Cambridge A Level Accounting 9706 — 2013 May/June Paper 4 · Variant 1

This document consists of 6 printed pages and 2 blank pages. IB13 06_9706_41/5RP © UCLES 2013 [Turn over *5658332908* UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ACCOUNTING 9706/41 Paper 4 Problem Solving (Supplementary Topics) May/June 2013 2 hours Additional Materials: Answer Booklet/Paper READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. 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 a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. All accounting statements are to be presented in good style. International accounting terms and formats should be used as appropriate. Workings should 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.

2 © UCLES 2013 9706/41/M/J/13 1 Adam, Basharat and Chandra have been in partnership for many years. The terms of the partnership agreement are: Profits and losses are shared by the partners in the ratio of 3:2:1. Partners receive interest on capital of 8% per annum. Chandra receives an annual salary of $12 000. On 1 January 2012 the balances on the partners’ capital and current accounts were: Capital account Current account $ $ Adam 40 000 7 940 Basharat 27 500 4 675 Chandra 49 000 3 825 On 30 September 2012 Adam retired from the partnership. At that date goodwill was valued at $90 000 and goodwill was not to appear in the books. The partnership assets were also revalued and were found to be $24 000 above their book value. The terms of the partnership were changed as follows: 1 Profits and losses to be shared equally. 2 Chandra would no longer receive a salary. 3 Basharat would receive an annual salary of $10 000. 4 Interest on capital would be charged at 4% per annum. Adam agreed to transfer an amount from his capital account to a loan account. He would receive annual interest of $5 000 on the loan. This was equal to an interest rate of 10% per annum on the loan. He drew the remaining balance in cash. REQUIRED (a) Prepare the partners’ capital accounts for the year ended 31 December 2012. [10] Additional information The gross profit for the year ended 31 December 2012 was $250 000. This was earned on an equal basis throughout the year. Expenses accrued evenly throughout the year as follows: $ Salaries 110 000 Rent 16 000 Electricity 7 000 Sundry expenses 28 500 No adjustment had been made for the following: Inventory valued at cost price of $10 000 was found to be severely damaged and had no value. Rent of $4 000 had been prepaid and an unpaid electricity bill of $1 500 is to be accrued.

3 © UCLES 2013 9706/41/M/J/13 [Turn over REQUIRED (b) Prepare the partnership income statement and appropriation account for the 9 month period to 30 September 2012 and the 3 month period to 31 December 2012. [16] (c) Prepare the partners’ current accounts for the year ended 31 December 2012. [8] Adam is considering investing some of his retirement proceeds in a limited company. He is considering acquiring either participating preference shares or convertible loan stock. REQUIRED (d) Explain the terms ‘participating preference shares’ and ‘convertible loan stock’. [6] [Total: 40]

4 © UCLES 2013 9706/41/M/J/13 2 The financial statements of Manik plc showed the following in respect of non-current assets: $000 Cost at 1 January 2012 2000 Less: accumulated depreciation 200 Net book value at 1 January 2012 1800 During the year ended 31 December 2012 the following took place. New machinery costing $100 000 was purchased. This had been entered in the ledger. Machinery which had cost $200 000 and had been depreciated by $50 000 was sold. The proceeds of the sale were $145 000 and this had been credited to the suspense account. No depreciation has been charged on the plant and machinery for the year. Depreciation is charged at 10% on the net book value of plant and machinery at 31 December 2012. The charge is to be included in the Administrative expenses for the year. REQUIRED (a) Prepare a statement suitable for inclusion in the published accounts to show the cost, accumulated depreciation and net book value of plant and machinery at 31 December 2012. [8]

5 © UCLES 2013 9706/41/M/J/13 [Turn over The trainee accountant at Manik plc has provided the following financial information at 31 December 2012. $000 Revenue 4000 Cost of sales 1000 Administrative expenses 1700 Distribution costs 450 Suspense account 145 Dividends paid and proposed 135 Inventory 400 Trade receivables 385 Trade payables 120 Cash and cash equivalents 170 Long term loan 300 Ordinary shares of $1 each 1250 Retained earnings at 1 January 2012 265 Additional information 1 No adjustments have been made in respect of distribution costs owing of $20 000 and administrative expenses prepaid of $15 000. 2 Interest on the long-term loan is chargeable at 10% per annum. Only the interest paid during the year of $20 000 has been included in administrative expenses. 3 The estimated tax charge for the year is $365 000. 4 The figure for dividends paid and proposed is made up as follows: Final dividend for the year ended 31 December 2011 paid in 2012 $50 000 Interim dividend paid 30 September 2012 $25 000 Proposed final dividend to be paid in March 2013 $60 000 5 On 1 December 2012 the company issued a further 500 000 shares of $1 each at $1.50. These shares would qualify for the proposed final dividend to be paid in March 2013. REQUIRED (b) Prepare the company’s income statement for the year ended 31 December 2012. [11] (c) Prepare a statement of changes in equity for the year ended 31 December 2012. [10] (d) Prepare the company’s statement of financial position at 31 December 2012. [8] (e) Explain how proposed dividends are treated in the published accounts. [3] [Total: 40]

6 © UCLES 2013 9706/41/M/J/13 3 Zeresh Limited provides the following information from its sales budget for 2014. Units Sales price per unit $ January 10 000 20 February 11 000 20 March 11 000 21 April 12 000 21 May 12 000 21 June 14 000 24 Additional information Inventory of finished goods at each month end is maintained at 20% of the units expected to be sold in the following month. Each unit requires 0.5 kilos of raw materials, which costs $3 a kilo. Half a month’s inventory of raw materials is maintained, based on the expected usage in the following month. The total production cost of each unit is $11 and this is the value used for inventory valuation. REQUIRED (a) (i) Prepare the production budget for each of the five months January to May 2014. [11] (ii) Prepare the purchases budget for raw materials for each of the four months January to April 2014. Show purchases of raw materials in both kilos and dollars. [9] (b) Calculate the value of finished goods and raw materials inventory at both 1 January 2014 and 30 April 2014. [4] (c) (i) Prepare a summarised manufacturing account for the four month period ending 30 April 2014. [6] (ii) Prepare the trading account section of the income statement for the same period. [6] (d) State two advantages and two disadvantages to a company of using a budgetary control system. [4] [Total: 40]

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CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Level MARK SCHEME for the May/June 2013 series 9706 ACCOUNTING 9706/41 Paper 4 (Problem Solving – Supplement), maximum raw mark 120 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the May/June 2013 series for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level components and some Ordinary Level components.

Page 2 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 1 (a) Partners’ capital accounts A B C A B C $ $ $ $ $ $ Bal. b/d 40 000 27 500 49 000 (1) Goodwill 45 000 45 000 (1) Goodwill 45 000 30 000 15 000 (1) Revaluation 12 000 8 000 4 000 (1) Loan a/c 50 000 (2) Cash 47 000 (1)of (1)cf Bal. c/d 20 500 23 000 (1)of 97 000 65 500 68 000 97 000 65 500 68 000 Bal. b/d 20 500 23 000(1) of [10] (b) Income statement and appropriation account for the year ended 31 December 2012 $ Gross profit 250 000 Inventory adjustment (10 000) Adjusted gross profit 240 000 (1) 9 months to 30/9/2012 3 months to 31/12/2012 $ $ $ $ Gross profit 180 000 60 000 (1) of Salaries 82 500 27 500 Sundry expenses 21 375 7 125 (1) both Rent 9 000 3 000 (1) Electricity 6 375 2 125 (1) Loan interest 1 250 (1) (119 250) (41 000) Profit from operations 60 750 19 000 (1) of Deduct: Salary C (9 000) (1) B (2 500) (1) Interest on cap. A 2 400 (1) of B 1 650 (1) of B 205 (1)of C 2 940 (1) of (6 990) C 230 (1)of (435) 44 760 16 065 Profits A 22 380 B 14 920 8 032 C 7 460 (1) of 8 033 (1) of 44 760 16 065 [16] (c) Partners’ current accounts A B C A B C $ $ $ $ $ $ Bal. b/d 7 940 4 675 3 825 (1) Salaries 2 500 9 000 (1) Int. on cap. 2 400 1 855 3 170(1)of Profits 22 380 22 952 15 493(1)of Cash 32 720 (1)of (1)cf Bal c/d 31 982 31 488(1) of 32 720 31 982 31 488 32 720 31 985 31 490 Bal. b/d 31 982 31 488(1)of [8]

Page 3 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 (d) Participating Preference Shares – Fixed rate of dividend if sufficient profit. (1) Arrears paid in later years if dividend not paid. (1) Dividend paid before ordinary share dividend. (1) Capital returned to investor prior to ordinary shareholder on winding up. (1) Convertible loan stock – Fixed interest rate. (1) Right to convert to shares at agreed price on agreed date. (1) Therefore usually lower interest rate than debentures. (1) Risk that market price may be lower than agreed price. (1) 1 mark for each valid point – maximum 3 for each term. [6] [Total: 40] 2 (a) Statement of cost, accumulated depreciation and net book value at 31 December 2012 $000 Cost at 1 January 2012 2000 Additions 100 (1) Disposals (200) (1) Cost at 31 December 2012 1900 Accumulated depreciation at 1 January 2012 200 Depreciation on disposals (50) (1) Charge for the year (1900 – 150
10%) 175 (3 or 1OF) Accumulated depreciation at 31 December 2012 325 Net book value at 31 December 2012 1575 (1OF) Net book value at 31 December 2011 1800 (1) [8]

Page 4 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 (b) Manik Limited Income Statement for the year ended 31 December 2012 $000 Revenue 4000 Cost of sales 1000 Gross profit 3000 (1, but must be labelled) Administrative expenses (1840) (1700 – 20 (1) – 15 (1)  175 (1OF)) Distribution costs (450  20 (1)) (470) Profit from operations 690 (1OF, must be labelled) Loss on disposal of non-current asset (5) (1OF) Finance costs (300
10%) (30) (1) Profit before tax 655 (1OF, must be labelled) Tax (365) (1) Profit for the year attributable to equity holders 290 (1OF, must be labelled) [11] (c) Statement of changes in equity for the year ended 31 December 2012 Details Ordinary Shares $000 Share Premium $000 Retained Earnings $000 Total $000 At 31 December 2011 500 (1) – 265 (1) 765 Shares issued 500 (1) 250 (1) 750 Profit for year attr. to equity holders 290 (1OF) 290 Dividends paid (75) (2) (75) At 31 December 2012 1000 (1) 250 (1) 480 (1OF) 1730 [10]

Page 5 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 (d) Statement of financial position at 31 December 2012 $000 Non-current assets Plant and machinery (NBV) 1575 (1OF) Current assets Inventory 400 Trade receivables 385 Other receivables 15 (1) Cash and cash equivalents 170 970 Current liabilities Trade payables 120 Tax 365 Other payables (20  10) 30 (2) 515 Non-current liability – Loan 300 Net assets 1730 Equity Ordinary shares of $1 each 1000 (1) Share premium 250 (1) Retained earnings 480 (1OF) Shareholders’ funds 1730 (1OF, if labelled) [8] (e) Proposed dividends are a non-adjusting event (1) They are not included in the financial statements for the year ended 31 December 2012 (1) They are shown as a note to the accounts for that year (1) [3] [Total: 40]

Page 6 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 3 (a) (i) Production Budget Jan Feb March April May Sales (units) 10 000 11 000 11 000 12 000 12 000 + Closing inventory 2 200 (1) 2 200 (1) 2 400 (1) 2 400 (1) 2 800 (1) 12 200 13 200 13 400 14 400 14 800 – Opening inventory 2 000 (1) 2 200 2 200 2 400 2 400 Budgeted production (units) 10 200 (1of) 11 000 (1of) 11 200 (1of) 12 000 (1of) 12 400 (1of) [11] (ii) Purchases Budget Jan Feb March April Raw materials used (kilos) 5 100 5 500 5 600 6 000 + Closing inventory 2 750 (1of) 2 800 (1of) 3 000 (1of) 3 100 (1of) 7 850 8 300 8 600 9 100 – Opening inventory 2 550 (1of) 2 750 2 800 3 000 Budget purchases (kilos) 5 300 5 550 5 800 6 100 (value) $15 900 (1of) $16 650 (1of) $17 400 (1of) $18 300 (1of) [9] (b) Value of finished goods 1 January 2014 $ Raw materials (2550 × $3) 7 650 (1) Finished goods (2000 × $11) 22 000 (1) 29 650 30 April 2014 Raw materials (3100 × $3) 9 300 (1of) Finished goods (2400 × $11) 26 400 (1of) 35 700 [4]

Page 7 Mark Scheme Syllabus Paper GCE A LEVEL – May/June 2013 9706 41 © Cambridge International Examinations 2013 (c) (i) Summarised manufacturing account for four months ending 30 April 2014 $ Inventory of raw materials at 1 January 7 650 Purchases of raw materials 68 250 (1of) 75 900 Inventory of raw materials at 30 April (9 300) (1of) both Cost of raw materials consumed (44 400 × 1.5) 66 600 (1) Direct labour and production overheads [44 400 × (11 – 1.5)] 421 800 (1of) Cost of production (44 400 × 11) 488 400 (2) [6] (ii) Summarised income statement for four months ending 30 April 2014 $ $ Revenue (44 000 units) 903 000 (1) Inventory of finished goods at 1 January 22 000 Cost of production 488 400 (1of) 510 400 Inventory of finished goods at 30 April (26 400) (1of) both Cost of sales 484 000 (2) Gross profit 419 000 (1of) [6] (d) Advantages – requires planning/co-ordination/communication – can be a motivator – causes more efficient use of resources – leads to cost control. Other sensible comment rewarded. Any two × 1 mark Disadvantages – poor data lead to poor decisions – without consultation budgets can be a demotivator – if undemanding can lead to underachievement – can cause conflict. Other sensible comment rewarded. Any two × 1 mark [4] [Total: 40]