Cambridge International AS & A Level

* 9 5 8 7 0 7 0 3 5 8 *

ACCOUNTING 9706/22
Paper 2 Structured Questions February/March 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 (RW) 303870/3
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 2

1 Rafiq owns a retail business. When the business was opened a few years ago, Rafiq maintained
only minimal accounting records.

REQUIRED

(a) State two reasons why the owner of a business might maintain minimal accounting records.

Less time - consuming

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

...................................................................................................................................................
Less costly / Lack of expertise
2 ................................................................................................................................................

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

(b) Identify four benefits of maintaining full accounting records.

More informed decision making

1 ................................................................................................................................................
Can povide detailed information to support loan application
2 ................................................................................................................................................

Access to full information on assets, liabilities, capital, expenses and revenues

3 ................................................................................................................................................

Possibility of fraud is reduced

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

Additional information

More recently Rafiq has been able to provide more detailed financial information.

1 On 1 January 2021, the business’s assets and liabilities were as follows:

$
Cash in hand 840
Bank overdraft 1 390
Furniture and fittings at valuation 22 710
Trade payables 11 870
Inventory 14 430
Rent prepaid 1 250

w2) Rent a/c

Balance b/d 1,250 Income Statement

14,560
Bank 14,750

Balance c/d 1,440

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 1 January 2021 - 31 January 2021
3

2 The following summary of receipts and payments for the year ended 31 December 2021 has
been prepared from the business’s bank statements.

Receipts $ $
Cash sales banked 132 200
Disposal of furniture and fittings 3 480
Total receipts 135 680

Payments
Drawings 18 390
Trade payables 93 100 $93,100 x 100% / 95%
Rent 14 750
Additional furniture and fittings 8 000 = $98,000
Installation costs for new fittings 380
General expenses 5 940
Total payments 140 560

3 Rafiq purchases all goods for resale on a credit basis.

4 All sales are on a cash basis.

5 A cash discount of 5% was received when Rafiq settled debts with trade payables during the
year ended 31 December 2021.

6 At 31 December 2021 trade payables totalled $9230.

REQUIRED

(c) Calculate the total purchases for the year ended 31 December 2021.
Purchase Ledger Control A/c
...................................................................................................................................................
$ $
...................................................................................................................................................
Bank 93,100 Bal b/d 11,870
...................................................................................................................................................
Discount Received 4,900 Purchases 95,360
...................................................................................................................................................
Balance c/d 9,230
...................................................................................................................................................
107,230 107,230
...................................................................................................................................................

...................................................................................................................................................
Balance b/d 9,230
...................................................................................................................................................
[3]

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Additional information

During the year ended 31 December 2021:

1 Some cash takings were not banked but were used to pay wages, $21 540, and drawings,
$2580.

2 Rafiq took goods costing $480 for private use.

3 Furniture and fittings with a value of $2950 were sold.

At 31 December 2021:

1 Cash takings of $1200 had not yet been banked.

2 The balance of cash in hand was $920.

3 Inventory was valued at $11 920.

4 Furniture and fittings were valued at $23 400.

5 Rent of $1440 was prepaid.

REQUIRED

(d) Prepare the income statement for the year ended 31 December 2021.

Workings:
W1 : Sales $

Banked 132,200

Wages 21,540

Drawings 2,580

Outstanding bankings 1,200

Increase in cash 80
157,600

W3 : Balance b/d 22,710

Additions 8,000
Installation Costs 380
Less : Disposal (2,950)

28,140
Balance c/d (23,400)

Depreciation 4,740

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Rafiq
Income statement for the year ended 31 December 2021
$ $
...................................................................................................................................................
Sales (W1) 157,600
...................................................................................................................................................

Less : Cost of Sales

...................................................................................................................................................
Opening Inventory 14,430
...................................................................................................................................................
Purchases 95,360
...................................................................................................................................................

Less : Goods for own use (480)

...................................................................................................................................................
109,310
...................................................................................................................................................

Less : Closing Inventory (11,920) (97,390)

...................................................................................................................................................
Gross Profit 60,210
...................................................................................................................................................
Add : Discount Received 4,900
...................................................................................................................................................

Profit on Disposal of Furniture and Fittings 530

...................................................................................................................................................
65,640
...................................................................................................................................................

Less :Expenses
...................................................................................................................................................
General Expenses 5,940
...................................................................................................................................................

Wages 21,540
...................................................................................................................................................

Rent (W2) 14,560

...................................................................................................................................................
Depreciation on Furniture and Fittings (W3) 4,740
...................................................................................................................................................
(46,780)
...................................................................................................................................................
18,860
...................................................................................................................................................

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

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

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

...................................................................................................................................................
[14]

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Additional information

Rafiq would like to expand his business but requires additional finance to carry out this plan. He is
considering two options.

Option 1: Invite a friend, Khaled, to become a partner in the business. Khaled would introduce
capital of $10 000.

Option 2: Apply for a bank loan of $10 000.

REQUIRED

(e) Advise Rafiq which option he should choose. Justify your answer by discussing both financial
and non-financial issues of each option.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Total: 30]

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2 T Limited’s statement of financial position at 28 February 2021 included the following:

$
Equity
Issued capital: ordinary shares of $0.50 each 450 000
Share premium 122 000
Retained earnings 342 000
914 000

On 31 August 2021 the directors paid an interim dividend of $0.05 per share.

REQUIRED

(a) Calculate the amount paid as an interim dividend.

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

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

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

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

(b) Identify two factors which directors should take into account when deciding the amount of a
dividend payment to shareholders.

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

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

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Additional information

On 1 December 2021, the directors made a bonus issue on the basis of two ordinary shares for
every three ordinary shares currently held. The directors wished to leave the reserves in their
most flexible form.

REQUIRED

(c) Prepare the journal entry to record the bonus issue of shares. A narrative is not required.

Journal
Dr Cr
$ $

[3]

Additional information

On 28 February 2022, the directors paid a final dividend of $0.07 per share on all ordinary shares
issued at this date.

The company’s profit for the year ended 28 February 2022 was $114 000.

REQUIRED

(d) Calculate the closing balance of the company’s retained earnings account at 28 February 2022.

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

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

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

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

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

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

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

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

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(e) State three reasons why a company sometimes makes a rights issue of shares rather than
a general issue of shares.

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

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

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

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

3 ................................................................................................................................................

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

[Total: 15]

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3 Bipin, Feroz and Neeru have been in partnership for many years sharing profits and losses in the
ratio 3 : 1 : 2 respectively.

Feroz decided to retire from the partnership with effect from 1 January 2022. On this date the
statement of financial position was available.

Statement of financial position

$ $
Assets
Non-current assets at net book value 132 000
Current assets
Inventory 17 560
Trade receivables 10 540
Cash at bank 18 490
46 590
Total assets 178 590

Capital and liabilities

Capital accounts
Bipin 72 000
Feroz 44 300
Neeru 57 000
173 300
Current accounts
Bipin 4 240
Feroz (1 980)
Neeru (2 750)
(490)
Total capital 172 810

Current liabilities
Trade payables 5 780

Total capital and liabilities 178 590

The following information is also available.

1 Non-current assets were revalued at $155 000 and inventory was revalued at $13 160.

2 Goodwill was valued at $39 000. It was agreed that a goodwill account was not to be
maintained in the books of the partnership.

3 Bipin and Neeru agreed to remain in partnership sharing profits and losses equally.

4 On his retirement, Feroz agreed to take a non-current asset at its valuation of $15 000. He
agreed to leave the remaining amount due to him as a loan to the partnership.

REQUIRED

(a) Prepare, on the next page, the partners’ capital accounts to record the retirement of Feroz.

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 Capital accounts

Bipin Feroz Neeru Bipin Feroz Neeru

$ $ $ $ $ $

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Goodwill (New) 19,500 19,500 Balance b/d 72,000 44,300 57,000

Non - Current Asset 15,000 Revaluation 9,300 3,100 6,200

Current A/c 1,980 Goodwill (Old) 19,500 6,500 13,000

Loan 36,920

Balance c/d 81,300 56,700

100,800 53,900 76,200 100,800 53,900 76,200

Balance b/d 81,300 56,700

11

[7]

9706/22/F/M/22
Revaluation = NCA $23,000 - Inventory $4,400 = $18,600

B : $9,300 F: $3,100 N: $6,200

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Additional information

Bipin and Neeru have agreed the following for the new partnership.

1 They will no longer use current accounts. Each partner’s current account balance is to be
transferred to the partner’s capital account.

2 The opening balances of their capital accounts are to reflect their new profit and loss sharing
ratio.
Neeru was to introduce or withdraw funds in order to achieve this.

REQUIRED

(b) Calculate the amount Neeru should introduce or withdraw.

Bipin Neeru
...................................................................................................................................................
$ $
...................................................................................................................................................
Capital Account balances 81,300 56,700
...................................................................................................................................................
Current Account Balances 4,240 (2,750)
...................................................................................................................................................
85,540 53,950
...................................................................................................................................................
Neeru to Introduce 31,590
...................................................................................................................................................
85,540
...................................................................................................................................................

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

(c) Explain one reason for valuing goodwill when a partner retires.
It will esure the retiring partner get rewarded for their contribution to the success of the business
...................................................................................................................................................

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

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

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

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(d) State two reasons why it is usual not to maintain a goodwill account in the books of a
partnership.

To apply the going concern concept

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

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

The value of the goodwill may fluctuate

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

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

[Total: 15]

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4 R Limited uses absorption costing at one of its factories. This factory has two production
departments: Machining and Assembly, and two service departments: Support and Canteen.
Some budgeted overheads have already been apportioned for April 2022. The remaining budgeted
overheads for April 2022 are as follows:

$
Depreciation of machinery 25 000
Production departments’ supervisor’s wages 19 800

The following additional information is available.

1
Production departments Service departments
Machining Assembly Support Canteen
Floor area (m2) 7000 2000 400 600
Power (Kwh) 4500 1800 300 900
Machinery cost ($) 850 000 110 000 15 000 25 000
Number of employees 75 35 8 7

2 The canteen provides meals for staff in the Machining, Assembly and Support departments.

3 The Support department’s overheads should be reapportioned on the basis of production

departments’ machinery cost.

REQUIRED

(a) Complete the following table showing the apportionment of overheads and the reapportionment
of service department overheads.

Production departments Service departments

Machining Assembly Support Canteen
$ $ $ $
Overheads already
106 350 28 600 7 180 13 870
apportioned
Depreciation of
machinery
Production departments’
supervisor’s wages

Reapportioned Canteen

Reapportioned Support

Total
[5]
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Additional information

Machining Assembly
Direct labour hours per month 3200 2400
Machine hours per month 5600 1800

REQUIRED

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

Machining

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

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

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

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

Assembly

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

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

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

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

(c) State two reasons why overheads may be under-absorbed.

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

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

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

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

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Additional information

At another factory a single product is made. This factory uses marginal costing.

The following information is available.

$
Direct materials per unit 8.80
Direct labour per unit 10.10
Selling price per unit 27.00

Fixed costs per month $44 000

Production capacity per month 15 000 units

The factory has been operating at below its normal capacity. However, recently demand for the
company’s product has increased considerably. The directors believe there is an opportunity to
increase profits. They are considering two options to meet increased demand.

Option 1

1 Increase the selling price per unit by 5%.

2 Increase production to 16 000 units per month.

3 Overtime is paid at an additional $4.10 per unit.

4 Reduce monthly advertising by $2 000.

Option 2

1 Increase production capacity per month by 15% by purchasing additional machinery costing
$78 000. This machinery will be depreciated at 20% per annum.

2 Selling price will remain at $27 per unit.

3 The supplier of materials currently offers a trade discount of 20%. This will increase to 30%.

4 The additional machinery will be more efficient and production will not require any overtime
working.

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REQUIRED

(d) Calculate the monthly profit to be made for each option.

(i) Option 1

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

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

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

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

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

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

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

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

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

(ii) Option 2

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

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

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

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

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

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

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

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

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

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Additional information

The cost of the additional machinery required in Option 2 would be financed by an issue of ordinary
shares.

REQUIRED

(e) Advise the directors which option they should choose. Justify your answer by considering
both financial and non-financial factors.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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(f) (i) State two benefits of budgetary control.

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

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

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

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

(ii) State two limitations of budgetary control.

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

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

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

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

[Total: 30]

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© UCLES 2022 9706/22/F/M/22