Cambridge A Level Accounting 9706 — 2021 Oct/Nov Paper 3 · Variant 3

This document has 24 pages. Any blank pages are indicated. Cambridge International AS & A Level ACCOUNTING 9706/33 Paper 3 Structured Questions October/November 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. DC (LK) 206069/3 © UCLES 2021 [Turn over * 1 0 6 9 6 4 3 3 4 5 *

2 9706/33/O/N/21 © UCLES 2021 Section A: Financial Accounting Answer all questions. 1 Read Source A1 in the insert. (a) Prepare the provision for unrealised profit account for the year ended 31 December 2020. … … … … … … … … [4] (b) Explain two possible reasons for the change in the balance on the provision for unrealised profit account. 1 … … … … 2 … … … … [4] Additional information 1 The rent included $6300 for the office and $1600 for the distribution area. 2 15% of the carriage inwards related to the purchases of finished goods. 3 Anil provides depreciation as follows. rate per annum method factory machinery 20% reducing balance office equipment 10% straight-line delivery vehicles 25% reducing balance Depreciation for the year ended 31 December 2020 is yet to be provided.

3 9706/33/O/N/21 © UCLES 2021 [Turn over (c) Prepare, for the year ended 31 December 2020, (i) the manufacturing account … … … … … … … … … … … … … … … … … … … … … … … … … … [8]

4 9706/33/O/N/21 © UCLES 2021 (ii) the income statement. … … … … … … … … … … … … … … … … … … … … … … … … … … [9] [Total: 25]

5 9706/33/O/N/21 © UCLES 2021 [Turn over 2 Read Source A2 in the insert. (a) Explain why a company might be concerned about its income gearing. … … … … [2] Additional information It is expected that the statement of financial position on 31 December 2021 will show the following. $ Non-current assets 290 000 Inventory 73 000 Trade receivables 22 000 Cash and cash equivalents 5 000 390 000 Ordinary share capital ($1 shares) 200 000 Share premium 50 000 Retained earnings 78 000 8% debentures 50 000 Trade payables 12 000 390 000 Further information is available as follows. 1 The debentures were issued in 2017 and are due for repayment in 2031. 2 The profit for the year ending 31 December 2021 is expected to be $36 000. A dividend of $18 000 will be paid by the end of that year. 3 The directors intend to buy and equip new premises on 1 January 2022 in order to expand the business. This will cost $100 000. It is expected to increase profit from operations in 2022 by 12%. 4 The company could finance this expansion by taking a long-term 10% bank loan on 1 January 2022.

6 9706/33/O/N/21 © UCLES 2021 (b) Calculate the maximum value of bank loan which the company could borrow whilst keeping to the policy on income gearing in 2022. … … … … … … … … … … … … … … … … [8]

7 9706/33/O/N/21 © UCLES 2021 [Turn over (c) Calculate the balance on the retained earnings account on 31 December 2022 if all the $100 000 needed is financed by the 10% bank loan. The rate of dividend cover should be maintained at the 2021 level. … … … … … … … … … … [6] (d) Calculate, to two decimal places, on the basis that the full bank loan of $100 000 was taken, the gearing ratio on: (i) 31 December 2021 … … … [1] (ii) 31 December 2022. … … … [1]

8 9706/33/O/N/21 © UCLES 2021 (e) Advise the directors whether or not the company should finance all of the expansion with the bank loan. Justify your answer. … … … … … … … … … … … … … … [7] [Total: 25]

9 9706/33/O/N/21 © UCLES 2021 [Turn over 3 Read Source A3 in the insert. (a) Prepare Aiona’s account in the books of Julia for the year ended 31 December 2020. … … … … … … … … … … … [5] Additional information Julia prepared her draft financial statements, and then discovered that she had in error debited the freight costs for Aiona’s consignment to Henri, and the freight costs for Henri’s consignment to Aiona. (b) Prepare the journal entry to correct the error made in recording the freight charges. A narrative is required. … … … … … … … … … … … [5]

10 9706/33/O/N/21 © UCLES 2021 (c) Explain the effect the error had on the value of inventory in Julia’s draft statement of financial position. Support your answer with relevant calculations. … … … … … … … … … … … … … … … … … … … … [9]

11 9706/33/O/N/21 © UCLES 2021 [Turn over (d) Explain the effect the error had on Julia’s draft profit for the year. … … … … [2] (e) Complete the following table to show which items relating to a consignment appear in which financial statements of a consignee. Name the section of the financial statement in which they appear. Item Financial statement Section [4] [Total: 25]

12 9706/33/O/N/21 © UCLES 2021 4 Read Source A4 in the insert. (a) State how a recoverable amount is determined. … … … [3] (b) Calculate the impairment loss arising. … … … … … … … [3] (c) Explain whether the impairment loss was an adjusting or a non-adjusting event in relation to the statement of financial position at 31 December 2020. … … … … [2]

13 9706/33/O/N/21 © UCLES 2021 [Turn over (d) Prepare an extract from the statement of financial position at 31 December 2020 to show the non-current assets section. … … … … … … … … … … … … … … … … … … … … [9] (e) Calculate the amount of the revaluation reserve created during the year ended 31 December 2020. … … … … … [3]

14 9706/33/O/N/21 © UCLES 2021 (f) Explain how the creation of the revaluation reserve affects the directors’ ability to pay dividends. … … … … [2] Additional information SW plc is involved in substantial research and development. One of the directors has suggested that development costs should in future be capitalised. (g) Advise the directors whether or not development costs should be capitalised. Justify your answer. … … … … … … [3] [Total: 25]

15 9706/33/O/N/21 © UCLES 2021 [Turn over Section B: Cost and Management Accounting Answer all questions. 5 Read Source B1 in the insert. (a) State two advantages and two disadvantages of operating a system of budgetary control. Advantages 1 … … 2 … … Disadvantages 1 … … 2 … … [4] Additional information LP plc provided the following information about its budgeted sales for 2022. units selling price per unit $ proportion sold for cash January 1000 92 25% February 1080 92 25% March 1240 80 30% April 1220 80 30% May 900 92 20%

16 9706/33/O/N/21 © UCLES 2021 (b) State the budget (other than the sales budget) in which the following would be recorded. (i) value of credit sales … [1] (ii) value of total sales … [1] Additional information 1 Half of credit customers pay in the month after sale and receive a cash discount of 5%. The remainder pay in the second month after sale. 2 Payments to credit suppliers are expected to be as follows. 2022 $ March 55 200 April 59 616 May 59 520 3 Other payments are expected to amount to $30 000 a month. 4 The directors intend to issue 10 000 ordinary shares of $1 each at a premium of $0.20 per share during March 2022. 5 They intend to buy a new non-current asset in March 2022. This will cost $72 000. Half of this will be paid in March, with the balance being paid at the rate of $1000 a month starting in April 2022. 6 The balance on the bank account on 1 March 2022 is expected to be $8000 overdrawn.

17 9706/33/O/N/21 © UCLES 2021 [Turn over (c) Prepare the cash budget for each of the months March, April and May 2022. Use the space provided on the next page to show your workings. … … … … … … … … … … … … … … … … … … … … … … … … … … …

18 9706/33/O/N/21 © UCLES 2021 Workings: [16] Additional information The company pays its credit suppliers two months after the month of purchase and never receives any cash discount. One of the directors has suggested that the company should pay at least a month earlier and receive the discount. (d) Advise the directors whether or not the company should pay earlier and receive the discount. Justify your answer. … … … … … … [3] [Total: 25]

19 9706/33/O/N/21 © UCLES 2021 [Turn over 6 Read Source B2 in the insert. (a) Calculate, by completing the following table, the difference in NPV between purchasing bus A and bus B. Year Change in capital $ Change in receipts $ Change in repairs $ Total change $ Discount factor Discounted cash flow $ Difference in NPV Workings: [10]

20 9706/33/O/N/21 © UCLES 2021 (b) Calculate the NPV of purchasing bus B. … … … [1] (c) Calculate, for bus A, the sale proceeds receivable at the end of year 3 at which the NPV for the two buses would be the same. … … … … … … [3] Additional information The Accounting Rate of Return (ARR) of purchasing bus A was calculated as 24.56%. The total net cash flows of years 1 to 3 inclusive for bus B amounted to $74 300. (d) Calculate the ARR of purchasing bus B. … … … … … … [4]

21 9706/33/O/N/21 © UCLES 2021 (e) Advise Jason which bus he should buy. Justify your answer. … … … … … … … … … … … … … … … [6] (f) State one method of investment appraisal (other than NPV and ARR) which a business could use. … [1] [Total: 25]

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24 9706/33/O/N/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 18 printed pages. © UCLES 2021 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/33 Paper 3 Structured Questions October/November 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 October/November 2021 series for most Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 2 of 18 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.

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 3 of 18 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.

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 4 of 18 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) 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).

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 5 of 18 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.

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 6 of 18 Question Answer Marks 1(a) Provision for unrealised profit accounts $ $ Balance c/d W1 1800 (2) Balance b/d 1400 (1) Income statement 400 (1)OF 1800 1800 Balance b/d 1800 W1 9000 (1) × 1/5 (1) = $1800 4 1(b) The value of manufactured inventory at cost has increased (1) from (8400 – 1400) $7000 to (9000 – 1800) $7200 (1)OF The rate of factory profit has increased (1) from 20% to 25% (1). 4

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 7 of 18 Question Answer Marks 1(c)(i) Anil Manufacturing account for the year ended 31 December 2020 $ Opening inventory of raw materials 6 300 Purchases of raw materials 87 000 Carriage inwards 6 800 (1) 100 100 Closing inventory of raw materials 5 800 Cost of raw materials consumed 94 300 (1) (w+f) Factory labour 46 200 Prime cost 140 500 (1)OF (w+f) Factory rent 9 200 (1) Factory depreciation 10 240 (1) Other factory overheads 40 860 200 800 Opening work in progress 4 400 } Closing work in progress –4 600 }(1) Cost of production 200 600 Factory profit 50 150 (1)OF Transfer value 250 750 (1)OF (w+f) 8

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 8 of 18 1(c)(ii) Anil Income statement for the year ended 31 December 2020 $ $ Revenue 362 000 Opening inventory of finished goods 8 400 Transfer value 250 750 (1)OF Purchases of finished goods 29 600 (1) Carriage inwards 1 200 (1) 289 950 Closing inventory of finished goods 10 000 279 950 Gross profit 82 050 Factory profit 50 150 (1)OF Office rent 6 300 * Office depreciation 3 000 (1) Increase in PUP 400 (1)OF Other administrative expenses 45 600 Total administrative expenses 55 300 Distribution rent 1 600 (1)*both Distribution depreciation 7 500 (1) Other distribution costs 11 200 Total distribution costs 20 300 Profit for the year 56 600 (1)OF 9

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 9 of 18 Question Answer Marks 2(a) A high income gearing ratio would represent increased risk (1) that a business would be unable to cover its interest payments (1) Accept other valid points. 2 2(b) $ 2021 profit for the year 36 000) (1) debenture interest 4 000) (1) 2021 profit from operations 40 000) 12% increase 4 800) (1)OF 2022 profit from operations 44 800) (1)OF maximum interest (25%) 11 200) (1)OF debenture interest (4 000) (1) bank interest 7 200) (1)OF maximum loan (x10) 72 000) (1)OF 8 2(c) $ 2022 profit from operations (from b) 44 800) (1)OF debenture interest (4 000) (1) bank interest (10 000) (1) 2022 profit for the year 30 800) add balance b/f 78 000) (1) dividend (18/36 = 50%) (15 400) (1)OF closing 2022 retained earnings 93 400) (1)OF 6

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 10 of 18 Question Answer Marks 2(d)(i) = 50 13.23% 378 (1) 1 2(d)(ii) = + + 150 30.40% 250 93.4 150 (1)OF 1 2(e) Taking out the bank loan would increase gearing (1) but the ratio would remain low (1). The interest would mean that the income gearing target would not be achieved. (1) May need security / collateral (1) and will have to be repaid. (1) There will be no dilution of ownership. (1) The directors could consider raising all or part of the funds by means of a share issue (1). Dividends would only need to be paid if funds were available. (1) There could be a new issue of debentures (1) which might have a lower interest rate than the bank loan (1). The directors could consider renting the new premises rather than buying (1). The inventory level may be rather high and funds could be released if this was reduced (1). Accept other valid points. Decision (1) mark Comments Max (6) marks 7

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 11 of 18 Question Answer Marks 3(a) Aiona account $ $ Consignment to Aiona 56 000 (1) Consignment to Aiona 3 000 (1) Consignment to Aiona 8 400 (1) Bank 30 000 (1) Balance c/d 14 600 (1)OF 56 000 56 000 Balance b/d 14 600 5 3(b) Debit $ Credit $ Consignment to Henri 18 000 (1) Consignment to Aiona 18 000 (1) Consignment to Aiona 4 000 (1) Consignment to Henri 4 000 (1) Correction of error in posting freight charges to consignment accounts (1) 5

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 12 of 18 Question Answer Marks 3(c) Draft total of inventories = 42 600 + 5500 = $48 100 Corrected inventory for A = 600 × (50+4+3) (1) = $34 200 (1)OF Corrected inventory for H = 100 × (50+18+1) (1) = $6900 (1)OF Corrected total of inventories = $41 100 (1)OF Corrected total lower (1) by $7000 (1)OF Effect of error was to overstate inventory (1) as the proportion of freight costs being carried forward to the following year was too high (1). Max 9 marks Accept other valid points 9 3(d) Draft profit for the year was also overstated (1) by the same amount / because the proportion of freight costs relating to the current year’s sales was too low / because the freight costs were not properly matched with sales. (1) 2 3(e) Item Financial statement Section balance owed to consignor (1) statement of financial position * current liabilities * (1) both commission earned (1) income statement * other income * (1) both 4

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 13 of 18 Question Answer Marks 4(a) as the higher (1) of the fair value (1) and the value in use (1) 3 4(b) $ cost 26 000 depreciation (26000 × 20% × 6/12) 2 600 (1) carrying amount 23 400 (1)OF recoverable amount 22 000 impairment loss 1 400 (1)OF 3 4(c) An adjusting event (1) as the review gave evidence about a condition which existed at the year end (1) 2 4(d) SW plc Statement of financial position (extract) at 31 December 2020 Non-current assets $ Intangible (1) Goodwill 17 000 (1) Tangible Property, plant and equipment (1) W1 333 245 (6) 350 245 W1 $ Old premises 180 000 – (90 000 × 2% × 3/12) = 180 000 – 450 (1) 179 550 (1)OF New premises 94 000 – (47 000 × 2% × 9/12) = 94 000 – 705 (1) 93 295 (1) Fixtures and fittings 64 000 – 19 200 – 6400 38 400 (1) Vehicle 22 000 (1) Total 333 245 9

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 14 of 18 Question Answer Marks 4(e) $ $ Revalued amount 180 000 (1) Net book value on 1 January 95 000) Depreciation for 9 months to 30 September (750) Net book value on 30 September 94 250 (1) Revaluation reserve 85 750 (1)OF 3 4(f) It has no effect (1) as the revaluation is a capital reserve/not distributable (1) 2 4(g) IAS 38 (1) says development costs should only be capitalised if the directors can demonstrate that the result of the development is an asset which can be sold (1). Capitalising development costs would improve profits (1). However, capitalisation may not be prudent (1) as these costs would normally be written off when incurred. (1) Decision (1) mark Comments Max (2) marks 3

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 15 of 18 Question Answer Marks 5(a) Advantages budgets require co-ordinated planning to take place (1) budgets define areas of responsibility / set targets (1) budgets should lead to a better use of resources (1) budgets can motivate staff (1) Disadvantages budgets may be time consuming/expensive to prepare (1) the data used in budgets are only estimates and may be inaccurate (1) a desire to achieve the budget’s targets may lead to a sub optimal use of resources (1) budgets may demotivate staff (1) Accept other valid points Max 2 for advantages plus Max 2 for disadvantages 4 5(b)(i) trade receivables budget (1) 1 5(b)(ii) master budget/budgeted income statement (1) 1

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 16 of 18 Question Answer Marks 5(c) March April May $ $ $ Receipts Cash sales 29 760 (1) 29 280 (1) 16 560 (1) TR - one month 35 397 (1) 32 984 (1) 32 452 (1) TR - two months 34 500 (1) 37 260 (1) 34 720 (1) Issue of shares 12 000 (1) Total receipts 111 657 99 524 83 732 Payments Trade payables 55 200 59 616 59 520 (1)row Other costs 30 000 30 000 30 000 (1)row Purchase of asset 36 000 1 000 1 000 (1)row Total payments 121 200 90 616 90 520 (9 543) 8 908 (6 788) Balance b/f (8 000) (17 543) (8 635) Balance c/f (17 543) (1)OF (8 635) (1) OF (15 423) (1)OF [16]

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 17 of 18 Question Answer Marks 5(d) Discount received would be an income/increase profit (1) Paying sooner could improve relations with suppliers (1) Funds may not be available to pay sooner/company already operates on an overdraft (1) Increased overdraft would increase interest payable and reduce profit (1) Decision (1) mark Max (1) for advantage, max (1) for disadvantage Accept other valid points. 3 6(a) (i) Year Change in capital $ Change in receipts $ Change in repairs $ Total change $ Discount factor Discounted cash flow $ 0 41 000 (1) 41 000 1 41 000 } 1 (5600) (1) (2000) (1) (7 600) 0.909 (6 908.4) } 2 (4800) (1) (6500) (1) (11 300) 0.826 (9 333.8) } 3 (28 000) (1) (800) (1) (6000) (1) (34 800) 0.751 (26 134.8) }(1)OF Difference in NPV (1 377) (1)OF 10 6(b) (ii) 18 900 – 1377 = $17 523 (1)OF 1 6(c) 28 000 (1) – 1377 } = $26 166 (1)OF 0.751 } (1)OF 3 6(d) Average profit ( ) − 74300 45000 3 (1) = $9767 (1)OF ARR = 9.767 22 500 (1) × 100 = 43.41% (1)OF 4

9706/33 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2021 © UCLES 2021 Page 18 of 18 Question Answer Marks 6(e) NPV is higher for bus A (1) ARR is better for bus B (1) But NPV is considered the better method of appraisal (1) Initial outlay is lower for bus B (1) which leaves funds available for investment elsewhere (1) The lower outlay reduces risk (1) and implies that bus B would payback sooner (1) Decision (1) Max 5 for comments Accept other valid points 6 6(f) Either payback or IRR (1) 1