Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level



ACCOUNTING 9706/22
Paper 2 Structured Questions February/March 2017
1 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 17 printed pages and 3 blank pages.

IB17 03_9706_22/4RP
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1 Razia, a sole trader, started her business on 1 July 2015 selling ladies’ clothing. Razia did not
keep proper books of account, but was able to provide the following information.

Summary of bank account for the year ended 30 June 2016

$ $
Capital introduced 36 340 Payments to trade payables 80 690
Cash banked 78 780 Shop rental 25 200
Balance c/d 4 330 Shop fixtures and fittings 3 600
Purchase of motor vehicle 5 800
Motor expenses 3 140
Light and heat 1 020
119 450 119 450

Additional information

1 Total revenue for the year was $92 600. All sales were made for cash.

2 Razia kept no record of her cash drawings.

3 The following expenses were paid from cash takings before the money was banked:

$
General expenses 950
Assistants’ wages 2870

4 Cash in hand at 30 June 2016 was $1250.

REQUIRED

(a) Prepare the cash account, showing clearly the value of Razia’s drawings for the year.

Cash Sales 92,600 Cash Banked 78,780

General Expenses 950

Assistants Wages 2870

Cash Drawings 8750

Balance c/d 1250

92600 92600

Balance b/d 1250

[4]

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Additional information

1 All sales made a gross margin of 40%.

2 During the year, Razia had taken goods, $640 at cost price, for her own use.

3 Inventory at 30 June 2016 had been counted and was valued at cost price $31 900. Razia
was aware that some goods had been stolen during the year.

4 Razia owed $8940 to trade suppliers at 30 June 2016.

REQUIRED

(b) Calculate the value of inventory stolen during the year ended 30 June 2016 at cost price.
Revenue 92,600
Less: COGS

Purchases 89630

- stolen inventory (1530)

- drawings (640)

- closing inventory (31,900) (55560)

Gross Profit 37040

[4]

Additional information

1 At 30 June 2016, the following expenses were accrued:

$
Assistants’ wages 120
Light and heat 150

2 Non-current assets should be depreciated as follows:

Shop fixtures and fittings at 15% per annum using the reducing balance method

Motor vehicle using the straight-line method over five years. The estimated residual
value of the motor vehicle after five years is $400.

3 The annual charge for shop rental is $21 600.

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REQUIRED

(c) Prepare the income statement for the year ended 30 June 2016.
Gross Profit
37040
Less:Expenses

Shop Rental 21,600

Assistants Wages 2990

General Expenses 950

light and heat 1170

dep 540
dep 1080

Motor expenses 3140

- stolen inventory 1530 (33,000)

Net Profit 4040

[8]

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(d) Calculate, to two decimal places, the following ratios at 30 June 2016. State the formula
used in each case.

(i) Current ratio

Formula currents assets/ current liabilities

Calculation

2.71:1

[2]

(ii) Liquid (acid test) ratio

Formula CA-CL/CURRENT LIABILITIES

Calculation

.0.36:1

[2]

(e) (i) Name two other ratios a business could calculate to explain its liquidity position.

1 inventory turnover

2 working capital ratio [2]

(ii) State two limitations of using ratio analysis.

only uses financial data

2 Uses historical data

[2]

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Additional information

Razia’s brother has suggested that Razia should increase the mark-up on her goods.

REQUIRED

(f) Advise Razia whether or not she should increase the mark-up on her goods. Justify your
answer by discussing advantages and disadvantages of doing this.

[6]

[Total: 30]

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Question 2 is on the next page.

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2 Sturgess has provided the following information:

1 The provision for doubtful debts at 1 August 2015 was $1940.

2 Trade receivables at 31 July 2016 were $48 500.

3 A customer owing $2100 has been declared bankrupt. This amount is to be written off.

4 A customer owing $900 did not pay within the agreed credit terms. There are concerns about
the recovery of this debt.

5 The business policy is to make a 5% provision for doubtful debts on remaining trade
receivables.

REQUIRED

(a) (i) State one reason why a business may make a provision for doubtful debts.

To avoid trade receivables being overstated in the statement of financial position.

[1]

(ii) State one accounting concept applied while making the provision for doubtful debts.

Prudence [1]

(iii) Prepare the provision for doubtful debts account for the year ended 31 July 2016.

Balance c/d 3175 Balance b/d 1940

Income statement 1235

Add 900 because it wasnt written off

[5]

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(b) Explain how a provision for doubtful debts is treated in:

(i) the statement of financial position

The new provision is deducted from trade receivables under current assets
in the statement of financial position (

(ii) the income statement

An increase in provision for doubtful debts is shown as an expense

A decrease in provision for doubtful debts is shown as

additional income after the gross profit

[3]

Additional information

1 Accrued telephone expenses at 1 August 2015 were $275.

2 Prepaid telephone expenses at 1 August 2015 were $380.

3 The total amounts paid for telephone expenses during the year were $4750. This included a
rental charge of $2980 covering the period from 1 November 2015 to 31 October 2016.

4 Telephone call charges of $840 were paid on 12 September 2016 covering the period from
1 June 2016 to 31 August 2016.

REQUIRED

(c) Prepare the telephone expenses account for the year ended 31 July 2016.

Balance b/d 380 Balance b/d 275

Bank 4750 Income statement 4670

balance c.d 745

balance c.d 560

[5]

[Total: 15]

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3 King provided the following information for non-current assets at 1 April 2015.

$
Property plant and machinery
Land and buildings – cost 252 000
Plant and machinery – cost 123 000 109650
Accumulated depreciation
Buildings 21 000
Plant and machinery 49 000

During the year ended 31 March 2016, the following took place:

1 Land was revalued to $202 500. It had originally cost $182 000.

2 A machine was sold on 30 November 2015. It had a net book value on 1 April 2015 of $46 350
and an original cost of $76 200.

3 A machine was purchased on 1 December 2015 at a cost of $62 850.

The depreciation policy for non-current assets is as follows:

Buildings 2% per annum using the straight-line method

Plant and machinery 20% per annum using the reducing balance method

Depreciation is charged on a month-by-month basis.

REQUIRED

(a) Calculate the total depreciation charge for buildings for the year ended 31 March 2016.

[1]

(b) Calculate the total depreciation charge for plant and machinery for the year ended
31 March 2016.

Accumalted depreciation 29850 Balance b/d 49,000

4190
Income statement
Income statement 6180

Income statement

[3]

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(c) Prepare an extract from the statement of financial position at 31 March 2016 for non-current
assets.

King
Extract from Statement of Financial Position at 31 March 2016

Accumulated
Cost / Valuation Depreciation Net Book Value
$ $ $

Workings:

[8]

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(d) State three causes of depreciation.

Wear and tea

Changes in technology
3
Obsolescence [3]

[Total: 15]

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4 Miu owns a manufacturing business making a single product.

REQUIRED

(a) State the difference between a cost unit and a cost centre.

[2]

(b) State the difference between a production cost centre and a service cost centre.

[2]

(c) State what is meant by contribution.

[2]

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Additional information

Miu currently uses marginal costing to value her inventory. The following budgeted information is
available for the months of January and February:

Per unit $
Selling price 12
Variable production cost 5

January February
$ $
Fixed production overhead costs 9000 9000
Fixed administrative costs 800 800

Units Units
Sales 3600 5400
Production 4500 4500

There was no opening inventory in January.

Production is expected to be 54 000 units for the year.

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REQUIRED

(d) Prepare a budgeted profit statement for each of the two months, January and February,
using marginal costing. Clearly show the opening and closing inventories each month.

Budgeted Profit Statement

January February
$ $ $ $

[7]

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Additional information

Miu is considering using absorption costing to value her inventory.

REQUIRED

(e) Calculate the production overhead absorption rate per unit.

[1]

(f) Prepare a budgeted profit statement for each of the two months, January and February,
using absorption costing. Clearly show the opening and closing inventories each month.

Budgeted Profit Statement

January February
$ $ $ $

[8]

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(g) Reconcile the difference in budgeted profit figures in parts (d) and (f).

January February
$ $

[3]

(h) Advise Miu whether or not she should change from marginal costing to absorption costing.
Give reasons to justify your answer.

[5]

[Total: 30]

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currents assets/ current liabilities

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© UCLES 2017 9706/22/F/M/17