost account. 2 A payment for electricity was debited in the electricity account as $2500 instead of $ A $450 cash purchase of goods for resale had been completely omitted from the books. 4 Discount allowed of $50 had been debited to the discounts received account. Which items would be entered in the suspense account? A 1 and 2 B 2 and 3 C 2 and 4 D 3 and 4 6 Which items appear in a sales ledger control account? 1 cash discount allowed 2 credit sales 3 payments to trade payables 4 returns inwards A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4 7 The following information is extracted from the statement of financial position of a business at 31 December What is the value of the net current liabilities? bank loan (repayable 2025) other payables bank overdraft capital drawings inventory other receivables trade payables trade receivables A $1590 B $2510 C $ D $ $ UCLES /12/M/J/17 [Turn over

16 4 8 The following items are recorded in the cash book of a business but not yet recorded in its bank statement. $ cheques drawn 3000 amounts banked 250 The cash book shows a bank balance of $2600 credit. What is the balance on the bank statement? A B C D $150 credit $150 debit $400 credit $400 debit 9 Finn provides the following information. $ capital at the start of the year profit for the year drawings (cash) drawings (goods for own use) private vehicle transferred to business use What was Finn s capital at the end of the year? A $ B $ C $ D $ UCLES /12/M/J/17

17 10 A business provides the following information. 5 year 1 $ year 2 $ profit for the year cost of goods sold The owner then discovers that at the end of year 1 the value of inventory was overstated by $2000. What are the correct profits for the year and cost of goods sold figures? year 1 year 2 profit for the year $ cost of goods sold $ profit for the year $ cost of goods sold $ A B C D Sam was unable to conduct a physical count of inventory at 31 December On 3 January 2017 inventory had been sold to Abdul for $ The cost price of this inventory had been $9560. On 4 January 2017 inventory had been returned by Sita. It had been sold for $2390. The cost price of this inventory was $1912. Sam valued his inventory at 5 January 2017 at cost, $ What was the value of inventory at 31 December 2016? A $ B $ C $ D $ Which item is not taken into account when a partner joins a partnership? A B C D balances on the partners current accounts capital introduced by the new partner changes in the profit sharing ratio goodwill UCLES /12/M/J/17 [Turn over

18 6 13 Ali, Bharti and Chan were in partnership sharing profit and losses in the ratio 3 : 2 : 1. Bharti retired from the partnership on 30 June The following were the balances available at 30 June Ali ($) Bharti ($) Chan ($) capital accounts Cr Cr Cr current accounts Cr Dr Cr On her retirement, Bharti retained a partnership motor vehicle at an agreed valuation of $4000. Goodwill was valued at $ How much was payable to Bharti on her retirement? A $ B $ C $ D $ A partnership maintains both capital and current accounts for its partners. What is the correct accounting entry for recording interest on capital for partner X? account to be debited account to be credited A appropriation X s capital B appropriation X s current C X s capital appropriation D X s current appropriation 15 Which statement describes the treatment of purchased goodwill for a limited company? A B C D a tangible non-current asset that can be amortised a tangible non-current asset that can be depreciated an intangible non-current asset that can be amortised an intangible non-current asset that can be depreciated UCLES /12/M/J/17

19 7 16 A company s equity is made up as shown. The following took place ordinary shares of $0.25 each share premium retained earnings A bonus issue of one ordinary share for every five held was made. 2 Six months later a rights issue of one ordinary share for every four held was made. The shares were issued at $0.30 each. By how much did the company s equity increase as a result of these transactions? A $5000 B $6000 C $7500 D $9000 $ 17 Which statement about ordinary shares is correct? A B C D dividends on ordinary shares are an appropriation of profit dividends on ordinary shares are paid at the same rate each year ordinary shares are never issued at a premium the holders of ordinary shares are creditors of a company 18 Who are internal users of accounting information? A B C D customers directors lenders shareholders UCLES /12/M/J/17 [Turn over

20 19 A company provides the following information. 8 $ profit from operations finance costs ordinary share capital ($1 shares) non-current liabilities retained earnings What is the return on capital employed? A 16.22% B 17.14% C 21.62% D 22.86% 20 The following financial information is available for a business. All purchases and sales are made on credit. What is the average collection period? purchases revenue trade payables trade receivables A 50 days B 79 days C 86 days D 136 days $ 21 How are stepped costs best described? A B C D costs that are always variable costs that have both a fixed and variable element fixed costs that are always the same amount at any level of output fixed costs which increase in total once a certain level of output is reached UCLES /12/M/J/17

21 9 22 Jamal uses the AVCO system to value his inventory. He provides the following information: March 1 no opening inventory 6 60 units were purchased at $120 per unit units were purchased at $116 per unit units were sold for $150 per unit What was the cost of sales for March? A $5875 B $ C $ D $ A business makes wedding dresses. Each machinist is paid $30 a day and each supervisor $40 a day. Each supervisor can work with up to 10 machinists and each machinist can produce one wedding dress a day. If 95 wedding dresses a day are produced, what is the daily labour cost? A $2850 B $3210 C $3230 D $ Which statement best describes variable costs? A B C D costs that are the same in total up to a certain level then increase with output costs that are the same in total over any output level costs that are constant per unit as output increases costs that increase per unit as output increases 25 A company manufactures and sells chairs. The following per unit information is available. $ selling price 25 direct material and labour 12 other variable production costs 3 variable selling costs 2 fixed costs 4 The company has the option of buying in the chairs for resale instead of making them. At which purchase price would the company s profit be unchanged? A $15 B $17 C $19 D $21 UCLES /12/M/J/17 [Turn over

22 10 26 The budgeted income statement of J Limited shows the following. $ sales variable costs fixed costs profit for the year What is the margin of safety in dollars? A $ B $ C $ D $ The following details are supplied by a company for the month of August. budgeted machine hours budgeted overheads $ actual machine hours actual overheads $ What is the under or over absorption of the overheads? A B C D $2250 over absorbed $2250 under absorbed $9250 over absorbed $9250 under absorbed 28 A company has fixed costs of $ per month. It provided the following information. March units April units production Total production costs for March were $ What were the total production costs for April? A $ B $ C $ D $ UCLES /12/M/J/17

23 29 A company s profits using marginal costing and absorption costing principles were identical. 11 Which statement is true about the company s production units? A B C D they were greater than break-even units they were greater than the sales units they were the same as the break-even units they were the same as the sales units 30 Which statement is not a reason why a business prepares budgets? A B C D to ensure coordination of the business activities to identify potential problems in the future to identify the responsibilities of managers to prepare the financial statements for the year UCLES /12/M/J/17

24 12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at after the live examination series. 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 /12/M/J/17

25 * * Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/13 Paper 1 Multiple Choice May/June 2017 Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) 1 hour READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D. Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. Calculators may be used. This document consists of 11 printed pages and 1 blank page. IB17 06_9706_13/3RP UCLES 2017 [Turn over

26 1 A company decided not to capitalise the purchase of a stapler for use in its office. Which accounting concept was the company applying? 2 A B C D consistency duality materiality prudence 2 A trader had the following transactions in March $ cash sales for the month credit sales invoiced in March credit sales in March not yet invoiced 800 customer orders received on 31 March goods sent to a customer on 1 March on sale or return What is the amount of revenue to appear in the income statement for March 2017? A $ B $ C $ D $ Which statements explain why depreciation might be charged on a non-current asset? 1 An asset could be subject to obsolescence. 2 The actual future disposal proceeds could differ from the estimated residual scrap value. 3 The estimated future replacement cost could differ from the original purchase price. A 1 and 2 B 1 only C 1 and 3 D 2 and 3 4 A trader bought a machine on 1 January He depreciated it at the rate of 10% per annum using the straight-line method, and he sold it on 1 January 2017 for $4000. The profit on disposal was $200. How much had the machine cost on 1 January 2015? A $4560 B $4750 C $5040 D $5250 UCLES /13/M/J/17

27 5 The following information relates to non-current assets. 3 $ net book value at 1 January net book value at 31 December receipts from disposals assets bought loss on disposal 650 What is the depreciation charge for the year? A $3550 B $4200 C $7550 D $ The purchases ledger control account had a closing balance of $ Purchases returns of $1500 had been entered on the wrong side of the control account. What was the correct balance? A $ B $ C $ D $ The cash book of a business shows a debit balance of $4200 at 30 April. A direct debit payment of $200 for insurance appeared on the bank statement but had not yet been entered in the cash book. A cheque paid to a supplier, correctly entered as $650 in the cash book, appeared as $690 on the bank statement. What is the value of bank shown in the statement of financial position at 30 April? A $3960 B $4000 C $4360 D $4400 UCLES /13/M/J/17 [Turn over

28 8 A bookkeeper prepared a sales ledger control account. The following errors were then discovered. 4 1 An invoice posted to an individual customer s account had been recorded as $95 instead of $59. 2 The total of receipts from customers had been undercast by $ Discount received from suppliers had been included in the control account. 4 A provision for doubtful debts had been included in the control account. Which errors would result in the closing balance on the control account failing to agree with the total of the customers account balances? A 1, 2, 3 and 4 B C D 1, 2 and 3 only 1 and 4 only 3 and 4 only 9 A business maintains a mark-up of 40%. The following information was available for the year. $ revenue inventory at start purchases What was the value of closing inventory? A $ B $ C $ D $ A business does not include a prepayment for rent receivables in its financial statements at the end of the year. Which effects does this have? current assets current liabilities profit for the year A no effect overstated understated B no effect understated overstated C overstated no effect overstated D understated no effect overstated UCLES /13/M/J/17

29 11 The following is an extract from the trial balance of a business at 31 May trade receivables provision for doubtful debts A customer owing $5000 has been declared bankrupt. The provision for doubtful debts is to be maintained at 5% of trade receivables. Which amount should be included in the financial statements at 31 May 2017? $ income statement (expense) $ statement of financial position (current assets) $ A expense B expense C expense D expense Where should a partner s drawings be recorded? A B C D appropriation account income statement partner s capital account partner s current account 13 L and M are in partnership. Their profit and loss appropriation account shows the following. L $ M $ total $ interest on capital interest charged on drawings partners salaries share of profit What is the profit for the year before appropriations? A $ B $ C $ D $ UCLES /13/M/J/17 [Turn over

30 6 14 X and Y were in partnership sharing profits equally. Z became a partner and all three partners shared profits equally. Goodwill was valued at $ No goodwill account is to be retained in the books of account. Which statement describes the effect on capital accounts when Z was admitted? A B C The capital accounts of X and Y increase by $ each, the capital account of Z will reduce by $ The capital accounts of X and Y increase by $ each. The capital accounts of X and Y increase by $ each. D The capital account of Z reduces by $ A company has a debenture (2020). Which description of this is correct at 31 December 2016? A B C D a current liability with a fixed rate of interest a current liability with a variable rate of interest a non-current liability with a fixed rate of interest a non-current liability with a variable rate of interest 16 A limited company made the following issues of shares. bonus issue of ordinary shares of $0.50 each rights issue of ordinary shares of $0.50 each at a price of $0.75 each By how much did the issues increase the equity of the company? A $5000 B $7500 C $ D $ What would not be included in a statement of changes in equity for a limited company? A B C D dividends paid issue of ordinary share capital profit for the year repayment of a debenture UCLES /13/M/J/17

31 7 18 The following items appear on a statement of financial position. $ inventory balance at bank cash in hand trade payables provision for doubtful debts 500 The current ratio is 3 : 1. How much do the trade receivables owe? A $9500 B $ C $ D $ A company s financial statements show the following. $ sales cost of goods sold operating expenses non-current assets capital employed What is the non-current asset turnover? A 1.18 times B 1.24 times C 1.44 times D 2.28 times 20 The manufacture of product X incurs a specific cost. Data relating to this is as follows. units produced cost per unit $3 $2 Of which cost is this an example? A B C D fixed semi-variable stepped variable UCLES /13/M/J/17 [Turn over

32 8 21 A business values inventory using the AVCO method. The following information is available. August 1 inventory of 6 units at $14.40 each 4 purchased 9 units at $18.40 each 6 sold 5 units at $20.20 each What was the cost of the goods sold? A $72 B $84 C $92 D $ The labour costs of a company are based on hours worked plus a bonus scheme. The production workers all earn the same rate and bonus. The daily rate is $6 per hour for an 8-hour day, 5 days per week. The bonus is based on the number of units produced above 2000 units in a week at a rate of $2 per 100 units. In one week each worker produces 2600 units. All workers work the full number of hours. What will be the week s gross wage for one worker? A $240 B $252 C $292 D $ Actual production is less than forecast production. Which cost is higher than forecast? A B C D fixed cost per unit total fixed cost total variable cost variable cost per unit UCLES /13/M/J/17

33 24 The following information is available for a business. 9 budgeted sales per month 500 units selling price per unit $30 variable cost per unit $24 budgeted monthly fixed costs $600 The business plans to rent a machine which will increase monthly fixed costs to $2400 and reduce variable costs to $18 per unit. What will be the effect on the margin of safety of the business? A B C D increase by 100 units increase by 150 units reduce by 100 units reduce by 150 units 25 The following information concerning a product is available. $ per unit selling price variable labour costs 3.50 production material costs 2.50 break-even point 2500 units What is the total fixed cost? A $ B $ C $ D $ UCLES /13/M/J/17 [Turn over

34 26 The data shows the budget of a small manufacturing company. 10 sales in units $ $ direct materials direct labour production overheads administrative overheads The units are sold for $16 each. What is the break-even point in units? A 2700 B 3000 C 4000 D A company uses direct labour hours to calculate the overhead absorption rate. What results in over-absorption? 1 actual overheads exceed budgeted overheads 2 actual overheads are less than budgeted overheads 3 budgeted production is greater than actual production 4 budgeted production is less than actual production A 1 and 3 B 1 and 4 C 2 and 3 D 2 and 4 28 A company s limiting factor is production materials. It manufactures three different products. Which product should it manufacture first in order to maximise profits? A B C D the product making the highest contribution per kilo of materials the product making the highest number of unit sales the product making the most contribution per unit the product using the least materials per unit UCLES /13/M/J/17

35 11 29 The following information has been provided for the year. $ sales variable costs total contribution fixed administrative expenses fixed selling expenses profit for the year The company plans to increase the selling price by 10%. By how much will profit for the year increase? A 10% B 55% C 80% D 200% 30 Which is not a function of a budget? A B C D helping maintain accurate double entry accounts helping monitor and control operations providing a financial plan for the business providing a way to allocate resources UCLES /13/M/J/17

36 12 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at after the live examination series. 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 /13/M/J/17

37 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/21 Paper 2 Structured Questions May/June hour 30 minutes Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs or for rough working. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE IN ANY BARCODES. 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. This document consists of 19 printed pages and 1 blank page. IB17 06_9706_21/2RP UCLES 2017 [Turn over

38 1 The directors of AB Limited provide the following financial information: Income Statement (extract) for the year ended 30 April 2016 $ Revenue Purchases (80% on credit) Expenses All sales earned a uniform gross margin of 20%. Statement of Financial Position at 30 April 2016 $ Non-current assets Current assets Inventory Trade receivables Cash and cash equivalents Total assets Equity and liabilities Equity Ordinary share capital of $1 each Share premium Retained earnings Current liabilities Trade payables Other payables Total equity and liabilities (a) Prepare the income statement for AB Limited for the year ended 30 April 2016 in as much detail as possible. [4] UCLES /21/M/J/17

39 3 (b) Suggest two reasons why the balance on a retained earnings account may be lower than the profit for the year. 1 2 [2] (c) Calculate the following ratios. (i) Rate of inventory turnover (to two decimal places) (ii) Liquid (acid test) ratio (to two decimal places) [2] (iii) Trade payables turnover (days) [2] [2] UCLES /21/M/J/17 [Turn over

40 4 Additional information The following information is available for XY Limited, a competitor of AB Limited. Rate of inventory turnover 8.75 times Liquid (acid test) ratio 0.85 : 1 Trade payables turnover (days) 42 days (d) Discuss the performance of AB Limited by comparing the ratios calculated in part (c) with those of XY Limited. Rate of inventory turnover Liquid (acid test) ratio Trade payables turnover (days) [6] UCLES /21/M/J/17

41 5 Additional information CD Limited has been asked by both AB Limited and XY Limited to become their supplier. The directors of CD Limited only wish to supply to one of the two companies. (e) Advise the directors of CD Limited which company they should supply. Give reasons for your answer. [4] Question 1(f) is on the next page. UCLES /21/M/J/17 [Turn over

42 6 Additional information The financial statements of AB Limited for the year ended 30 April 2017 showed a draft profit for the year of $ A review of the books of account revealed the following errors: 1 A sales invoice for $234 had been recorded as $ Returns outwards account had been overcast by $ Inventory of $1200 had been omitted from closing inventory. (f) Calculate the revised profit for the year ended 30 April [4] (g) Explain the difference between a capital reserve and a revenue reserve. [4] [Total: 30] UCLES /21/M/J/17

43 7 Question 2 is on the next page. UCLES /21/M/J/17 [Turn over

44 8 2 Amit and Binu are in partnership sharing profits and losses in the ratio 3 : 2 respectively. The partnership statement of financial position at 30 June 2016 is as follows: $ $ Non-current assets Premises Machinery Motor vehicles Current assets Inventory Trade receivables Total assets Capital accounts Amit Binu Current accounts Amit Binu Current liabilities Trade payables Bank overdraft Total capital and liabilities The partners agreed to dissolve the partnership on 30 June This resulted in the following: 1 Trade receivables realised $ Trade payables were settled in full for $ Inventory was sold for $ The machinery was sold for $ Amit agreed to take over the premises at an agreed valuation of $ Binu agreed to take over one of the motor vehicles at an agreed valuation of $6500. The remaining motor vehicle was sold for $ The costs of dissolution were $6300. UCLES /21/M/J/17

45 9 (a) Prepare the realisation account on the dissolution of the partnership. Realisation account [6] (b) Prepare a statement to show how much Binu will receive when the partnership bank account is closed. UCLES /21/M/J/17 [Turn over [4]

46 10 (c) State two reasons why a partnership may be dissolved. 1 2 [2] (d) Explain what would happen if the dissolution of the partnership resulted in a debit balance on a partner s capital account. [3] [Total 15] UCLES /21/M/J/17

47 11 Question 3 is on the next page. UCLES /21/M/J/17 [Turn over

48 12 3 Meena did not keep full accounting records. She was advised to keep her books of account using the double entry system. (a) State three benefits a business gains from maintaining a system of double entry book-keeping Additional information Meena now uses the double entry system of book-keeping. At the end of January the total of the balances in the sales ledger was $ However, the balance on the sales ledger control account was $ On investigation she found the following errors: 1 The sales journal had been undercast by $ A cheque received had been correctly entered in the cash book as $650 but was entered in the sales ledger as $ An irrecoverable debt, $420, had been written off in the sales ledger but not entered in the control account. 4 A credit note issued for $160 had been completely omitted from the books of account. [3] UCLES /21/M/J/17

49 13 (b) Prepare a reconciliation between the sales ledger control account and the sales ledger balances at 31 January. Sales ledger control account Description Add ($) Less ($) Total ($) Opening balance Sales ledger balances Description Add ($) Less ($) Total ($) Opening balance [6] UCLES /21/M/J/17 [Turn over

50 14 (c) State three reasons why there might be a credit balance on a customer s account in the sales ledger Additional information Meena is considering charging interest on the full account balances of her customers who do not pay promptly. (d) Advise Meena whether or not she should take this course of action. Justify your answer. [3] [3] [Total: 15] UCLES /21/M/J/17

51 15 4 Ken produces components for mobile telephones. The following budgeted data is available for the year ending 31 December 2018: Per unit $ Selling price 5.25 Direct materials 0.50 Direct labour 0.75 Direct expenses 0.25 Break-even point units (a) Calculate the budgeted fixed costs for the year ending 31 December [3] Additional information The budgeted profit for the year ending 31 December 2018 is $ (b) Calculate for the year ending 31 December 2018: (i) budgeted number of units to be sold UCLES /21/M/J/17 [Turn over [2]

52 (ii) budgeted contribution to sales (C / S) ratio (to two decimal places) 16 [2] (c) State the meaning of C / S ratio. [1] (d) (i) State the name given to the difference between the budgeted total sales units and the budgeted break-even sales units. [1] (ii) Explain the significance of this difference to a business. [2] UCLES /21/M/J/17

53 17 (e) Prepare the break-even chart for Ken based on the relevant data. Clearly identify the area of profit, the area of loss and the break-even point. [7] UCLES /21/M/J/17 [Turn over

54 18 (f) State three limitations of a break-even analysis [3] Additional information Ken is considering increasing the selling price to $6.00 per unit from 1 January He expects that all costs will remain unchanged. (g) Calculate the number of units Ken must sell each month so the budgeted total contribution is the same as in [5] UCLES /21/M/J/17

55 19 (h) Advise Ken whether or not he should increase the selling price taking into account both financial and non-financial factors. [4] [Total: 30] UCLES /21/M/J/17

56 20 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at after the live examination series. 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 /21/M/J/17

57 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/22 Paper 2 Structured Questions May/June hour 30 minutes Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs or for rough working. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE IN ANY BARCODES. 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. This document consists of 16 printed pages and 4 blank pages. IB17 06_9706_22/6RP UCLES 2017 [Turn over

58 2 1 B Limited is a private limited company trading as a wholesaler of garden equipment. The draft trial balance at 30 June 2016 has been extracted from the books of account and is shown below. Debit Credit $ $ Bank loan Bank Cash 650 Directors remuneration Fixtures and fittings Cost Provision for depreciation at 1 July Land and buildings Cost Provision for depreciation at 1 July Motor vehicles Cost Provision for depreciation at 1 July Interest paid Inventory at 1 July Office costs Property costs Purchases Retained earnings Revenue Selling and distribution costs Share capital (ordinary shares of $1 each) Trade payables Trade receivables Wages and salaries Additional information 1 The value of inventory at 30 June 2016 was $ at cost. 2 Land and buildings at 30 June 2016 were as follows: $ Land Buildings Depreciation is to be provided as follows: Asset Annual Rate Method Charge to Fixtures and fittings 15% Reducing balance Office costs Buildings 2% Straight-line Property costs Motor vehicles 25% Reducing balance Selling and distribution costs UCLES /22/M/J/17

59 4 Wages and salaries are to be charged as follows: Selling and distribution costs 60% Office costs 40% 3 5 B Limited took out a 5% debenture (repayable between 2021 and 2025) for $ on 30 June 2016 and repaid the bank loan in full. Neither of these transactions has yet been recorded in the books of account. 6 A prepayment of $1240 is to be accounted for on property costs at 30 June An accrual of $2680 is to be accounted for on selling and distribution costs at 30 June The directors require a provision for doubtful debts to be created representing 2% of trade receivables at 30 June 2016, to be charged to office costs. (a) Prepare the income statement for the year ended 30 June Use the space on the next page for your workings. B Limited Income Statement for the year ended 30 June 2016 $ $ Revenue Cost of sales Opening inventory Purchases Closing inventory Gross profit Deduct: expenses Directors remuneration Office costs Property costs Selling and distribution costs Profit from operations Finance costs Profit for the year UCLES /22/M/J/17 [Turn over

60 4 Use this space for your workings. [17] (b) Prepare an extract showing the current assets section of the statement of financial position at 30 June B Limited Extract from Statement of Financial Position at 30 June 2016 [5] UCLES /22/M/J/17

61 (c) Explain why a company should provide for depreciation on its non-current assets. 5 [4] (d) Explain two differences between ordinary shares and preference shares. 1 2 [4] [Total: 30] UCLES /22/M/J/17 [Turn over