Cambridge A Level Accounting 9706 — 2025 May/June Paper 3 · Variant 2

This document has 12 pages. Any blank pages are indicated. [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 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. * 0 3 6 4 5 7 8 4 6 4 * DC (PQ) 341032/2 © UCLES 2025 ,










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2 9706/32/M/J/25 © UCLES 2025 1 Read Source A in the insert. (a) Prepare the manufacturing account for the year ended 31 December 2024. … … … … … … … … … … … … … … … … … … … … … … … … … … [8] * 0000800000002 * ,










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3 9706/32/M/J/25 © UCLES 2025 [Turn over (b) Prepare the statement of profit or loss for the year ended 31 December 2024. … … … … … … … … … … … … … … … … … … … … … … … … … … … [7] * 0000800000003 * ,










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4 9706/32/M/J/25 © UCLES 2025 (c) (i) Explain why unrealised profit occurs in some manufacturing businesses. … … … … [2] (ii) Explain why the provision for unrealised profit is accounted for in the statement of financial position. … … … … … … … [3] Additional information Nadim plans to incorporate his business. His only concern is that the financial statements may then have to be audited. (d) Advise Nadim whether or not he should incorporate his business in view of his only concern. Justify your answer. … … … … … … … … … … … [5] [Total: 25] * 0000800000004 * ,










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5 9706/32/M/J/25 © UCLES 2025 [Turn over BLANK PAGE * 0000800000005 * ,










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6 9706/32/M/J/25 © UCLES 2025 2 Read Source B in the insert. (a) State the conditions of recognising a provision in the financial statements in accordance with IAS 37. … … … … … … … … [3] (b) Prepare a statement to adjust the draft profit for the year ended 31 December 2024 after considering the information in matters 1 to 5. Use the space provided for workings to show your workings. Workings: * 0000800000006 * ,










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7 9706/32/M/J/25 © UCLES 2025 [Turn over … … … … … … … … … … … … … … … … … … … [14] * 0000800000007 * ,










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8 9706/32/M/J/25 © UCLES 2025 (c) Prepare the journal entry to record the impairment loss of delivery Van A. A narrative is not required. … … … … … … [3] Additional information In December 2024, a company made a claim against GT plc for the infringement of patent rights relating to the goods GT plc sold in 2024. The outcome of the claim and the amount involved are still uncertain. The directors suggest that no dividend for the year 2024 should be paid even though dividends had been paid every year in the past. (d) Advise the directors whether or not GT plc should pay the 2024 dividend. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25] * 0000800000008 * ,










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9 9706/32/M/J/25 © UCLES 2025 [Turn over 3 Read Source C in the insert. (a) (i) State two reasons why a business may have goodwill. 1 … … 2 … … [2] (ii) State one reason why Chandra has to pay for the goodwill. … … [1] (b) State three reasons why a goodwill account is not maintained in the partnership’s books. 1 … … 2 … … 3 … … [3] (c) Calculate the amount payable to Betty on 1 January 2025. … … … … … … … … … … … … [5] * 0000800000009 * ,










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10 9706/32/M/J/25 © UCLES 2025 (d) Calculate the amount of cash introduced by Chandra on 1 January 2025. … … … … … … … … … … … … [6] * 0000800000010 * ,










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11 9706/32/M/J/25 © UCLES 2025 (e) Prepare the statement of financial position of the new partnership at 1 January 2025. … … … … … … … … … … … … … … … … … … … … … … … … … … … [8] [Total: 25] * 0000800000011 * ,









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12 9706/32/M/J/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 * 0000800000012 * ,









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This document consists of 17 printed pages. © Cambridge University Press & Assessment 2025 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 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.

9706/32 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.

9706/32 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.

9706/32 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).

9706/32 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.

9706/32 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

9706/32 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

9706/32 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.

9706/32 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) Prepare the manufacturing account for the year ended 31 December 2024. Manufacturing account for the year ended 31 December 2024 $ $ Opening direct materials inventory 16 600 Purchases 104 000 Carriage inwards $8500  90% 7 650 (1) Closing direct materials inventory (17 200) Cost of direct materials consumed 111 050 (1)OF Factory wages 156 200 Prime cost 267 250 (1)OF Factory supervisor's salary 19 000 Factory indirect expenses W1 40 250 (1) Depreciation – works machinery 15 300 (1) 74 550 341 800 Opening work in progress 28 400 370 200 Closing work in progress (20 200) (1) Cost of goods manufactured 350 000 Factory profit 30% W2 105 000 (1)OF Transfer price of manufactured goods 455 000 (1)OF W1 $33 350 + $9 200  75% = $40 250 W2 2023 rate of factory profit $9 600/($48 000 – $9 600) = 25% 25% + 5% = 30% 8

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 10 of 17 Question Answer Marks 1(b) Prepare the statement of profit or loss for the year ended 31 December 2024. Statement of profit or loss for the year ended 31 December 2024 $ $ Sales revenue 724 000 Opening finished goods inventory 48 000 Purchases 28 000 Carriage inwards $8500  10% 850 (1) Transfer price of manufactured goods 455 000 Closing finished goods inventory (45 500) (1)OF Cost of sales 486 350 Gross profit 237 650 Factory profit 105 000 (1)OF Increase in provision for unrealised profit ($10 500 – $9 600) (900) (1)OF 104 100 341 750 Carriage outwards 9 440 Office expenses ($174 800 – $9 200  75%) 167 900 (1) Depreciation – office equipment 6 300 (1) 183 640 Profit for the year 158 110 (1)OF 7 1(c)(i) Explain why unrealised profit occurs in some manufacturing businesses. The value of goods manufactured transferred to the statement of profit or loss includes both the manufacturing cost and the factory profit / is based on a comparison of prices with external suppliers. (1) Value of goods unsold at the year-end includes the factory profit element that has not been realised (1) Accept other valid responses. Max 2 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 11 of 17 Question Answer Marks 1(c)(ii) Explain why the provision for unrealised profit is accounted for in the statement of financial position. According to IAS2 / inventory should be stated at lower of cost and net realisable value. (1) According to the prudence concept / value of inventory should not be overstated.(1) The inventory of finished goods should be stated at cost / unrealised profit is removed from the inventory.(1) Accept other valid responses. Max 3 3 1(d) Advise Nadim whether or not he should incorporate his business in view of his only concern. Justify your answer. For (Max 2) The financial statements are more credible (1) if the audit report is with a true and fair view opinion. (1) It is easier to raise finance, for example, obtaining a bank loan or issuing shares (1) Fraud and errors are easier to be detected and prevented by auditor (1) Against (Max 2) Audit fee is costly (1) Need to employ professional accountant to fulfil compliance (1) Audit may not be necessary as Nadim’s business is still small. (1) Decision supported with a comment (1) Accept other valid responses. 5 Question Answer Marks 2(a) State the conditions of recognising a provision in the financial statements in accordance with IAS 37. The business has a present obligation because of a past event. (1) It is probable / there is a 50%+ chance that a transfer of resources embodying economic benefits will be required to settle it. (1) A reliable estimate can be made of its amount. (1) 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 12 of 17 Question Answer Marks 2(b) Prepare a statement to adjust the profit for the year ended 31 December 2024 after considering the information in matters 1 to 5. $ Draft profit for the year 104 00 0 Irrecoverable debt (7 000) (1) Allowance for irrecoverable debts W1 (460) (3)OF Inventory overstated W2 (2 700) (3)OF Depreciation on Van B overcharged $12000x20% 2 400 (1) Van B service $12000  6/12 (6 000) (1) Impairment loss of Van A W3 (2 040) (3)OF Provision for lawsuit (5 200) (1) Adjusted profit for the year 83 000 (1)OF W1 $83 600/95% = $88 000 (1) ($88 000 – $7 000)  6% (1) – ($88 000  5%) = 460 (1)OF W2 NRV ($6 600 – $1 800) = $4 800 (1) 4 800 – $7 500 (1) = ($2 700) (1)OF W3 Cost of Van A $95 000-$50 000=$45 000 Accumulated depreciation $31 960-$10 000=$21 960 Carrying value $45 000-$21 960=$23 040 (1) Recoverable amount $21 000 (1) Impairment loss $23 040-$21 000=$2 040 (1)OF 14

9706/32 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) Prepare the journal entry to record the impairment loss of delivery Van A. A narrative is not required. Dr Cr $ $ Impairment loss / Statement of profit or loss 2 040 (1)OF Provision for depreciation 2 040 (1)OF Award (1) for correct account names. OR Provision for depreciation 21 960 (1)OF Impairment loss / Statement of profit or loss 2 040 (1)OF Delivery van – at cost / valuation 24 000 (1)OF 3 2(d) Advise the directors whether or not GT plc should pay the 2024 dividend. Justify your answer. Should not pay (Max 2) To avoid raising loan. (1) Cash / profit is retained. (1) Directors have the discretion to pay dividends. (1) Should pay (Max 2) Shareholders would be satisfied. (1) The outcome of the claim is too remote / contingent liability. (1) Dividend policy should be consistent. (1) Decision supported with a comment (1) Accept other valid responses. 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 14 of 17 Question Answer Marks 3(a)(i) State two reasons why a business may have goodwill. • has good reputation / well-known brand / image (1) • has a large number of loyal customers (1) • situated in a good location (1) • good relationship with suppliers (1) • experienced and efficient staff (1) Max 2 Accept other valid responses. 2 3(a)(ii) State one reason why Chandra has to pay for the goodwill. To reward the existing partners for their efforts. (1) Accept other valid responses. 1 3(b) State three reasons why a goodwill account is not maintained in the partnership’s books. The goodwill is inherent / not purchased (1) The valuation of goodwill is subjective (1) According to the prudence concept, assets of the business should not be overstated (1) Factors that cause goodwill are difficult to be measured in monetary terms (money measurement) (1) Max 3 Accept other valid responses. 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 15 of 17 Question Answer Marks 3(c) Calculate the amount payable to Betty on 1 January 2025. $ Capital account 180 000 } Current account 5 500 }(1) Loan 15 000 } Goodwill $90 000  50% 45 000 (1) Loss on revaluation 50%  $32 000 W1 (16 000) (2) Amount payable to Betty 229 500 (1)OF W1 Profit/loss on revaluation $ Equipment ($161 000 – $185 000) (24 000) Motor vehicles ($117 000 – $148 000) (31 000) Inventory ($105 000 – $82 000) 23 000 Loss on revaluation (32 000) (1) 50%  $32 000 = $16000 (1)OF 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 16 of 17 Question Answer Marks 3(d) Calculate the amount of cash introduced by Chandra on 1 January 2025. $ Payment for the share of goodwill $90 000  40% 36 000 (1) Capital account W1 150 000 (4) Loan 40 000 Cash introduced by Chandra 226 000 (1)OF W1 $ Capital account of Ahmed Capital account balance at 31 December 2024 250 000 Goodwill shared $90 000  50% 45 000 (1) Goodwill eliminated $90 000  60% (54 000) (1) Share of revaluation loss $32 000  50% (16 000) (1)OF Capital account balance at 1 January 2025 225 000 ($225 000/60%)  40% 150 000 (1)OF 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2025 © Cambridge University Press & Assessment 2025 Page 17 of 17 Question Answer Marks 3(e) Prepare the statement of financial position of the new partnership at 1 January 2025. Statement of financial position at 1 January 2025 $ $ Non-current assets Equipment 161 000 } Motor vehicles 117 000 }(1) 278 000 Current assets Inventory 105 000 } Trade receivables 76 500 }(1) Bank W1 26 800 (4) 208 300 Total assets 486 300 Capital account – Ahmed 225 000 } – Chandra 150 000 }(1)OF 375 000 Loan from Chandra 40 000 (1) Current liabilities Trade payables 71 300 Total equity and liabilities 486 300 W1 $ Balance at 31 December 2024 20 800 Cash from Ahmed 9 500 (1) Cash paid to Betty (229 500) (1)OF Cash from Chandra 226 000 (1)OF Balance at 1 January 2025 26 800 (1)OF 8