Cambridge A Level Accounting 9706 — 2021 May/June Paper 3 · Variant 2

This document has 24 pages. Any blank pages are indicated. Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 Structured Questions May/June 2021 3 hours You must answer on the question paper. You will need: Insert (enclosed) 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 diagrams, graphs or rough working. ● You may use a calculator. ● International accounting terms and formats should be used as appropriate. ● You should show your workings. INFORMATION ● The total mark for this paper is 150. ● The number of marks for each question or part question is shown in brackets [ ]. ● The insert contains all of the required information and questions. * 6 0 1 9 2 5 6 8 0 4 * DC (CJ) 203402/4 © UCLES 2021 [Turn over

2 9706/32/M/J/21 © UCLES 2021 Section A: Financial Accounting Answer all questions. 1 Read Source A1 in the insert. (a) Prepare the realisation account. Realisation account $ $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … [8]

3 9706/32/M/J/21 © UCLES 2021 [Turn over (b) State two differences between a realisation account and a revaluation account. 1 … … … 2 … … … [2] (c) Prepare a statement showing the final settlement to or from each of the partners. Alan $ Brian $ … … … … … … … … … … … … … … … … … … … … … … … … … … … [8]

4 9706/32/M/J/21 © UCLES 2021 (d) Calculate the goodwill arising from acquiring the partnership business by Z Limited. … … … … … … … … … … [2]

5 9706/32/M/J/21 © UCLES 2021 [Turn over Additional information Before acquiring the partnership business, Z Limited had two equal shareholders and a total share capital of $1 000 000. These shareholders are the directors of the company. A few months after acquiring the partnership business, Z Limited decided to acquire the business of a sole trader. The agreed consideration would be $800 000. The sole trader requested: 1 the consideration should be settled by 640 000 ordinary shares of Z Limited; and 2 a directorship in Z Limited. (e) Advise the directors whether or not they should accept the request of the sole trader. Justify your answer showing relevant calculations. … … … … … … … … … … … … … … … … … [5] [Total: 25]

6 9706/32/M/J/21 © UCLES 2021 2 Read Source A2 in the insert. (a) (i) State how non-current asset turnover is calculated. … … … [1] (ii) Explain why a company may want to know this ratio. … … … … … [2] (b) Calculate the total net book value of non-current assets of Y Limited at 31 December 2019. … … … [1]

7 9706/32/M/J/21 © UCLES 2021 [Turn over Additional information Y Limited classifies non-current assets into three categories. The accumulated depreciation at 31 December 2019 for each category was: $ Property 128 000 Plant and equipment 168 800 Furniture and fixtures 101 200 The net book values of the three categories at 31 December 2019 were in the proportion of 5 :3 : 2. The following information relates to the accounting year ended 31 December 2020. 1 On 1 January 2020, the property was revalued at $360 000. 2 On 1 March 2020, office furniture was purchased at the cost of $25 000. 3 On 1 July 2020, an item of old equipment was part exchanged for a new item. Y Limited paid cash, $34 000, as a part payment for the new item. The old item had an original cost of $35 000 and was fully depreciated. Its part exchange value was $8000. 4 A full year’s depreciation is charged in the year of purchase and none in the year of sale. 5 Non-current assets are depreciated as follows: Property Straight-line method over 20 years Plant and equipment 20% per annum reducing balance method Furniture and fixtures 20% per annum straight-line method

8 9706/32/M/J/21 © UCLES 2021 (c) Prepare the non-current assets schedule to use as a note to the financial statements for the year ended 31 December 2020. Property $ Plant and equipment $ Furniture and fixtures $ Total $ … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … Workings: [14]

9 9706/32/M/J/21 © UCLES 2021 [Turn over Additional information The directors plan to buy new motor vehicles in 2021. (d) Explain to the directors why they need to depreciate motor vehicles. … … … … … … … … … [3] (e) Explain to the directors the impact on the profit of using each of the straight-line and the reducing balance method of depreciation. … … … … … … … … … … … … [4] [Total: 25]

10 9706/32/M/J/21 © UCLES 2021 3 Read Source A3 in the insert. (a) Explain two disadvantages to a consignor in making sales on a consignment basis. 1 … … … … 2 … … … … [4] (b) Prepare the consignment account in the books of Tan for the year ended 31 March 2021. … … … … … … … … … … … … … … …

11 9706/32/M/J/21 © UCLES 2021 [Turn over Workings: [10] (c) Explain three reasons why Tan sells motors at a lower selling price for the consignment sales. 1 … … … … … 2 … … … … … 3 … … … … … [6]

12 9706/32/M/J/21 © UCLES 2021 Additional information Tan finds that his products are well received in country B. He plans to set up a company in country B to sell his products. (d) Advise Tan whether or not he should set up a company in country B to sell his products. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25]

13 9706/32/M/J/21 © UCLES 2021 [Turn over 4 Read Source A4 in the insert. (a) State three features of financial statements which show a ‘true and fair view’. 1 … … 2 … … 3 … … [3] (b) Explain to the directors the appropriate accounting treatments for information items 1i, 1ii and 2, making reference to the relevant International Accounting Standards (IAS). Item 1i … … … … … … Item 1ii … … … … … … Item 2 … … … … … … [9]

14 9706/32/M/J/21 © UCLES 2021 (c) Prepare the revised statement of financial position at 31 December 2020 using all the available information. … … … … … … … … … … … … … … … … … … … … … … … … …

15 9706/32/M/J/21 © UCLES 2021 [Turn over Workings: [10]

16 9706/32/M/J/21 © UCLES 2021 Additional information A director of G Limited says ‘whether the financial statements show a true and fair view does not really matter to the company’. (d) Comment on whether or not the director’s statement is correct. Justify your answer. … … … … … … … … … [3] [Total: 25]

17 9706/32/M/J/21 © UCLES 2021 [Turn over Section B: Cost and Management Accounting Answer all questions. 5 Read Source B1 in the insert. (a) Calculate the overhead absorption rate. … … … … … [2] (b) Calculate the budgeted unit cost and the unit selling price of each product. … … … … … … … … … … … … [6] (c) Calculate the budgeted total profit of D Limited for the coming year. … … … … … … [3]

18 9706/32/M/J/21 © UCLES 2021 Additional information A newly recruited management accountant advises that D Limited should use activity based costing (ABC) to allocate fixed overhead costs to the two products. The management accountant has provided the following information relating to sofas and tables. Activity Overhead costs $ Cost driver Sofas Tables Setups 100 000 Number of setups 600 400 Machine operations 320 000 Machine hours 5 000 3 000 Materials cutting 120 000 Cutting hours 400 200 Inspection 60 000 Inspection hours 500 500 600 000 (d) Calculate the budgeted unit cost and the unit selling price for each product using ABC. … … … … … … … … … … … …

19 9706/32/M/J/21 © UCLES 2021 [Turn over Workings: [7] (e) Explain the reason for the change in the budgeted selling price between (b) and (d) for each product. … … … … … … [2]

20 9706/32/M/J/21 © UCLES 2021 Additional information The directors decide to adopt ABC in the coming year. Due to a higher mark-up on sofas, the directors plan to make a change to the budgeted production volume for each product. They want to shift the direct labour resources to produce more sofas and produce only 3000 tables in the coming year. However, additional $90 000 training costs and $110 000 for converting the existing machines would be incurred. (f) Advise the directors whether or not they should make the change. Justify your answer with reference to the financial factors only. … … … … … … … … … … … … … … … Workings: [5] [Total: 25]

21 9706/32/M/J/21 © UCLES 2021 [Turn over 6 Read Source B2 in the insert. (a) State two benefits to a business of preparing budgets. 1 … … … 2 … … … [2] (b) Prepare the trade receivables budget for July. … … … … … … … … Workings: [10]

22 9706/32/M/J/21 © UCLES 2021 (c) (i) Comment on W Limited’s existing management of trade receivables. … … … … … … … … … [3] (ii) Suggest three ways to improve management of trade receivables. 1 … … … 2 … … … 3 … … … [3]

23 9706/32/M/J/21 © UCLES 2021 Additional information W Limited purchases goods one month before sale. 40% of goods purchased are paid for in the month of purchase to get a discount of 2%. The remaining are paid for in the next month following purchase. A mark-up of 25% is applied on all sales. (d) Prepare the trade payables budget for July. … … … … … … … … … … Workings: [7] [Total: 25]

24 9706/32/M/J/21 © UCLES 2021 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 the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge. BLANK PAGE

This document consists of 24 printed pages. © UCLES 2021 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 Structured Questions May/June 2021 MARK SCHEME Maximum Mark: 150 Published 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 International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the May/June 2021 series for most Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 2 of 24 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles. GENERIC MARKING PRINCIPLE 1: Marks must be awarded in line with: • the specific content of the mark scheme or the generic level descriptors for the question • the specific skills defined in the mark scheme or in the generic level descriptors for the question • the standard of response required by a candidate as exemplified by the standardisation scripts. GENERIC MARKING PRINCIPLE 2: Marks awarded are always whole marks (not half marks, or other fractions). GENERIC MARKING PRINCIPLE 3: Marks must be awarded positively: • marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate • marks are awarded when candidates clearly demonstrate what they know and can do • marks are not deducted for errors • marks are not deducted for omissions • answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark scheme. The meaning, however, should be unambiguous. GENERIC MARKING PRINCIPLE 4: Rules must be applied consistently, e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 3 of 24 GENERIC MARKING PRINCIPLE 5: Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the quality of the candidate responses seen). GENERIC MARKING PRINCIPLE 6: Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind. Social Science-Specific Marking Principles (for point-based marking) 1 Components using point-based marking: • Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer shows relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer shows confusion. From this it follows that we: a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark scheme requires a specific term) b DO credit alternative answers/examples which are not written in the mark scheme if they are correct c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended writing is required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …). d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used wrongly.) e DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested. This applies equally to ‘mirror statements’ (i.e. polluted/not polluted). g DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and unambiguous separation from other syllabus terms with which they may be confused (e.g. Corrasion/Corrosion)

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 4 of 24 2 Presentation of mark scheme: • Slashes (/) or the word ‘or’ separate alternative ways of making the same point. • Semi colons (;) bullet points (•) or figures in brackets (1) separate different points. • Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark (except Accounting syllabuses where they indicate negative numbers). 3 Calculation questions: • The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark for each answer • If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all other instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown. • Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent stages. • Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be given if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any exceptions to this general principle will be noted. 4 Annotation: • For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct relationship between ticks and marks. Ticks have no defined meaning for levels of response marking. • For levels of response marking, the level awarded should be annotated on the script. • Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners who marked that paper.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 5 of 24 Question Answer Mark 1(a) Realisation account $ $ Property 300 000 } Z Limited 500 000 (1) Equipment 71 000 } Capital account Alan 28 000 (1) Motor vehicles 62 000 } Discount received 600 (1) Inventory 24 000 } (1) Trade payables 18 000 (1) Irrecoverable debt 4 400 (1) Discount allowed 1 100 (1) Profit on realisation Alan 50 460 } Brian 33 640 }(1OF) 546 600 546 600 8 1(b) Realisation Revaluation Ownership of assets changed Ownership of assets not changed (1) Net book value and consideration recorded Increase or decrease in asset value recorded (1) For takeover/dissolution of partnership/business Change in partnership/business (1) Only prepared on business dissolution/sale Prepared any number of times (1) Max 2 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 6 of 24 Question Answer Mark 1(c) Alan Brian $ $ Capital account 250 000 200 000 } Current account 27 000 ( 8 000) }(1) Profit on realisation 50 460 (1OF) 33 640 (1OF) Motor vehicle taken over (28 000) (1) Ordinary shares W1 (265 000) (1) (212 000) (1) Payable from bank account 34 460 (1OF) 13 640 (1OF) W1 ($500 000–$23 000) × 5 / 9 = $265 000 ($500 000–$23 000) × 4 / 9 = $212 000 8

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 7 of 24 Question Answer Mark 1(d) Assets taken over $ Property 350 000 Equipment 68 000 Motor vehicle 29 000 Inventory 20 000 Trade payables (18 000) 449 000 (1) Consideration 500 000 Goodwill 51 000 (1OF) 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 8 of 24 Question Answer Mark 1(e) Calculations: Shareholding will be reduced from 72.38% (1) (1 000 000 / [1 000 000 + 381 600]) to 49.47% (1) (1 000 000 / [1 000 000 + 381 600 + 640 000]) For: By issuing shares Z Limited is saved from paying cash The sole trader can bring in his experience and expertise Synergy effect leading to better profitability in the future Against: The original shareholders will lose the controlling interest The original shareholders have to share the decision-making power with the new director There may be conflict with the new director Max 2 marks for calculations ‘For’ argument – Max 1 mark ‘Against’ argument – Max 1 mark 1 mark for decision Accept other valid points. 5 Question Answer Mark 2(a)(i) Sales revenue divided by total net book value of non-current assets. (1) 1 2(a)(ii) The ratio measures the efficiency (1) of the business in using the non-current assets to generate sales revenue. (1) 2 2(b) $806 400 / 2.1 = $384 000 (1) 1

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 9 of 24 Question Answer Mark 2(c) Property Plant and equipment Furniture and fixtures Total $ $ $ $ Cost/Valuation At 1 January 2020 W1 320 000 (1) 284 000 (1) 178 000 (1) 782 000 Revaluation 40 000 (1) 40 000 Additions 42 000 (1) 25 000 (1) 67 000 Disposal (35 000) (1) (35 000) At 31 December 2020 360 000 291 000 203 000 854 000 Accumulated depreciation At 1 January 2020 128 000 168 800 101 200 398 000 Revaluation (128 000) (1) (128 000) Disposal (35 000) (1) (35 000) Charge for the year W2 30 000 (1) 31 440 (1) 40 600 (1) 102 040 At 31 December 2020 30 000 165 240 141 800 337 040 Net book value at 31 Dec 2020 330 000 125 760 61 200 516 960 (1OF)row Net book value at 31 Dec 2019 (5:3:2) 192 000 115 200 76 800 384 000 (1)row 14

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 10 of 24 Question Answer Mark 2(c) W1 Property Plant and equipment Furniture and fixtures $ $ $ Net book value 5:3:2 192 000 115 200 76 800 Accumulated depreciation 128 000 168 800 101 200 Original cost 320 000 (1) 284 000 (1) 178 000 (1) W2 $128 000 / $320 000 = 40%, 20 years × 40% = 8 years, $360 000 / (20 – 8) = $30 000 [$291 000 – ($168 800 – $35 000)] × 20% = $31 440 $203 000 × 20% = $40 600 2(d) Motor vehicles are non-current assets. (1) Depreciation recognises the loss of value of non-current asset over its useful life (1) Matching concept/matching the consumption of the cost of non-current asset with revenue generated by non-current assets (1) Prudence concept/value of non-current asset/profit is not overstated. (1) Requirement of IAS16 (1) Max 3 Accept other valid points. 3 2(e) Straight-line – the charge against the profit is constant each year (1) because it assumes that the non-current asset is used up evenly throughout its useful life (1) Reducing balance – the charge against the profit is higher in early years (the profit is lower)/is lower in later years (the profit is higher) (1) because it assumes that the non-current asset is used up more in the early years than the later years (1) Max 2 for straight line method and max 2 for reducing balance method. 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 11 of 24 Question Answer Mark 3(a) Loss of control/increased risk (1) – e.g. inventory may not be safeguarded resulting in a loss of value (1) Additional cost incurred/profit reduced (1), e.g. commission and freight (1) 2 disadvantages × 2 marks (1 mark for each identification, plus one further mark for development) Accept other valid points. 4 3(b) Tan Consignment account $ $ Goods sent on consignment 200 000 (1) Nadeem – sales W1 232 050 (1) Bank – Freight 4 600 } Inventory c/d W2 20 888 (4) Bank – Insurance 1 200 } Bank – packing 600 }(1) Nadeem – Import duty 1 800 } Nadeem – Storage 2 700 } Nadeem – Transportation 2 200 } Nadeem – Transportation 2 600 } Nadeem – Selling expenses 4 400 }(1) Nadeem – commission 18 564 (1OF) Income statement Profit on consignment 14 274 (1OF) 252 938 252 938 10

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 12 of 24 Question Answer Mark 3(b) W1 ($650 × 300) + (60 × $650 × 95%) = $232 050 W2 Excluding storage Including storage $ $ Cost of goods 200 000 Cost of goods 200 000 Freight 4 600 Freight 4 600 Insurance 1 200 Insurance 1 200 Packing 600 Packing 600 Import duty 1 800 Import duty 1 800 Transportation 2 200 Transportation 2 200 Storage 2 700 Total cost 210 400 (1) 213 100 (1) ÷ 400 ÷ 400 Cost per unit 526 (1OF) Cost per unit 532.75 (1OF) 38 × $526 199 88 (1OF) 38 × $532.75 20 245 (1OF) 2 × $450 900 (1) 2 × $450 900 (1) Inventory 20 888 Inventory 21 145

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 13 of 24 Question Answer Mark 3(c) Pricing strategy (1) – building market share in Country B (1) Competition in Country B (1) – bench marking with the price of competitors (1) Market condition/income level in Country B (1) – the consumers will buy the cheaper motor (1) 3 reasons × 2 marks (1 mark for identification, plus one for development) Accept other valid points. 6 3(d) For (Max 2) • He can fully control the selling activities (1) • He can avoid paying commission (1) • He can expand the market for his products and increase his revenue (1) Against (Max 2) • He will incur setup costs (1) • He is new to the market and does not have sufficient knowledge of the market (1) • This can be more risky – political risk, economic risk, etc. (1) ‘For’ argument – Max 2 mark ‘Against’ argument – Max 2 mark 1 mark for decision Accept other valid points. 5 Question Answer Mark 4(a) • Factually correct (1) • No fraud (1) • Prepared in accordance with accounting standards and legislation (1) • Faithfully represent the performance and financial position (1) • No material errors or omissions (1) • Free from material misstatement (1) • Free from bias (1) Max 3 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 14 of 24 Question Answer Mark 4(b) Item 1i – IAS 38 Intangible Assets / IAS 36 Impairment of Assets (1), purchased goodwill is recognised in the financial statements (1) and included at its value at 31 December / $24 000. (1) Item 1ii – IAS 38 Intangible Assets (1), internally generated goodwill should not be recognised in the financial statements (1), therefore there is no revaluation surplus of $50 000. (1) Item 2 – IAS 36 Impairment of Assets (1), When the carrying amount exceeds the recoverable amount impairment has occurred (1), and in this case there is an impairment loss of $3 800 (1) For each item, 1 mark for correct IAS plus 2 further marks for explanation. 9

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 15 of 24 Question Answer Mark 4(c) Revised statement of financial position at 31 December 2020 $ $ Non-current assets Goodwill W1 24 000 (1) Property, plant and equipment W2 540 200 (1) 564 200 Current assets Inventory W3 80 000 (1) Trade receivables W4 172 800 (2) Cash and cash equivalents 34 800 287 600 Total assets 851 800 Equity Ordinary shares of $1 each 500 000 Revaluation reserve 35 000 (1) Retained earnings W5 120 800 (3OF) 655 800 10

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 16 of 24 Question Answer Mark 4(c) Non-current liabilities Bank loan (2021–2025) 80 000 } Current liabilities Trade payables 96 000 Loan payable 20 000 }(1) 116 000 Total equity and liabilities 851 800 W1 Goodwill $80 000 – $50 000 – $6 000 = $24 000 W2 Property, plant and equipment $544 000 – $3 800 = $540 200 W3 Inventory $88 000 – ($40 000 × 25 / 125) = $80 000 W4 Trade receivables $187 200 / 96% = $195 000 (1), with provision for doubtful debt $7 800 deducted; ($195 000 – $15 000) × 4% = $7 200 $187 200 – $15 000 + ($7 800 – $7 200) = $172 800 (1)

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 17 of 24 Question Answer Mark 4(c) W5 $ Retained earnings Balance b/d 153 000 Goodwill impairment ( 6 000) } Impairment loss ( 3 800) } Inventory unrealised profit ( 8 000) } Irrecoverable debt (15 000) }(1) Provision for doubtful debt overstated 600 (1) 120 800 (1OF) 4(d) A true and fair view enhances the credibility of the financial statements (1) The financial statements can be trusted by users, e.g. investors, banks (1) If not true and fair then a qualified audit report will be received (1) Max 2 for comments plus 1 mark for decision Accept other valid points 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 18 of 24 Question Answer Mark 5(a) Sofas 2 000 × $250 / 50 10 000 Tables 5 000 × $160 / $40 20 000 Total labour hours 30 000 (1) Overhead absorption rate $600 000 / 30 000 = $20 per labour hour (1OF) 2 5(b) Sofas Tables $ $ Direct materials 300 190 Direct labour 250 160 Factory overhead 100 (1OF) 80 (1OF) Total cost 650 (1OF) 430 (1OF) Mark up 195 86 Selling price 845 (1OF) 516 (1OF) 6 5(c) $ $ Sofas $195 × 2 000 390 000 (1OF) OR Sales 4 270 000 (1OF) Tables $86 × 5 000 430 000 (1OF) Cost of sales 3 450 000 (1OF) Total profit 820 000 (1OF) Total profit 820 000 (1OF) 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 19 of 24 Question Answer Mark 5(d) Sofas Tables $ $ Direct materials 300 190 Direct labour 250 160 Factory overhead W1 185 46 (5OF) Total cost 735 396 (1OF both) Mark up 220.5 79.2 Selling price 955.5 475.2 (1OF both) W1 Cost allocated Sofas Tables $ $ Setups 60 000 40 000 (1 both) $100 000 × (600 / 1 000); $100 000 × (400 / 1 000) Machine operations 200 000 120 000 (1 both) $320 000 × (5 000 / 8 000); $320 000 × (3 000 / 8 000) Materials cutting 80 000 40 000 (1 both) $120 000 × (400 / 600); $120 000 × (200 / 600) Inspection 30 000 30 000 (1 both) $60 000 × (500 / 1 000) 370 000 230 000 ÷ 2 000 ÷ 5 000 Per unit = $185 = $46 (1OF both) 7

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 20 of 24 Question Answer Mark 5(e) A higher fixed overhead is charged to sofas under ABC leading to a higher selling price. (1) A lower fixed overhead is charged to tables under ABC leading to a lower selling price. (1) 2 5(f) 8 000 labour hours (2 000 units × 4) are released to produce 1 600 (8 000 / 5) sofas more $ Additional profit from sofas 1600 × $220.5 352 800 (1OF) Reduction of profit from tables 2000 × $79.2 (158 400) (1OF) 194 400 Training costs (90 000) } Machines converting costs (110 000) }(1) Decrease in profit ( 5 600) (1OF) Decision. (1) 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 21 of 24 Question Answer Mark 5(f) Alternative answer $ Profit on sofas 3600 × $220.5 793 800 (1OF) Profit on tables 3000 × $79.2 237 600 (1OF) Training costs (90 000) } Machines converting costs (110 000) }(1) Total profit after the change 831 400 Original profit (2000 × $220.5) + (5000 × $79.2) (837 000) Decrease in profit ( 5 600) (1OF) Decision. (1) Question Answer Mark 6(a) Assist planning/decision making/setting targets (1) Controlling by comparing the actual performance with budgets (1) Motivating managers/employees (1) Co-ordinating activities of departments (1) Managing resources efficiently (1) Responsibility accounting (1) Max 2 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 22 of 24 Question Answer Mark 6(b) July $ Balance b/d W1 473 000 (4OF) Sales for the month 280 000 (1) Collection for the month W2 (273 000) (4OF) Balance c/d 480 000 (1OF) W1 – amounts outstanding $ 100% of June sales $300 000 × 100% 300 000 (1) 50% of May sales $250 000 × 50% 125 000 (1) 20% of April sales $240 000 × 20% 48 000 (1) 473 000 (1OF) W2 – amounts received $ 50% of June sales $300 000 × 50% 150 000 (1) 30% of May sales $250 000 × 30% 75 000 (1) 20% of April sales $240 000 × 20% 48 000 (1) 273 000 (1OF) 10

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 23 of 24 Question Answer Mark 6(c)(i) Trade receivables are not well managed. (1) Only 50% of credit customers adhere to the company policy of paying in one month after sale. (1) Potential liquidity/cash flow problems. (1) Possibility of increased irrecoverable debts. (1) Long outstanding debts are not followed up/poor credit control. (1) Credit reference of customers are not checked thoroughly. (1) Max 3 Accept other valid points. 3 6(c)(ii) Use the services of a credit controller. (1) Send monthly statements. (1) Undertake credit reference check. (1) Impose interest on late payment. (1) Stop selling goods to customers with overdue accounts. (1) Allow cash discount. (1) Consider cash sales. (1) Max 3 Accept other valid points. 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2021 © UCLES 2021 Page 24 of 24 Question Answer Mark 6(d) July $ Balance b/d W1 134 400 (2OF) Purchases W2 256 000 (1) Bank paid for current month purchases W3 (100 352) (1) Bank paid for last month purchases W4 (134 400) (1) Discount received W5 ( 2 048) (1) Balance c/d 153 600 (1OF) W1 $280 000 / 125% = $224 000 (1) × 60% = $134 400 (1OF) W2 $320 000 / 125% = $256 000 W3 $256 000 × 40% × 98% = $100 352 W4 $224 000 × 60% = $134 400 W5 $256 000 × 40% × 2% = $2 048 7