Cambridge A Level Accounting 9706 — 2025 May/June Paper 3 · Variant 1

This document has 16 pages. Any blank pages are indicated. [Turn over Cambridge International AS & A Level ACCOUNTING 9706/31 Paper 3 Financial Accounting May/June 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. DC (JP) 357261 © UCLES 2025 * 6 0 0 7 5 7 0 3 2 5 * ,










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2 9706/31/M/J/25 © UCLES 2025 1 Read Source A in the insert. (a) Explain why the club adopts the policy of spreading life membership fees over ten years equally. … … … … … … [3] (b) Calculate the profit/loss from operating the vending machine for the year ended 31 December 2024. … … … … … … … … … … … … [4] * 0000800000002 * ,










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3 9706/31/M/J/25 © UCLES 2025 [Turn over (c) Prepare the income and expenditure account for the year ended 31 December 2024. … … … … … … … … … … … … … … … … … … … … … … … … … … … [9] * 0000800000003 * ,










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4 9706/31/M/J/25 © UCLES 2025 (d) Prepare a statement showing the changes in the accumulated fund during the year ended 31 December 2024. … … … … … … … … … … … … [4] * 0000800000004 * ,










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5 9706/31/M/J/25 © UCLES 2025 [Turn over Additional information The tenancy of the club’s premises will end on 31 December 2025. The landlord has indicated that the tenancy will not be renewed. The managing committee is considering purchasing the club’s own premises at a cost of $200 000. Meena, a member, offers to donate this amount with the condition that the name of the club will be changed to The Meena Social Club. (e) Advise the managing committee whether or not Meena’s offer should be accepted. Justify your answer. … … … … … … … … … … … [5] [Total: 25] * 0000800000005 * ,










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6 9706/31/M/J/25 © UCLES 2025 2 Read Source B in the insert. (a) Prepare the statement of changes in equity for the year ended 31 December 2024. A total column is required. … … … … … … … … … … … … … … [5] (b) Calculate, to two decimal places, the return on capital employed for the year 2024. … … … … … … … [2] * 0000800000006 * ,










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7 9706/31/M/J/25 © UCLES 2025 [Turn over (c) (i) Calculate, to two decimal places, the gearing ratio for both the years 2023 and 2024. … … … … … … … … … … [2] (ii) Comment on the gearing ratio with reference to the calculations in (c)(i). … … … … … … … … … … … … [4] * 0000800000007 * ,










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8 9706/31/M/J/25 © UCLES 2025 Additional information The 2023 interim dividend was $0.05 per share. TN plc had a dividend cover of 1.8 times in 2023. In considering the proposed 2024 final dividend, the directors suggest that the dividend cover for 2024 should be increased to 2 times. (d) (i) Calculate the proposed 2024 final dividend per share. … … … … … … [3] (ii) Explain why the directors want to increase the dividend cover for 2024. … … … … … … … … [4] * 0000800000008 * ,










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9 9706/31/M/J/25 © UCLES 2025 [Turn over Additional information The market price of one share of TN plc at 31 December was as follows: 2024 2023 $4.65 $3.72 (e) Comment on the company’s 2024 price/earnings (PE) ratio as compared to the company’s PE ratio in 2023. Support your answer with calculations. … … … … … … … … … … … … … … … … … … … … … … [5] [Total: 25] * 0000800000009 * ,










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10 9706/31/M/J/25 © UCLES 2025 3 Read Source C in the insert. (a) State four uses of a statement of cash flows. 1 … … 2 … … 3 … … 4 … … [4] (b) Calculate the profit from operations for the year ended 31 December 2024. … … … … … … … … … … … … … … [5] * 0000800000010 * ,










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12 9706/31/M/J/25 © UCLES 2025 (c) Prepare the statement of cash flows for the year ended 31 December 2024 in accordance with IAS 7. … … … … … … … … … … … … … … … … … … … … … … … … … … … * 0000800000012 * ,









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13 9706/31/M/J/25 © UCLES 2025 [Turn over … … … … … … … … … … … … … … … Workings: [11] * 0000800000013 * ,









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14 9706/31/M/J/25 © UCLES 2025 Additional information To improve the cash flow, the directors plan to sell one of the office buildings and then rent it from the purchaser. (d) Advise the directors whether or not they should carry out their plan. Justify your answer. … … … … … … … … … … [5] [Total: 25] * 0000800000014 * ,









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16 9706/31/M/J/25 © UCLES 2025 BLANK PAGE 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. * 0000800000016 * ,









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This document consists of 17 printed pages. © Cambridge University Press & Assessment 2025 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/31 Paper 3 Financial Accounting May/June 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 May/June 2025 series for most Cambridge IGCSE, Cambridge International A and AS Level components, and some Cambridge O Level components.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 2 of 17 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 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 3 of 17 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 4 of 17 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).

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 5 of 17 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 6 of 17 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 standardisation 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. Two statements are linked. Repeat An extraneous figure No working shown Addition error (Arithmetic error) Required item 1 Required item 2 Own figure

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 7 of 17 Annotation Meaning Evaluation Not answered question Benefit of the doubt given. Noted but no credit given Highlight Highlight Off page Comment Off page comment

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 8 of 17 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 9 of 17 Question Answer Marks 1(a) Explain why the club adopts the policy of spreading life membership fees over ten years equally. Accrual / matching concept is applied (1) to match life membership over the years used. (1) The number of years to spread over is the accounting policy of the club. (1) Accept other valid responses. 3 1(b) Calculate the profit/loss from operating the vending machine for the year ended 31 December 2024. $ $ Soft drink revenue 36 000 Cost of sales Opening inventory 1 680 }* Purchases W1 20 000 (1) Closing inventory (1 900) }* (1) 19 780 Gross profit 16 220 Vending machine rental $800 x12 9 600 (1) Profit from vending machine 6 620 (1)OF W1 $20 800 + $6 500 – $7 300 = $20 000 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 10 of 17 Question Answer Marks 1(c) Prepare the income and expenditure account for the year ended 31 December 2024. Income and expenditure account for year ended 31 December 2024 $ $ Income Subscription fee W1 125 300 (1) Life membership W2 1 300 (2) Profit from vending machine 6 620 133 220 Expenditure Loss on disposal of equipment W3 350 (1) Depreciation – club equipment W4 9 700 (2) Club expenses W5 65 900 (1) Social activities W6 36 300 (1) 112 250 Surplus 20 970 (1)OF W1 $124 000 + (1 900 – $2 200) + (2 800 – 1 200) = 125 300 W2 ($5 000  10%) = $500(1) + ($8 000  10%)= $800 (1) = $1 300 W3 $3 500 – $3 150 = $350 W4 $37 600 + $14 400 – $38 800 (1) – $3 500 = $9 700 (1)OF W5 $69 300 + $5 400 – $8 800 = $65 900 W6 $41 000 – $4 700 = $36 300 9

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 11 of 17 Question Answer Marks 1(d) Prepare a statement showing the changes in the accumulated fund during the year ended 31 December 2024. $ Accumulated fund at 1 January 2024 W1 45 780 (2)OF Surplus for the year 20 970 (1)OF Accumulated fund at 31 December 2024 66 750 (1)OF W1 $ Club equipment – carrying value 37 600 Soft drinks inventory 1 680 Subscriptions received in advance (1 900) Subscriptions in arrear 2 200 Soft drinks supplier payable (7 300) Club expenses accrued (8 800) Cash at bank 26 800 Life membership ($500/10%) x 90% (4 500) (1) Accumulated fund at 1 January 2024 45 780 (1)OF 4 1(e) Advise the managing committee whether or not Meena’s offer should be accepted. Justify your answer. For (Max 2) No need to repay the donation Otherwise, the club need to obtain finance such as a bank loan / interest will reduce the surplus No rent to be paid Against (Max 2) The club will lose its identify of being a local club for the community Meena may exercise undue influence over the affairs of the club Membership may decline Decision supported by a comment (1) Accept other valid responses 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 12 of 17 Question Answer Marks 2(a) Prepare the statement of changes in equity for the year ended 31 December 2024. A total column is required. Ordinary Share Retained shares premium earnings Total $ $ $ $ Balance at 1 January 2024 400 000 23 000 199 000 622 000 Dividend – 2023 final W1 (70 000) (1) (70 000) Bonus 40 000 ((1) (23 000) } (17 000) }(1)OF 0 Dividend – 2024 interim W2 (35 200) (1) (35 200) Profit for the year 180 400 180 400 Balance at 31 December 2024 440 000 0 257 200 697 200 (1)OF W1 200 000  $0.35 = $70 000 W2 220 000  $0.16 = $35 200 5 2(b) Calculate, to two decimal places, the return on capital employed for the year 2024. ($180 400 + $36 000) (1)/($697 200 + $700 000)  100 = 15.49% (1)OF Debenture interest $300 000  6% + $400 000  6%  3/4 = $36 000 2 2(c)(i) Calculate, to two decimal places, the gearing ratio for both the years 2023 and 2024. Gearing ratio for 2023 $300 000/($622 000 + $300 000)  100 = 32.54% (1) Gearing ratio for 2024 $700 000/($697 200 + $700 000)  100 =50.10% (1)OF 2

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 13 of 17 Question Answer Marks 2(c)(ii) Comment on the gearing ratio with reference to the calculations in (c)(i). In 2023, 32.54% of capital employed was provided in the form of a long-term loan rather than from shareholders / the company is regarded as low geared. (1) This ratio increased to 50.10%, in excess of 50% which is regarded as high geared. (1) A high geared company is perceived as more risky than a low geared company. (1) TN plc may have difficulty to borrow further funds/ to repay non-current liabilities /have heavy burden on interest payment (1) Max 4 Accept other valid responses. 4 2(d)(i) Calculate the proposed 2024 final dividend per share. Dividend for 2024 $180 400/2 = $90 200 (1) $90 200/220 000 = $0.41 (1)OF $0.41 – $0.16 = $0.25 (1)OF 3 2(d)(ii) Explain why the directors want to increase the dividend cover for 2024. To increase the dividend cover means that the directors wish to reinvest more profit into the business (1) that will lead to business expansion (1) and a further increase in profit in the future (1) The directors want to be sure that the company will be able to maintain the current level in the future if profit falls / there are less funds available for distribution. (1) Max 4 Accept other valid responses. 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 14 of 17 Question Answer Marks 2(e) Comment on the company’s 2024 price/earnings (PE) ratio as compared to the company’s PE ratio in 2023. Support your answer with calculations. 2023 Total dividend ($0.35 + $0.05)  200 000 = $80 000 Earnings per share ($80 000  1.8)/200 000 = $0.72 PE ratio $3.72/$0.72 = 5.17 (1) 2024 Earnings per share $180 400/220 000 = $0.82 PE ratio $4.65/$0.82=5.67 (1) PE ratio of 2024 is better than 2023 (1) There is a higher market price in relation to earnings. (1) This suggests that the investors are confident in the future growth of the business. (1) TN plc should also compare with the industry’s PE ratio. (1) Max. 2 marks for calculations. Max. 3 marks for comments. Accept other valid responses. 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 15 of 17 Question Answer Marks 3(a) State four uses of a statement of cash flows. • To explain why profits are different from changes in cash and cash equivalents • To show cash inflows and outflows during a period • To show sources of internal and external financing • To enable users to assess the efficiency of how cash has been used • To help assess the liquidity of the business • To allow comparisons year on year / with other businesses Max 4 Accept other valid responses. 4 3(b) Calculate the profit from operations for the year ended 31 December 2024. $ Retained earnings b/d 205 900 Profit for the year (Balancing) 87 150 (1)OF Dividend paid (114 000) } Transferred to general reserve (8 000) }(1) Revaluation reserve 52 000 (1) Retained earnings c/d 223 050 Profit for the year 87 150 Loan interest 8 900 (1) Profit from operations 96 050 (1)OF 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 16 of 17 Question Answer Marks 3(c) Prepare the statement of cash flows for the year ended 31 December 2024 in accordance with IAS 7. Statement of cash flow for the year ended 31 December 2024 $ $ Cash flows from operating activities Profit from operations 96 050 Depreciation charge – Office buildings 26 800 } – Office equipment 14 400 }(1) 41 200 Profit on disposal of office building ($375 000 – $360 000) (15 000) (1) Decrease in inventory 9 400 } Increase in trade receivables (12 700) } Increase in trade payables 12 000 }(1) Cash from operations 130 950 Interest paid ($8 900 + $550) (9 450) (1) Net cash from operating activities 121 500 Cash flows from investing activities Purchase of office building ($670 000 + $360 000 – $580 000) (450 000) (1) Proceeds from sale of office building 375 000 } Purchase of office equipment (10 000) }(1) Net cash used in investing activities (85 000) (1)OF Cash flows from financing activities Proceeds from issue of share capital 60 000 (1) Dividend paid (114 000) } Repayment of bank loan (15 000) }(1) Net cash used in financing activities (69 000) (1)OF Net decrease in cash and cash equivalents (32 500) Cash and cash equivalents at 1 January 2024 25 600 Cash and cash equivalents at 31 December 2024 (6 900) (1)OF 11

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 17 of 17 Question Answer Marks 3(d) Advise the directors whether or not they should carry out their plan. Justify your answer. For (Max 2) KM plc gets immediate cash. KM plc retains full use of the office building. There will be no maintenance / depreciation costs. Extra cash can be used to repay the loan to reduce the interest expense. Against (Max 2) Profit will be reduced due to rent payments. KM plc will be evicted from the property if the company cannot pay rent. KM plc has little flexibility to deal with the property, for example, permission from the landlord is necessary for any major renovations. KM plc cannot enjoy the increase in value of the property. The purchaser may increase the rent. Decision supported by a comment (1) Accept other valid responses 5