Cambridge A Level Accounting 9706 — 2025 Feb/March Paper 3 · Variant 2

[Turn over Cambridge International AS & A Level This document has 16 pages. Any blank pages are indicated. DC (WW) 340728/3 © UCLES 2025 * 7 2 4 0 9 8 8 9 9 0 * ACCOUNTING 9706/32 Paper 3 Financial Accounting February/March 2025 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. ,










, * 0000800000001 * ¬OŠ. 4mHuOªEŠ`{5€W ¬_ŠtPž‘žft i‡EYŠ‚ ¥¥eUu5¥5•U EE5e5•U

2 9706/32/F/M/25 © UCLES 2025 1 Read Source A in the insert. (a) (i) State how a business creates a general reserve. … … [1] (ii) Explain why a business would create a general reserve. … … … … [2] (b) Prepare for the year ended 31 December 2024: (i) a statement to show the profit from operations … … … … … … … … … … … … … … … [5] * 0000800000002 * ,










, ĬÍĊ®Ġ´íÈõÏĪÅĊÝù·þ× ĬßČóÍĪĕČÍýùĪđíõġĂĂ ĥµµÕµÕåÕåĕÕąÅõÅõµÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

3 9706/32/F/M/25 © UCLES 2025 [Turn over BLANK PAGE * 0000800000003 * ,










, ĬÏĊ®Ġ´íÈõÏĪÅĊÝû·þ× ĬßċôÕĠęüìûĈßÅąáġòĂ ĥµÅĕõµÅµµĥąąÅĕåµåÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

4 9706/32/F/M/25 © UCLES 2025 (ii) the statement of cash flows in accordance with IAS7. … … … … … … … … … … … … … … … … … … … … … … … … … … … * 0000800000004 * ,










, ĬÍĊ®Ġ´íÈõÏĪÅĊßù·Ā× ĬßċñÕĦīíÏõÿèħéăñĊĂ ĥąĕĕµµÅĕÕÅõąąĕąµµÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

5 9706/32/F/M/25 © UCLES 2025 [Turn over … … … … … … … … … … … … … Workings: [12] * 0000800000005 * ,










, ĬÏĊ®Ġ´íÈõÏĪÅĊßû·Ā× ĬßČòÍĤħýêăòġ³Ñ×ñúĂ ĥąĥÕõÕåõÅµåąąõĥõåÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

6 9706/32/F/M/25 © UCLES 2025 Additional information Before 2024, CF Limited contracted a transportation company to deliver goods to its customers. In 2024, the company terminated the contract and purchased two motor vehicles to take over the delivery services. (c) Advise whether or not CF Limited has made a good decision to take over the delivery services. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25] * 0000800000006 * ,










, ĬÑĊ®Ġ´íÈõÏĪÅĊÞû¶þ× ĬßċòÒĪÿćâĈăĜÓé¶ÙĊĂ ĥÕÅÕõõåÕąÕąąÅõŵõÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

7 9706/32/F/M/25 © UCLES 2025 [Turn over BLANK PAGE * 0000800000007 * ,










, ĬÓĊ®Ġ´íÈõÏĪÅĊÞù¶þ× ĬßČñÚĠă÷×òîÍćÑĢÙúĂ ĥÕµĕµĕŵĕåÕąÅĕåõĥÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

8 9706/32/F/M/25 © UCLES 2025 2 Read Source B in the insert. (a) State three differences between goodwill and a tangible asset. 1 … … 2 … … 3 … … [3] (b) Calculate the purchase consideration payable by W Limited. … … … … … … … … [3] (c) Complete the capital accounts of Ada and Brian on page 9, showing the final settlement with the partnership’s cash at bank account. * 0000800000008 * ,










, ĬÑĊ®Ġ´íÈõÏĪÅĊàû¶Ā× ĬßČôÚĦñòäðõÖåíÄÉĂĂ ĥĥĥĕõĕÅĕõąåąąĕąõõÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

9 9706/32/F/M/25 © UCLES 2025 [Turn over Capital accounts Ada $ Brian $ Ada $ Brian $ Workings: [8] * 0000800000009 * ,










, ĬÓĊ®Ġ´íÈõÏĪÅĊàù¶Ā× ĬßċóÒĤíĂÕĊČēñąĘÉòĂ ĥĥĕÕµõåõĥõõąąõĥµĥÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

10 9706/32/F/M/25 © UCLES 2025 (d) Prepare the journal entry of W Limited to record the acquisition of the partnership business. … … … … … … … … … … [2] Additional information In negotiating the terms of the sale of the business, Ada and Brian initially requested that goodwill be valued at five times the average profit of the last three years, but W Limited only offered two times. They finally reached an agreement of three times. (e) Explain why W Limited did not accept the initial request for five times the average profit. Support your answer with relevant calculations. … … … … … … … … … … [4] * 0000800000010 * ,










, ĬÑĊ®Ġ´íÈõÏĪÅĊÝû¸þ× ĬßĉôÓĨùĨÞ÷îðÉïèñúĂ ĥµąÕõĕĥĕÕµåÅąµąõÅÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

11 9706/32/F/M/25 © UCLES 2025 [Turn over Additional information To satisfy the purchase consideration, Ada and Brian were offered two options by W Limited. Option 1: fully satisfied by the ordinary shares of W Limited Option 2: fully satisfied by cash (f) Evaluate whether or not Ada and Brian made the right decision to choose option 1. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25] * 0000800000011 * ,









, ĬÓĊ®Ġ´íÈõÏĪÅĊÝù¸þ× ĬßĊóÛĢõĘÛāă¹čćôñĊĂ ĥµõĕµõąõÅÅõÅąÕĥµÕÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

12 9706/32/F/M/25 © UCLES 2025 3 Read Source C in the insert. (a) State three limitations of using ratios to evaluate the performance of a business. 1 … … 2 … … 3 … … [3] (b) Calculate, to two decimal places, the following ratios: (i) dividend yield … … … … … … [4] (ii) price/earnings (PE) … … … … … … [3] * 0000800000012 * ,









, ĬÑĊ®Ġ´íÈõÏĪÅĊßû¸Ā× ĬßĊòÛĬćđàÿČ²¯ëÒġòĂ ĥąåĕõõąÕåĥąÅÅÕŵÅÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

13 9706/32/F/M/25 © UCLES 2025 [Turn over (iii) gearing … … … … … … [2] (c) Calculate the working capital cycle (round up each component to the next whole day). … … … … … … … … … … [4] * 0000800000013 * ,









, ĬÓĊ®Ġ´íÈõÏĪÅĊßù¸Ā× ĬßĉñÓĞċġÙùõ÷īÓĆġĂĂ ĥąÕÕµĕĥµµĕÕÅŵåõÕÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

14 9706/32/F/M/25 © UCLES 2025 Additional information X plc, a major competitor, has a shorter working capital cycle than B plc. (d) Discuss the performance of B plc in managing its working capital cycle as compared with X plc. … … … … … … … … … … [5] Additional information X plc also has a PE ratio higher than B plc. (e) Discuss the performance of B plc as measured by its PE ratio as compared with X plc. … … … … … … … … … … [4] [Total: 25] * 0000800000014 * ,









, ĬÍĊ®Ġ´íÈõÏĪÅĊàúµĂ× ĬßĊóÒĤøęëïòÜÇĊĂÑĊĂ ĥåÕĕõõåĕÕąÕąąõąµąÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

15 9706/32/F/M/25 © UCLES 2025 BLANK PAGE * 0000800000015 * ,









, ĬÏĊ®Ġ´íÈõÏĪÅĊàüµĂ× ĬßĉôÚĦüĩÎĉÿčēòÖÑúĂ ĥååÕµĕÅõÅõąąąĕĥõĕÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

16 9706/32/F/M/25 © UCLES 2025 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. BLANK PAGE * 0000800000016 * ,









, ĬÍĊ®Ġ´íÈõÏĪÅĊÞúµĄ× ĬßĉñÚĠĊĠéćĈĖ±ÎøÁĂĂ ĥĕõÕõĕÅÕåÕõąÅĕÅõąÕ DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN DO NOT WRITE IN THIS MARGIN

This document consists of 16 printed pages. © Cambridge University Press & Assessment 2025 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 Financial Accounting February/March 2025 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 2025 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 2025 © Cambridge University Press & Assessment 2025 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 2025 © Cambridge University Press & Assessment 2025 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 thresholds or grade descriptors in mind.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 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 2025 © Cambridge University Press & Assessment 2025 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 2025 © Cambridge University Press & Assessment 2025 Page 6 of 16 Annotations guidance for centres Examiners use a system of annotations as a shorthand for communicating their marking decisions to one another. Examiners are trained during the standardisation process on how and when to use annotations. The purpose of annotations is to inform the standard isation and monitoring processes and guide the supervising examiners when they are checking the work of examiners within their team. The meaning of annotations and how they are used is specific to each component and is understood by all examiners who mark the component. We publish annotations in our mark schemes to help centres understand the annotations they may see on copies of scripts. Note that there may not be a direct correlation between the number of annotations on a script and the mark awarded. Similarly, the use of an annotation may not be an indication of the quality of the response. The annotations listed below were available to examiners marking this component in this series. Annotations Annotation 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 Addition error (Arithmetic error) R1 Required item 1 R2 Required item 2 OF Own figure

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 7 of 16 Annotation Meaning 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 2025 © Cambridge University Press & Assessment 2025 Page 8 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 2025 © Cambridge University Press & Assessment 2025 Page 9 of 16 Question Answer Marks 1(a)(i) State how a business creates a general reserve. General reserve is created by transferring profit from profit for the year/retained earnings. (1) 1 1(a)(ii) Explain why a business would create a general reserve. To retain profits within the business (1) as an alternative to paying dividends to the shareholders (1) It may be used to purchase non-current assets / for expansion (1) without borrowing. (1) The sum is kept to meet future operating loss (1) as a provision for emergencies (1) Max 2 Accept other valid responses. 2 1 b(i) Prepare for the year ended 31 December 2024: a statement to show the profit from operations $ Balance at 1 January 2024 245 800 Transfer to general reserve (30 000) (1) Issue of bonus shares ($100 000 – $80 000) (20 000) (1) Payment of final dividend ($300 000  $0.11) (33 000) } Payment of interim dividend ($400 000  $0.06) (24 000) }(1) Profit for the year (balancing) 68 200 Balance at 31 December 2024 207 000 Profit for the year 68 200 Finance costs ($3 600 + $3 200) 6 800 (1) Profit from operations 75 000 (1)OF 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 10 of 16 Question Answer Marks 1(b)(ii) Prepare for the year ended 31 December 2024: the statement of cash flows in accordance with IAS7. Statement of cash flows for year ended 31 December 2024 $ $ Cash flows from operating activities Profit from operations 75 000 Depreciation: Office premises ($320 000 + $120 000 – $418 000) 22 000 (1) Office equipment ($235 000 + $25 000 – $8 400 – $214 000) 37 600 (1) Motor vehicles ($116 000/80%)  20% 29 000 (1) 88 600 Loss on disposal 3 500 } Increase in inventories (34 000) } Decrease in trade receivables 10 000 } Increase in trade payables 23 000 }(1) Cash from operations 166 100 Interest paid ($60 000  12% + $80 000  8%)  6/12 (6 800) (1) Net cash from operating activities 159 300 Cash flows from investing activities Purchase of office equipment ($25 000 – ($8 400 – $3 500)) (20 100) (1) Purchase of motor vehicles ($116 000/80%) (145 000) (1) Net cash used in investing activities (165 100) (1)OF Cash flows from financing activities Issue of 8% debenture 80 000 } Repayment of 12% debenture (60 000) }(1) Dividend paid – final dividend (33 000) } – interim dividend (24 000) }(1)OF Net cash used in financing activities (37 000) (1)OF Net decrease in cash and cash equivalents (42 800) (1) Cash and cash equivalents at 1 January 2024 4 800 Cash and cash equivalents at 31 December 2024 (38 000) 12

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 11 of 16 Question Answer Marks 1(c) Advise whether or not CF Limited has made a good decision to take over the delivery services. Justify your answer. Good decision (max 2) In-house costs should be lower as no profit for contractors (1) Provide better service (on time / speedy) to the customers (1) No need to renew service contract with the transportation company (1) Bad decision (max 2) Negative impact on the cash flows (1) Need additional finance / interest may have to be paid (1) Incur additional expenses such as salaries for drivers and depreciation (1) Decision supported with a comment (1) Accept other valid responses. 5 Question Answer Marks 2(a) State three differences between goodwill and a tangible asset. Goodwill Tangible asset No physical existence Has physical existence (1) Cannot be sold separately Can be sold separately (1) The value tends to be subjective The value tends to be objective (1) Max 3 Accept other valid responses. 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 12 of 16 Question Answer Marks 2(b) Calculate the purchase consideration payable by W Limited. $ Total value of assets taken over 402 000 (1) Goodwill W1 123 000 (1) Purchase consideration 525 000 (1)OF W1 ($37 100 + $41 300 + $44 600)/3 = $41 000 $41 000  3 = $123 000 3 2(c) Complete the capital accounts of Ada and Brian, showing the final settlement with the partnership’s cash at bank account. Ada Brian Ada Brian $ $ $ $ Current account 10 000 } Balance b/d 200 000 150 000 W Limited 315 000 }} 210 000 }}(1)OF Current account 5 000 }(1) Profit on realisation W1 70 800 (1)OF 47 200 (1)OF Bank 54 200 (1)OF 7 800 (1)OF 325 000 210 000 325 000 210 000 W1 $ Consideration 525 000 OF Carrying value of assets taken over 408 000 (1) 117 000 Discount on trade payables 1 000 (1) Profit on realisation 118 000 8

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 13 of 16 Question Answer Marks 2(d) Prepare the journal entry of W Limited to record the acquisition of the partnership business. Dr Cr $ $ Equipment 174 000 } Motor vehicles 48 000 } Inventory 89 000 } Trade receivables 91 000 } Goodwill 123 000 }(1) Ordinary shares 300 000 } Share premium 225 000 }(1)OF 2 2(e) Explain why W Limited did not accept the initial request for five times the average profit. Support your answer with relevant calculations. W Limited can pay less purchase consideration / issue fewer shares to acquire the partnership business. (1) The future profit is only estimated on the basis of the profits of past years. (1) The partnership’s financial statements have not been audited. (1) It is difficult to estimate whether the partnership’s profit can sustain at its current level for the coming 5 years as proposed by Ada and Brian (1) There are uncertainties in the future, such as economic outlook, trend, demand, technology and political issues. (1) The profit of the partnership is in the declining trend in the last 3 years. (1) Goodwill = 2  $41 000 = $82 000 (1) Goodwill = 5  $41 000 = $205 000 (1) Max 2 marks for calculations. Max 2 marks for comments Accept other valid responses. 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 14 of 16 Question Answer Marks 2(f) Evaluate whether or not Ada and Brian made the right decision to choose option 1. Justify your answer. They are only minor shareholders and cannot make any decision (1) Given that the value of each share has a premium of $0.75, this implies that the prospect of W Limited is promising (1) They can enjoy dividend / increase in share value (1) They may not receive dividend / share value may fall (1) They can use the cash for any other purposes (1) After running the partnership business for thirty years, it is better for them to keep cash for their retiring life. (1) It may be difficult for Ada and Brian to realise their shareholdings. (1) Max 4 Decision supported with a comment (1) Accept other valid responses. 5 Question Answer Marks 3(a) State three limitations of using ratios to evaluate the performance of a business. The value of many non-current assets is based on historical cost instead of current value. (1) Ratios are based on past events. (1) Financial statements only show the monetary value. (1) Information may not be accurate. (1) Ratios only show the results without referring to the causes of the results. (1) The financial statements are only prepared on a particular date. (1) Different businesses have different accounting policies. (1) Max 3 Accept other valid responses. 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 15 of 16 Question Answer Marks 3(b)(i) Calculate, to two decimal places, the following ratios for the year ended 31 December 2024: dividend yield Dividend per share ($60 000  110% (1) +$35 000)/500 000 $0.202 (1)OF ($0.202 / $2.85)  100 (1)OF for correct formula 7.09% (1)OF 4 3(b)(ii) price/earnings (PE) Earnings per share $190 000/500 000 $0.38 (1) $2.85/$0.38 (1)OF for correct formula 7.50 (1)OF 3 3(b)(iii) gearing ratio [$200 000/($672 000+$200 000)] x 100 (1) for correct formula 22.94% (1) 2 3(c) Calculate the working capital cycle (round up each component to the next whole day). Days Inventory turnover ($56 000 + $78 000)/2 = $67 000 ($67 000/$548 000)  365 45 (1) Trade receivables turnover ($110 000/$988 000)  365 41 (1) 86 Trade payables turnover ($54 500/$570 000)  365 35 (1) 51 (1)OF 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2025 © Cambridge University Press & Assessment 2025 Page 16 of 16 Question Answer Marks 3(d) Discuss the performance of B plc in managing its working capital cycle as compared with X plc. As B plc has a longer working capital cycle so it appears that B plc performs less well than X plc (1) because the business needs more funds to finance the working capital. (1) B plc holds inventory for a longer period (1) / allows longer credit period to its customers (1) / repays suppliers faster (1) Max 5 Accept other valid responses. 5 3(e) Discuss the performance of B plc as measured by its PE ratio as compared with X plc. B plc’s share price in relation to X plc may be lower (1) and the earnings per share may be higher (1) B plc has a lower PE ratio than X plc which is not good for the business (1) and it appears that the investors have less confidence in B plc than in X plc. (1) Max 4 Accept other valid responses. 4