Cambridge International AS & A Level

* 0 4 3 5 9 3 9 1 9 5 *

ACCOUNTING 9706/23
Paper 2 Structured Questions October/November 2022

1 hour 30 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 20 pages. Any blank pages are indicated.

DC (CJ) 303163/3
© UCLES 2022 [Turn over
 2

1 Reece, a sole trader, does not maintain a full set of accounting records. He has provided the
following information for the year ended 30 June 2022.

30 June 2022 1 July 2021

$ $
Cash 110 240
Electricity accrued 380 420
Inventory 21 400 23 600
Machinery
Cost ? 18 480
Accumulated depreciation ? 9 685
Rent paid in advance 1 100 950
Trade payables 8 520 6 285
Trade receivables 20 620 23 580

Bank account summary

Receipts $ Payments $
Balance b/d 1 860 Credit suppliers 80 140
Credit customers 149 810 Rent 12 250
Cash sales banked 7 170 Wages 36 240
Sale of machinery 4 000 Electricity 3 680
General expenses 18 590
New machinery 9 200
Balance c/d 2 740
162 840 162 840

The following information is also available.

1 Total cash sales for the year were $15 280.

2 Reece had also paid cash for wages during the year but had not recorded this.

3 Reece took $450 per month drawings before the cash sales were banked. He had also taken
goods for his own use with a selling price of $350 after a mark-up of 25%.

4 During the year, machinery that had cost $6000 on 1 July 2019 was sold.

5 Machinery is to be depreciated at 15% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase, but none in the year of disposal.

© UCLES 2022 9706/23/O/N/22

 3

REQUIRED

(a) Calculate the total credit sales for the year ended 30 June 2022.

...................................................................................................................................................
Balance b/d 23,580 Bank 149,810
...................................................................................................................................................
Sales 146,850 balance c/d 20,620
...................................................................................................................................................

...................................................................................................................................................

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

(b) Calculate the total credit purchases for the year ended 30 June 2022.

...................................................................................................................................................
Bank 80,140 Balance b/d 6,285
...................................................................................................................................................
8,520 Purchases 82,375
balance c/d
...................................................................................................................................................

............................................................................................................................................. [1]

(c) Calculate the total cash paid for wages during the year ended 30 June 2022.

...................................................................................................................................................
240 cash sales banked 7,170
Balance b/d
...................................................................................................................................................

Cash sales 15,280 Drawings 5,400

...................................................................................................................................................
Wages 2840
...................................................................................................................................................
Balance c/d 110
............................................................................................................................................. [3]

(d) Calculate the depreciation charge for the year ended 30 June 2022.

...................................................................................................................................................

...................................................................................................................................................
2049
...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [3]

© UCLES 2022 9706/23/O/N/22 [Turn over

 4

Additional information

Inventory at 30 June 2022 included damaged goods which had cost $1800, but needed repairs
costing $350. The goods could then be sold for 30% less than the normal selling price of $2250.

REQUIRED

(e) Prepare the income statement for the year ended 30 June 2022.

Reece

Income statement for the year ended 30 June 2022

Revenue 162,130
...................................................................................................................................................

Less: COGS
...................................................................................................................................................

Opening Inventory 23,600

...................................................................................................................................................
Purchases 82,375
...................................................................................................................................................
(280)
Drawings
...................................................................................................................................................

- Closing Inventory (20825) (84,870)

...................................................................................................................................................

Gross Profit 77,260

...................................................................................................................................................
Less: Expenses
...................................................................................................................................................

Wages 39,080
...................................................................................................................................................

Rent 12,100
...................................................................................................................................................
Electricity 3,680
...................................................................................................................................................
Depreciation 2049
...................................................................................................................................................

General Expenses 18,590

...................................................................................................................................................

loss on disposal 335 (75,794)

...................................................................................................................................................
Net Profit 1,466
...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Workings:

[10]
© UCLES 2022 9706/23/O/N/22
 5

(f) State two causes of depreciation of non-current assets.

Wear and Tear

1 ................................................................................................................................................
Technologial Change
2 ................................................................................................................................................
[2]

(g) Explain, with reference to an accounting concept in each case, why:

(i) a business should make a provision for depreciation of non-current assets

Accounting concept
Matching concept
...........................................................................................................................................

Explanation

...........................................................................................................................................

...........................................................................................................................................

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

(ii) a business should make an adjustment for damaged inventory.

Accounting concept
Prudence
...........................................................................................................................................

Explanation

...........................................................................................................................................

...........................................................................................................................................

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

© UCLES 2022 9706/23/O/N/22 [Turn over

 6

Additional information

Reece has been thinking of maintaining a full set of accounting records.

REQUIRED

(h) Advise Reece whether or not he should maintain a full set of accounting records. Justify your
answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 30]

© UCLES 2022 9706/23/O/N/22

 7

PLEASE TURN OVER

© UCLES 2022 9706/23/O/N/22 [Turn over

 8

2 Darius and Ewan are in partnership sharing profits and losses in the ratio 5 : 3.

The following balances were extracted from the partnership books of account at 31 July 2022.

$
Bank overdraft 12 700
Capital accounts
Darius 94 300
Ewan 68 300
Fixtures and fittings 44 000
Inventory 36 200
Property at valuation 127 000
Bank loan (2025) 24 000
Trade payables 14 200
Trade receivables 6 300

On 1 August 2022, the partners agreed to admit Karim into the partnership on the following terms.

1 Karim was to introduce total capital of $48 000. This consisted of fixtures and fittings valued at
$9500 with the balance to be introduced into the partnership bank account.

2 Future profits and losses were to be shared between Darius, Ewan and Karim in the ratio
5 : 3 : 2.

3 Goodwill was to be valued at $36 800. Goodwill was not to be retained in the books of account.

4 Property was to be revalued to $135 000.

5 Obsolete inventory of $2000 was to be written off.

REQUIRED

(a) Prepare, on page 9, the partners’ capital accounts on 1 August 2022 following the admission
of Karim.

© UCLES 2022 9706/23/O/N/22

 Capital accounts

Darius Ewan Karim Darius Ewan Karim

© UCLES 2022
$ $ $ $ $ $
9

9706/23/O/N/22
Workings:

[5]

[Turn over
 10

(b) Prepare the partnership statement of financial position at 1 August 2022 following the
admission of Karim. Use the space provided on page 11 for your workings.

Darius, Ewan and Karim

Statement of financial position at 1 August 2022

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

© UCLES 2022 9706/23/O/N/22

 11

Workings:

[6]

Additional information

Partners may allow interest on capital and charge interest on drawings.

REQUIRED

(c) State one advantage of allowing interest on capital to a:

partner ......................................................................................................................................

...................................................................................................................................................

partnership ................................................................................................................................

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

(d) Explain one reason why a partnership may charge interest on drawings.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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

[Total: 15]

© UCLES 2022 9706/23/O/N/22 [Turn over

 12

3 R Limited is a retail company.

REQUIRED

(a) Explain the meaning of 8% debentures (2025–2026).

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [3]

Additional information

The directors of R Limited provided the following information at 1 October 2021.

$000
Building at valuation 120
Retained earnings 315
Revaluation reserve 40
Share capital (ordinary shares of $0.50 each) 1 200
Share premium 145

The following transactions took place during the year ended 30 September 2022.

31 December 2021 Paid a final dividend of $0.06 per share.

31 March 2022 Made a rights issue of one ordinary share for every four shares held at a
price of $0.65. The issue was fully subscribed.

31 July 2022 Made a bonus issue of one ordinary share for every six shares held. The
directors decided to leave the reserves in the most flexible form.

31 August 2022 Paid an interim dividend of $0.04 per share.

30 September 2022 The building, which had originally cost $80 000, was revalued to $115 000.

The profit for the year ended 30 September 2022 was $87 000.

© UCLES 2022 9706/23/O/N/22

 13

REQUIRED

(b) Prepare the statement of changes in equity for the year ended 30 September 2022.

R Limited
Statement of changes in equity for the year ended 30 September 2022

Share Share Revaluation Retained

capital premium reserve earnings Total
$000 $000 $000 $000 $000

At 1 October 2021 1 200 145 40 315 1 700

Rights Issue 300 90 390

Bonus issue 250 (235) (15) -

Interim Dividend (140) (140)

Revaluation (5) (5)

Final dividend (144) (144)

profit for the year 87 87

At 30 September 2022 1750 1888

0 35 103

Workings:

[10]

(c) Explain why dividends proposed at the end of a financial year are not shown in a company’s
statement of financial position.

...................................................................................................................................................
A proposed dividend should be shown as a note to the accounts but should not be shown as a liability
...................................................................................................................................................
as at the reporting
date it has not been approved by the shareholders and as such there is no certainty that it will be paid
...................................................................................................................................................

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

[Total: 15]

© UCLES 2022 9706/23/O/N/22 [Turn over

 14

4 X Limited is a manufacturing business operating two production departments, Machining and

Finishing and two service departments, Stores and Maintenance.

All overhead costs have already been allocated to the departments. The service department costs
are to be apportioned to production departments as follows:

Stores department: in proportion to the number of parts orders

Maintenance department: in proportion to the number of maintenance call-outs.

The following budgeted information was available for the year ended 30 September 2022.

Machining Finishing Maintenance

department department department
Direct labour hours 11 500 54 600 –
Machine hours 48 000 12 000 –
Number of parts orders 6 400 1 800 300
Number of maintenance call-outs 120 30 –

REQUIRED

(a) Complete the table to apportion the service department costs to production departments.

Production departments Service departments

Total Machining Finishing Stores Maintenance

$ $ $ $ $
Allocated
803 900 288 500 515 400 – –
overheads

Indirect labour 459 000 106 000 52 000 70 000 231 000

Other indirect costs 360 000 114 000 56 000 78 000 112 000

Total overheads 1 622 900 508 500 623 400 148 000 343 000

[4]

© UCLES 2022 9706/23/O/N/22

 15

(b) Calculate, to two decimal places, a suitable overhead absorption rate for each production
department.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [4]

Additional information

The actual results for the year ended 30 September 2022 were as follows:

Machining Finishing
Total overheads $910 000 $705 000
Direct labour hours 12 100 51 800
Machine hours 49 200 10 900

REQUIRED

(c) Calculate the over-absorption or under-absorption of overheads for each production

department.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [4]

(d) State two possible reasons why a business may under absorb overheads.

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

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]
Additional information

The total budgeted direct labour cost for the production departments for the year ended
30 September 2022 was $594 900.

REQUIRED

(e) Calculate the budgeted hourly direct labour rate for the production departments.

............................................................................................................................................. [1]

© UCLES 2022 9706/23/O/N/22 [Turn over

 16

Additional information

X Limited have been asked to supply a quotation for a customer who requires 50 units of a product.
Each unit would require the following:

Direct material 4 kilos at $2.45 per kilo

Direct labour Machining department – 3 hours
Finishing department – 4.5 hours
Overheads Machining department
2 direct labour hours
1.25 machine hours
Finishing department
2.5 direct labour hours
1.75 machine hours

The machining department is working at full capacity, so an overtime premium of 25% would be
required to complete this work.

X Limited would require a profit margin of 25% on this work.

REQUIRED

(f) Prepare a statement to show the total selling price that X Limited will quote to the customer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [6]

(g) Explain why a business apportions service department costs to production departments.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]
© UCLES 2022 9706/23/O/N/22
 17

Additional information

The directors of X Limited have been advised that they should change from a departmental
overhead absorption rate to one factory-wide rate. They are concerned that this may affect the
profits of the business.

REQUIRED

(h) Advise the directors whether or not they should make this change. Justify your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [7]

[Total: 30]

© UCLES 2022 9706/23/O/N/22

 18

BLANK PAGE

© UCLES 2022 9706/23/O/N/22

 19

BLANK PAGE

© UCLES 2022 9706/23/O/N/22

 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
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.

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

© UCLES 2022 9706/23/O/N/22