Cambridge International AS & A Level

ACCOUNTING 9706/31
Paper 3 Financial Accounting May/June 2023

INSERT 1 hour 30 minutes

INFORMATION
*2204986484-I*

● This insert contains all of the sources referred to in the questions.

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This document has 4 pages.

DC (LO) 327560
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Source A for Question 1

Alan and Betty had been in partnership for many years, sharing profits and losses in the ratio of 3:2.
The capital contributed by each partner was: Alan $300 000, Betty $240 000. The interest on capital is
calculated at 4% per annum.

Their business was acquired by J Limited on 1 April 2022. J Limited took over all the assets except the
bank account.

The following information relating to the assets taken over was available.

Book Revalued
value amount
$ $
Premises 308 000 330 000
Equipment 85 000 73 000
Inventory 64 000 77 000
Trade receivables 92 000 90 000
549 000 570 000

The value of goodwill was twice that of the partnership’s profit for the year ended 31 March 2022.

Some information relating to the partners’ current accounts for the year ended 31 March 2022 was as
follows:

Balance at Residual
1 April 2021 Drawings profit shared
$ $ $
Alan 7 000 credit 32 000 24 240
Betty 2 600 credit 34 000 16 160

The partnership paid $37 000 in full settlement of the trade payables of $39 000 on 31 March 2022 out
of the partnership’s bank account.

The purchase consideration was settled as follows:

1 Both partners received sufficient 8% debentures to give the same amount of interest on capital as
they had been entitled to in the partnership.

2 Each partner received 150 000 ordinary shares of $1 each. These shares had a value of $1.30 per
share.

3 The balance was settled in cash and paid into the partnership bank account.

The partners also agreed that if there was any deficit on a partner’s capital account, the partner would
pay cash in to the partnership bank account to make up for the deficit.

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Source B for Question 2

The directors of Z plc provided the following information.

For the year ended 31 December 2022

Revenue (all credit sales) $825 000

Purchases (all on credit) $405 000
Non-current asset turnover 1.6 times
Interim dividend paid (per share) $0.30
Final dividend proposed (per share) $0.15
Gross profit margin 48%
Dividend yield 4%
Price / earnings ratio 18

At 31 December 2022
$
Inventory 44 000
Trade receivables 76 400
Trade payables 32 900
Cash at bank 81 000
6% debenture (2026) 100 000
Ordinary share capital ($1 shares) 300 000
Share premium 30 000

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Source C for Question 3

The directors of W Limited, a manufacturing company, have provided the following information for the
year ended 31 December 2022.
$
Revenue 984 000
Purchases of raw materials 198 000
Direct labour 164 000
Carriage inwards 3 100
Carriage outwards 6 200
Factory overheads 98 000
Administrative expenses 223 500
Selling and distribution costs 84 000
Rent and rates 74 000
Factory machinery (at cost) 144 000
Office equipment (at cost) 66 000
Delivery van (at cost) 48 000
Inventories (at cost) at 1 January 2022
Raw materials 8 000
Work in progress 17 300
Finished goods 45 000
Provision for depreciation at 1 January 2022
Factory machinery 84 000
Office equipment 32 000
Delivery van 28 800

The following information is also available.

1 W Limited maintained a provision for unrealised profit account.

2 At 31 December 2021, finished goods were transferred to the trading section of the statement of
profit or loss at cost plus 20%.

3 At 31 December 2022, finished goods were transferred from the manufacturing account to the
trading section of the statement of profit or loss at a transfer value of $632 400.

4 Inventories were valued at cost on 31 December 2022 as follows:

$
Raw materials 10 500
Work in progress 16 900
Finished goods 52 000

5 Rent, $6 000, was accrued on 31 December 2022. Rent and rates are to be split between the
factory overheads, the administrative expenses and the selling and distribution costs in the ratio of
5:2:3 respectively.

6 Depreciation is to be provided as follows:

Factory machinery – 15% per annum using the reducing balance method
Office equipment – 15% per annum using the reducing balance method
Delivery van – 20% per annum using the straight-line method
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