Cambridge A Level Accounting 9706 — 2024 Feb/March Paper 3 · Variant 2

This document has 12 pages. [Turn over Cambridge International AS & A Level * 9 5 6 0 3 9 8 8 3 5 * DC (DE) 326545/4 © UCLES 2024 ACCOUNTING 9706/32 Paper 3 Financial Accounting February/March 2024 1 hour 30 minutes 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 75. ● The number of marks for each question or part question is shown in brackets [ ]. ● The insert contains all of the sources referred to in the questions.

2 9706/32/F/M/24 © UCLES 2024 1 Read Source A in the insert. (a) Prepare, showing the adjustments made during the acquisition on 1 January 2024, the capital accounts of Ada and Brian. Show the final settlement to or from each partner. … … … … … … … … … … … Workings: [11]

3 9706/32/F/M/24 © UCLES 2024 [Turn over (b) Prepare the statement of financial position of X Limited at 1 January 2024. … … … … … … … … … … … … … … … … … … … … Workings: [7]

4 9706/32/F/M/24 © UCLES 2024 Additional information Calvin, a friend of Brian, is interested in investing in X Limited. Ada and Brian are considering raising additional funds for a project. The directors have two options. Option 1: Issue 4% debenture to Calvin. Ada and Brian had been entitled to interest on capital at the rate of 6% when they were in partnership. The annual interest of the debenture issued will be the same value as the total interest on capital in the partnership. Option 2: Issue $1 ordinary shares to Calvin at par. The value of ordinary shares issued will be the same as the 4% debenture in Option 1. (c) Calculate the amount of debenture to be issued in Option 1. … … … … [2] (d) Advise the directors which option they should choose. Justify your answer. … … … … … … … … … … … … [5] [Total: 25]

5 9706/32/F/M/24 © UCLES 2024 [Turn over 2 Read Source B in the insert. (a) Explain one reason why the information in the statement of cash flows of a business is important to its shareholders. … … … … … [2] (b) Calculate the profit for the year for 2023. … … … … … … [3]

6 9706/32/F/M/24 © UCLES 2024 (c) Prepare the statement of cash flows for the year ended 31 December 2023 in accordance with IAS7. … … … … … … … … … … … … … … … … … … … … … … … … … … …

7 9706/32/F/M/24 © UCLES 2024 [Turn over Workings: [14]

8 9706/32/F/M/24 © UCLES 2024 (d) Analyse the changes in the cash position of K plc during the year 2023. … … … … … … … … … … … … … … … … [6] [Total: 25]

9 9706/32/F/M/24 © UCLES 2024 [Turn over 3 Read Source C in the insert. (a) Prepare the manufacturing account for the year ended 31 December 2023. … … … … … … … … … … … … … … … … … … … … [5]

10 9706/32/F/M/24 © UCLES 2024 Additional information The profit for the year before office expenses and depreciation of office equipment amounted to $289 800. (b) Prepare a statement to calculate, showing clearly the cost of sales, how much of this amount was derived from: (i) importing … … … … … … … … [3] (ii) manufacturing. … … … … … … … … … … [5]

11 9706/32/F/M/24 © UCLES 2024 [Turn over (c) Calculate the profit for the year ended 31 December 2023. … … … … … … [2] Additional information A director is of the opinion that the profit for the year for 2023 can be improved by increasing the rate of factory profit to 25%. (d) Explain the impact on the profit for the year for 2023 of increasing the rate of factory profit to 25% in 2023. … … … … … … … … … … … … … [5]

12 9706/32/F/M/24 © UCLES 2024 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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge. Additional information G Limited is experiencing serious increases in costs of the imported goods and has increased the selling price. Many high-income customers are complaining about these increased prices. The directors are considering manufacturing home appliances for these customers to keep the prices low and maintain their profits. (e) Advise the directors whether or not they should manufacture home appliances for the high-income customers to maintain the profits. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25]

This document consists of 16 printed pages. © Cambridge University Press & Assessment 2024 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 Financial Accounting February/March 2024 MARK SCHEME Maximum Mark: 75 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 February/March 2024 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 February/March 2024 © Cambridge University Press & Assessment 2024 Page 2 of 16 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alon gside the specific content of the mark scheme or generic level descriptions 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 February/March 2024 © Cambridge University Press & Assessment 2024 Page 3 of 16 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 thre sholds or grade descriptors in mind.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 4 of 16 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).

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 5 of 16 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 equivale nt 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 an d 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 February/March 2024 © Cambridge University Press & Assessment 2024 Page 6 of 16 ANNOTATIONS The following annotations are used in marking this paper and should be used by examiners. Annotation Use or meaning  Correct and relevant point made in answering the question. × Incorrect point or error made. LNK Two statements are linked. REP Repeat A An extraneous figure N0 No working shown AE Attempts evaluation R1 Required item 1 R2 Required item 2 OF Own figure EVAL Evaluation NAQ Not answered question BOD Benefit of the doubt given. SEEN Noted but no credit given Highlight Highlight Off page Comment Off page comment

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 7 of 16 Abbreviations and guidance The following abbreviations may be used in the mark scheme: OF = own figure. The answer will be marked correct if a candidate has correctly used their own figure from a previous part or calculation. W = working. The working for a figure is given below. Where the figure has more than one mark associated with it, the working will show where individual marks are to be awarded. CF = correct figure. The figure has to be correct i.e. no extraneous items have been included in the calculation Extraneous item = an item that should not have been included in a calculation, including indirect expenses such as salaries in calculation of gross profit when there is one OF mark for gross profit’ Curly brackets, }, are used to show where one mark is given for more than one figure. If the figures are not adjacent, each is marked with a curly bracket and a symbol e.g. }* row = all figures in the row must be correct for this mark to be awarded Marks for figures are dependent on correct sign/direction Accept other valid responses. This statement indicates that marks may be awarded for answers that are not listed in the mark scheme but are equally valid.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 8 of 16 Question Answer Marks 1(a) Prepare, showing the adjustments made during the acquisition on 1 January 2024, the capital accounts of Ada and Brian. Show the final settlement to or from each partner. Capital account Ada Brian Ada Brian $ $ $ $ Current account 3 900 } 7 800 }(1) Balance b/d W1 160 000 160 000 (4) row X Limited 180 000 } 180 000 }(1) Profit on realisation W2 25 850 25 850 (3) row Brian 1 950 (1)OF Ada 1 950 (1)OF 185 850 187 800 185 850 187 800 W1 W2 $ $ Non-current assets 230 000 Purchase consideration 360 000 Inventory 52 000 Book value of net assets (308 300) Trade receivables 72 000 Profit on realisation 51 700 (1) Cash and cash equivalents 18 300 Trade payables (64 000) Ada 25 850 (1)OF Net assets 308 300 (1) Brian 25 850 (1)OF Current account 51 700 Ada 3 900 } Brian 7 800 }(1) Total capital account 320 000 Ada’s capital account 160 000 (1)OF Brian’s capital account 160 000 (1)OF 11

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 9 of 16 Question Answer Marks 1(b) Prepare the statement of financial position of X Limited at 1 January 2024. X Limited Statement of financial position at 1 January 2024 $ $ Non-current assets Goodwill W1 43 200 (1) Equipment 241 500 (1) 284 700 Current assets Inventory 50 440 (1) Trade receivables 70 560 (1) Cash and cash equivalents ($18 300+$40 000) 58 300 (1) 179 300 Total assets 464 000 Equity and liabilities Ordinary shares capital 400 000 (1) Current liabilities Trade payables 64 000 (1) Total equity and liabilities 464 000 W1 $ Equipment 241 500 $230 000  105% Inventory 50 440 $52 000  97% Trade receivables 70 560 $72 000  98% Cash 18 300 Trade payables (64 000) 316 800 Consideration 360 000 Goodwill 43 200 7 1(c) Calculate the amount of debenture to be issued in Option 1. $320 000  6% = $19 200 (1)OF $19 200/4% = $480 000 (1)OF 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 10 of 16 Question Answer Marks 1(d) Advise the directors which option they should choose. Justify your answer. Option 1 – max (2) If the return of investment exceeds 4%, the shareholders of X Limited will benefit (1). High gearing ratio is perceived risky (1). Debenture interest is a financial charge that reduces profit (1). May require security (1). Option 2 – max (2) Calvin will take control of X Limited (480 000 shares vs 400 000 shares) / Ada and Brian may lose management control (1). Calvin may contribute his knowledge and experience to the project (1). Dividend may have to be paid to Calvin (1). Decision supported by a comment (1) Accept other valid responses. 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 11 of 16 Question Answer Marks 2(a) Explain one reason why the information in the statement of cash flows of a business is important to its shareholders The business has enough cash to conduct its operations (1) so that the business can generate profit to provide returns to the shareholders (1). The business has enough cash to pay its obligations (1) so that the business will not go bankrupt which will result in the shareholders losing their investments in the business (1). It shows how the constituent activities of the business each contribute to the net cash movement (1) so the shareholders can consider whether to continue with their investment (1) Max 2 Accept other valid responses. 2 2(b) Calculate the profit for the year for 2023. $ Retained earnings c/d ($25 100 + $9 600) 34 700 Retained earnings b/d (25 100) (1both) Dividend paid 22 000 (1) Profit for the year 31 600 (1)OF 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 12 of 16 Question Answer Marks 2(c) Prepare the statement of cash flows for the year ended 31 December 2023 in accordance with IAS7. Statement of cash flows for the year ended 31 December 2023 $ $ Operating activities Profit from operations W1 33 800 (3) Loss on disposal of office equipment (9 000-6 200) 2 800 (1) Depreciation W2 28 800 (2) Decrease in inventory 2 000 } Increase in trade receivables (7 000) } Decrease in trade payables (1 500) }(1) Cash from operations 58 900 Interest paid (1 600) (1) Net cash from operating activities 57 300 (1OF) Investing activities Purchase of office equipment (48 000) (1) Sale proceeds of office equipment 6 200 Net cash used in investing activities (41 800) (1OF) Financing activities Issue of ordinary shares 25 000 } Receipts from 8% loan 10 000 }(1) Dividend paid (22 000) (1) Net cash from financing activities 13 000 (1OF) Increase in cash and cash equivalents 28 500 Cash and cash equivalents at the start of the year 38 900 Cash and cash equivalents at the end of the year 67 400 14

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 13 of 16 Question Answer Marks 2(c) W1 $ Profit for the year 31 600 OF Add : Loan interest * 2 200 (2) Profit from operations 33 800 (1OF) * $ Accrued interest c/d ($800+$600) 1400 Accrued interest b/d (800) (1both) Bank – interest paid 1 600 Charge for the year 2 200 (1) W2 Cost of office equipment sold $9 000÷60%= $15 000 Provision for depreciation $15 000  20%  2 = $6 000 Provision for depreciation Disposal 6 000 (1) Bal b/d 195 000 Bal c/d 217 800 Charge 28 800 (1) 223 800 223 800 2(d) Analyse the changes in the cash position of K plc during the year 2023. K plc generates positive net cash from operations (1). This suggests that the company can maintain the operating capability (1). K plc raised more finance from issuing new shares / loan (1). The further loan resulted in higher finance charges (1). Net cash from operations, together with further loan and further issuing of shares, enables K plc to pay dividend (1), pay interest (1) and make new investment in buying non-current assets (1). There is a net increase in cash and cash equivalents at the year-end (1). K plc has a good liquidity/cash position in 2023 (1). Max 6 for comments Accept other valid responses. 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 14 of 16 Question Answer Marks 3(a) Prepare the manufacturing account for the year ended 31 December 2023. Manufacturing account for the year ended 31 December 2023 $ Direct materials opening inventory 46 000 Purchases 133 000 Carriage inwards 6 900 Direct materials closing inventory (36 200) Cost of direct materials consumed 149 700 (1) Direct wages 148 000 Prime cost 297 700 (1)OF Manufacturing expenses 45 400 Depreciation - machinery 17 700 (1) 360 800 Work in progress opening inventory 21 000 Work in progress closing inventory (25 800) Cost of goods manufactured 356 000 (1)OF Factory profit 20% 71 200 Transfer price 427 200 (1)OF 5 3(b)(i) Prepare a statement to calculate, showing clearly the cost of sales, how much of this amount was derived from: (i) importing Imported goods $ $ Sales revenue 378 400 Cost of sales Finished goods opening inventory 36 000 Purchases 226 000 Carriage inwards 4 200 (1) Finished goods closing inventory (39 600) 226 600 (1OF) Profit from importing 151 800 (1OF) 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 15 of 16 Question Answer Marks 3(b)(ii) Prepare a statement to calculate, showing clearly the cost of sales, how much of this amount was derived from: (ii) manufacturing $ $ Manufactured goods Sales revenue 498 000 Cost of sales Finished goods opening inventory 56 400 Transfer value of goods manufactured 427 200 (1OF) Finished goods closing inventory (51 600) 432 000 (1OF) 66 000 Factory profit 71 200 (1OF) Decrease in provision for unrealised profit W1 800 (1) 72 000 Profit from manufacturing 138 000 (1OF) W1 ($56 400 – $51 600)  20 / 120 = $800 5 3(c) Calculate the profit for the year ended 31 December 2023. $ Profit excluding expenses 289 800 Office expenses (204 000) Depreciation of office equipment (7 500) (1) Profit for the year 78 300 (1)OF 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2024 © Cambridge University Press & Assessment 2024 Page 16 of 16 Question Answer Marks 3(d) Explain the impact on the profit for the year for 2023 of increasing the rate of factory profit to 25% in 2023. Profit from manufacturing and expenses are unaffected by the change (1) The transfer price will increase (1) The factory profit will increase by an equal amount (1) The value of finished goods inventory will increase (1) The balance on the provision for unrealised profit will increase (1) These changes compensate for one another and there is no impact on the profit for the year for 2023.(1) Max 5 5 3(e) Advise the directors whether or not they should manufacture home appliances for the high-income customers to maintain the profits. Justify your answer. For (max 2) G Limited manufacturing home appliances for both the high-income and low-income customers will become a wholly manufacturing business. The synergy can improve the productivity and efficiency and keep costs and prices low. (1) G Limited has experience of manufacturing home appliances and will not incur start-up costs (1) The high-income customers may buy the manufactured appliances and this will maintain G Limited’s profits. (1) G Limited can control the quality of the products to reduce sales returns. (1) Against (max 2) Additional capital (1) will be needed to purchase additional machines and to expand the production capacity. (1) G Limited may need to take a loan and pay interest cost (1) G Limited may need to incur advertising expenditure to attract the high-income customers. (1) New skilled workers need to be employed at higher wages/ existing workers need training. (1) Decision supported by a comment (1) Accept other valid responses. 5