Cambridge International AS & A Level

* 2 1 6 8 6 0 6 4 0 6 *

ACCOUNTING 9706/21
Paper 2 Fundamentals of Accounting October/November 2023

1 hour 45 minutes

You must answer on the question paper.

No additional materials are needed.

INSTRUCTIONS
● Answer all questions.
● Use a black or dark blue pen.
● Write your name, centre number and candidate number in the boxes at the top of the page.
● Write your answer to each question in the space provided.
● Do not use an erasable pen or correction fluid.
● Do not write on any bar codes.
● You may use an HB pencil for any rough working.
● You may use a calculator.
● You should present all accounting statements in good style.
● International accounting terms and formats should be used as appropriate.
● You should show your workings.

INFORMATION
● The total mark for this paper is 90.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 16 pages. Any blank pages are indicated.

DC (LK) 316871/4
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1 Laila, a retailer, did not maintain a full set of accounting records for her business. She has provided
the following information for the year ended 30 September 2023.

Balances at 1 October 2022

$
Inventory 12 030
Non-current assets at carrying value 22 180
Other payables: light and heat 210
Other receivables: insurance 480
Trade payables 3 840
Trade receivables 4 540

Summary of bank account for the year ended 30 September 2023

$ $
Receipts: trade receivables 55 390 Balance b/d 1 220
Sale of non-current assets 860 Payments: trade payables 46 280
Balance c/d 1 170 Insurance 2 560
Light and heat 3 510
Drawings 3 850
57 420 57 420
Balance b/d 1 170

The following information is also available at 30 September 2023.

1 Laila has started to prepare her financial statements for the year ended 30 September 2023.
The following figures are available to transfer to the statement of profit or loss with no
adjustment.

$
Insurance 2 720
Light and heat 3 880
Loss on disposal of non-current asset 120

2 All sales are made at a mark-up of 25%.

3 All sales and purchases are made on credit.

4 The balance of trade receivables at 30 September 2023 was $3650.

5 There were no additions to non-current assets during the year.

6 All non-current assets are to be depreciated at 10% per annum using the reducing balance
method.

7 Laila was unable to physically count the inventory at 30 September 2023. The inventory was
valued at $14 400 on 4 October 2023.

8 Between 1 October 2023 and 4 October 2023, Sales were $3400 and Purchases were $1850.

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(a) Calculate the value of closing inventory at 30 September 2023.

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(b) Prepare the statement of profit or loss for the year ended 30 September 2023. Use the space
provided on page 4 to show your workings.

Laila
Statement of profit or loss for the year ended 30 September 2023

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Workings:

[8]

(c) Prepare the statement of financial position at 30 September 2023.

Workings:

Equity at 1 October 2022

Other receivables

Trade payables

Other payables

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Laila
Statement of financial position at 30 September 2023

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Additional information

Laila wishes to expand the business and is considering forming a partnership with her friend.

(d) State four provisions of the Partnership Act 1890 that would apply in the absence of a
partnership agreement.

1 ................................................................................................................................................

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[4]

(e) State three possible disadvantages to a business of maintaining a full set of accounting
records.

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[3]

[Total: 30]

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2 Q Limited has been in business for a number of years. One of the directors is unsure of the
difference between a capital reserve and a revenue reserve.

(a) Explain one difference between a capital reserve and a revenue reserve.

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Additional information

The directors of Q Limited provided the following information for the year ended 30 June 2023.

Balances at 1 July 2022 $

Share capital: ordinary shares of $0.50 each 30 000
Share premium 4 500
Revaluation reserve 6 000
Retained earnings 50 240
Total equity 90 740
8% debenture (2024) 40 000

At 1 July 2022, land, original cost $80 000, had a valuation of $86 000. No other non-current assets
had been revalued.

The following transactions took place during the year ended 30 June 2023.

Date
1 August 2022 Made a bonus issue of one ordinary share for every six shares held. The
directors maintained the reserves in the most flexible form.
1 October 2022 Paid a final dividend of $0.04 per share on all shares in issue at that date.
1 January 2023 Made a rights issue of two ordinary shares for every seven shares held at
a price of $0.65 per share. The issue was fully subscribed.
1 April 2023 Paid an interim dividend of $0.02 per share on all shares in issue at that
date.
30 June 2023 Land was revalued at $75 000.

The draft profit for the year ended 30 June 2023 was $43 600.

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(b) Prepare the statement of changes in equity for the year ended 30 June 2023.

Q Limited
Statement of changes in equity for the year ended 30 June 2023

Share Share Revaluation Retained

capital premium reserve earnings Total
$ $ $ $ $
At 1 July 2022

[8]

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Additional information

The directors of Q Limited have plans to expand the business at a total cost of $54 000 and are
considering two options to raise finance.

Option 1:

Make a rights issue of four ordinary shares for every five shares held at a price of $0.75 per share.

Option 2:

Issue a 10% debenture (2026–2027) of $54 000.

(c) Advise the directors which option, if either, they should choose. Justify your decision.

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[Total: 15]

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3 Yasmine has a retail business. She extracted a trial balance at 30 June 2023, the totals of which
did not agree.

(a) State two types of error that will be revealed by a trial balance.

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2 ................................................................................................................................................
[2]

(b) Explain the meaning of each of the following types of error.

(i) Error of original entry

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(ii) Error of principle

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(iii) Error of commission

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Additional information

The difference in the trial balance was posted to a suspense account to enable the financial
statements to be produced.

Yasmine discovered the following errors, correction of which would clear the difference.

1 The sales journal total had been overstated by $300.

2 The total of the purchases returns journal, $2450, had not been posted to the general ledger.

3 Discounts allowed, $1660, had been posted to the credit of the discounts received account.

4 The balance of the carriage inwards account at 30 June 2023, $3570, had been brought
down as $3750.

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(c) Prepare the suspense account to show the correction of the errors, clearly identifying the
difference that was present in the trial balance before the errors were corrected.

Suspense account

$ $

[5]

Additional information

Before discovering the errors, Yasmine had prepared a draft statement of profit or loss showing
a profit for the year of $36 165. The suspense account balance was not included in the profit
calculation.

(d) Calculate the revised profit for the year after correction of the errors.

Increase Decrease

$ $ $
Draft profit for the year 36 165
Error 1
Error 2
Error 3
Error 4
Revised profit for the year
[5]

[Total: 15]

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4 Javid manufactures a single product. He currently uses a system of absorption costing but is
considering changing to marginal costing.

The following budgeted information is available for one unit of the product.

$
Selling price 18
Direct material 7
Direct labour 5

Budgeted production 12 000 units per month

Budgeted fixed overheads $36 000 per month

At 1 August, Javid held no inventory.

The following actual results are available.

August September
Sales (units) 8 000 12 000
Production (units) 10 000 10 000
Fixed overheads $36 000 $36 000

(a) Prepare a profit statement for each of the months August and September using absorption
costing.

Javid
Absorption cost profit statement

August September
$ $ $ $

[6]

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(b) Prepare a profit statement for each of the months August and September using marginal
costing.

Javid
Marginal cost profit statement

August September
$ $ $ $

[6]

(c) Prepare a statement reconciling the absorption cost profit for August with the marginal cost
profit for August.

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(d) Advise Javid whether or not he should change from absorption costing to marginal costing.
Justify your answer.

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(e) State two possible causes of over-absorption of overheads.

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(f) Explain one difference between a cost centre and a cost unit.

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(g) State how closing inventory is valued using each method of inventory valuation:

(i) first in first out (FIFO)

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(ii) weighted average cost (AVCO).

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Additional information

Javid is investigating the just in time (JIT) method of inventory management.

(h) Explain a principle of the JIT method of inventory management.

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[Total: 30]

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© UCLES 2023 9706/21/O/N/23