Cambridge A Level Accounting 9706 — 2004 Oct/Nov Paper 1 · Variant 1

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level ACCOUNTING 9706/01 Paper 1 Multiple Choice October/November 2004 1 hour Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, highlighters, glue or correction fluid. Write your name, Centre number and candidate number on the answer sheet in the spaces provided unless this has been done for you. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C, and D. Choose the one you consider correct and record your choice in soft pencil on the separate answer sheet. Read the instructions on the answer sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet. Calculators may be used. This document consists of 10 printed pages and 2 blank pages. IB04 11_9706_01/RP
UCLES 2004 [Turn over

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UCLES 2004 9706/01/O/N/04 1 The accounts of a business show: 1 payments to suppliers 2 prepaid expenses 3 purchases 4 purchases returns Which items will be debited to accounts in the purchases ledger? A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4 2 X Ltd rents its building to Y Ltd. At 31 December 2002, Y Ltd owed $4500 for rent, but at 31 December 2003 had paid $3200 in advance. During the year X Ltd had received $17 100 in rental from Y Ltd. What is the rental income to be shown in X Ltd’s Profit and Loss Account for the year ended 31 December 2003? A $9400 B $15 800 C $18 400 D $24 800 3 From which of the following do revenue reserves arise? A the issue of new shares by a company B the revaluation of fixed assets C the share premium received on shares issued by the company D the trading activities of a company 4 A. Spender owns a road haulage business. What would be classified as capital expenditure? A purchase of number plates for new lorries B purchase of replacement fuel pump for lorries C purchase of replacement tyres for lorries D purchase of road tax licence

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UCLES 2004 9706/01/O/N/04 [Turn over 5 A company has the following balances. $ trade debtors at 31 December 2003 125 400 provision for doubtful debts at 1 January 2003 1 800 During the year ended 31 December 2003 bad debts of $20 500 were written off. The company provides for 5 % of trade debtors at each year end. What is the doubtful debts expense for the year ended 31 December 2003? A $3445 B $4470 C $5245 D $6270 6 Of which concept is the writing off of a bad debt an example? A going concern B matching C prudence D substance over form 7 A company purchases machinery on hire purchase over four years but does not own the machinery until the final payment has been made. At the end of year 1 the company shows the machinery in its Balance Sheet as a fixed asset and also records the liability for the amount still owed. Which accounting principle is being applied? A consistency B materiality C prudence D substance over form 8 The table shows details relating to a company’s banking transactions at 31 December. $ balance at bank per bank statement 22 650 uncleared lodgements 3 110 unpresented cheques 6 290 bank credit recorded twice by bank in error 650 Which balance for cash at bank should appear in the Balance Sheet at 31 December? A $18 820 B $20 120 C $25 180 D $26 480

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UCLES 2004 9706/01/O/N/04 9 A company’s trial balance includes a Suspense account. It was found that the only errors were discounts received of $240 and discounts allowed of $312, which had both been entered on the incorrect sides of the respective ledger accounts. What is the double entry required to clear the Suspense account balance? account DR $ CR $ A Discounts Allowed Discounts Received Suspense 312 240 72 B Discounts Received Suspense Discounts Allowed 240 72 312 C Discounts Allowed Discounts Received Suspense 624 480 144 D Discounts Received Suspense Discounts Allowed 480 144 624 10 X, Y and Z are in partnership, sharing profits in the ratio 2 : 2 : 1. X is allowed an annual salary of $10 000. Y has made a loan to the partnership on which the partnership pays interest of $5000 each year. Profit for the year before appropriations is $150 000. What is Z’s total appropriation of profit for the year? A $27 000 B $28 000 C $29 000 D $30 000 11 In the absence of a partnership agreement the partners claim that they are: 1 entitled to interest on the capitals at the rate of 5 % per annum 2 entitled to interest on loans to the firm at 5 % per annum 3 entitled to interest on loans to the firm at 10 % per annum 4 not entitled to interest on capitals 5 not entitled to interest on loans to the firm Which claims are correct? A 1 and 2 B 2 and 4 C 3 and 4 D 4 and 5

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UCLES 2004 9706/01/O/N/04 [Turn over 12 Interest charged on a Partner’s Drawings account should be A debited to the Profit and Loss Account. B credited to the Profit and Loss Account. C debited to the Appropriation Account. D credited to the Appropriation Account. 13 In a period of rising prices, a company has valued its stock of goods using the Last In, First Out (LIFO) basis. The directors have decided that the stock should be valued using the First In, First Out (FIFO) basis. What is the effect of the change in the valuation of the stock on the gross and net profits of the company? gross profit net profit A decrease no effect B decrease decrease C increase no effect D increase increase 14 A company sells goods on sale or return at a mark up of 25 %. At the Balance Sheet date the following information is available. goods in warehouse $300 000 (cost) goods sent on sale or return $200 000 (at invoice price) What will be the value of closing stock in the company accounts? A $300 000 B $450 000 C $460 000 D $500 000 15 A and B are in partnership, sharing profits and losses equally. A’s capital account is $6000 and B’s capital account is $5000. Goodwill is valued at $12 000, but is not shown in the accounts. They agree to admit Z as a new partner and to share profits and losses equally. What is A’s new capital account balance? A $4000 B $8000 C $10 000 D $12 000

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UCLES 2004 9706/01/O/N/04 16 You are given the following information on 31 December 2003 by X, a sole trader. $ total purchases for year 95 000 returns inwards 3 000 returns outwards 2 000 stock withdrawn by X for personal use 5 000 Unsold stock on 31 December 2003 was valued at $1000 more than on 1 January 2003. What is the cost of sales? A $86 000 B $87 000 C $89 000 D $97 000 17 A company’s Balance Sheet includes the following extract: $ Authorised share capital 10 000 000 Issued share capital: 2 million ordinary shares of $1 each 2 000 000 Reserves: Share premium 2 000 000 General reserve 400 000 Profit and Loss 1 000 000 What is the maximum number of bonus shares that may legally be issued? A 1 400 000 B 2 400 000 C 3 000 000 D 3 400 000 18 What will result in an increase in cash funds to a business? A bonus issue of shares B increase in authorised share capital C revaluation of fixed assets D rights issue of shares

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UCLES 2004 9706/01/O/N/04 [Turn over 19 A company’s Balance Sheet shows the following balances: $ ordinary shares of $1 each 100 000 share premium 10 000 Profit and Loss 48 000 bank balance 50 000 A 1 for 4 bonus issue takes place, leaving the reserves in the most useful form. What are the new account balances? Share Premium Profit and Loss balance Bank $ $ $ A 33 000 50 000 B 33 000 75 000 C 10 000 23 000 50 000 D 10 000 23 000 75 000 20 A business calculated that its quick (acid test) ratio is lower this year than last year. What caused the reduction in the ratio? A an increase in creditors B an increase in stock C an increase in debtors D an increase in bank 21 The gross profit ratio of a business has increased. Which statement is correct? A purchases have been obtained at reduced cost B sales have increased C sales returns have decreased D stocks have decreased

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UCLES 2004 9706/01/O/N/04 22 Which gives the return on capital employed? A sales profit net x sales employed capital x 100 B sales profit net x employed capital sales x 100 C profit net sales x sales employed capital x 100 D profit net sales x employed capital sales x 100 23 The debtor collection period of a business has increased from 55 to 90 days. Which reason could not account for this? A a large bad debt written off B a large credit sale made just before the year end C a major customer in financial difficulty D poor credit control 24 What does the diagram show about costs? 1 2 3 4 5 fixed costs $000 profit years sales revenue revenue and costs A fixed costs are increasing B total costs as a % of sales are decreasing C variable costs per unit are decreasing D variable costs per unit are increasing

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UCLES 2004 9706/01/O/N/04 [Turn over 25 The following information relates to a unit of production. $ selling price 12 direct labour 3 direct materials 1 fixed overhead allocation 5 Variable costs are set to increase by 10 %. What is the new contribution per unit? A $2.10 B $2.60 C $7.60 D $7.70 26 A business produces a single product. number of units opening stock 5 000 production 15 000 closing stock 2 000 The variable production cost per unit is $10 and the fixed production cost is $60 000. The sales revenue is $360 000. Profit is $108 000 based on full absorption costing. What is the profit based on marginal costing? A $8000 higher B $8000 lower C $12 000 higher D $12 000 lower

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UCLES 2004 9706/01/O/N/04 27 You are given the following information concerning a product. $ per unit selling price 10.00 variable labour costs 3.50 raw material costs 2.50 break-even point 2500 units What is the total fixed cost? A $10 000 B $15 000 C $16 250 D $18 750 28 What is a direct expense for a printing business? A depreciation of printing machinery B paper used in the printing process C rent and rates of the factory premises D the capital cost of printing machinery 29 A business uses absorption costing. Which cost is used to value finished stock? A full cost B prime cost C variable cost of production D variable cost of sales 30 The following relate to a factory. 1 carriage inwards 2 depreciation of factory machinery 3 machine operators wages 4 insurance of machinery 5 royalties on production Which items make up factory overhead? A 1 and 2 B 2 and 3 C 2 and 4 D 4 and 5

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UCLES 2004 9706/01/O/N/04 BLANK PAGE

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary/Advanced Level MARK SCHEME for the November 2004 question paper 9706 ACCOUNTING 9706/01 Paper 1 (Multiple Choice (Core)), maximum raw mark 30 Mark schemes must be read in conjunction with the question papers and the Report on the Examination. • CIE will not enter into discussion or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the November 2004 question papers for most IGCSE and GCE Advanced Level syllabuses.

Grade thresholds taken for Syllabus 9706 (Accounting) in the November 2004 examination. minimum mark required for grade: maximum mark available A B E Component 1 30 23 21 14 The thresholds (minimum marks) for Grades C and D are normally set by dividing the mark range between the B and the E thresholds into three. For example, if the difference between the B and the E threshold is 24 marks, the C threshold is set 8 marks below the B threshold and the D threshold is set another 8 marks down. If dividing the interval by three results in a fraction of a mark, then the threshold is normally rounded down.

NOVEMBER 2004 GCE AS/A LEVEL MARK SCHEME MAXIMUM MARK: 30 SYLLABUS/COMPONENT: 9706/01 ACCOUNTING Paper 1 (Multiple Choice Core))

Page 1 Mark Scheme Syllabus Paper GCE AS/A LEVEL – NOVEMBER 2004 9706 1 © University of Cambridge International Examinations 2005 Question Number Key Question Number Key 1 B 16 B 2 A 17 D 3 D 18 D 4 A 19 A 5 B 20 A 6 C 21 A 7 D 22 B 8 A 23 A 9 C 24 D 10 B 25 C 11 B 26 C 12 D 27 A 13 D 28 B 14 C 29 A 15 B 30 C