Cambridge International Advanced Subsidiary and Advanced Level
Cambridge International Advanced Subsidiary and Advanced Level
Cambridge International Advanced Subsidiary and Advanced Level
ACCOUNTING 9706/33
Paper 3 Structured Questions October/November 2016
3 hours
No Additional Materials are required.
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The number of marks is given in brackets [ ] at the end of each question or part question.
IB16 11_9706_33/7RP
© UCLES 2016 [Turn over
2
1 M Limited manufactures a single product. The following balances have been extracted from the
ledgers for the year ended 31 December 2015:
Debit Credit
$ $
Inventories at cost at 1 January 2015
Raw materials 10 400
Work-in-progress 12 600
Finished goods at transfer price 14 904
Purchases of raw materials 146 200
Carriage inwards 3 160
Carriage outwards 2 790
Direct wages 249 400
Indirect wages 54 650
Rent 49 000
Heat, light and power 28 600
General expenses 12 600
Office salaries 24 780
Revenue 742 490
Provision for unrealised profit at 1 January 2015 2 484
Plant and machinery at cost 200 000
Office equipment at cost 15 000
Motor vehicles used by salesmen 25 000
Provision for depreciation:
plant and machinery 60 000
office equipment 4 600
motor vehicles 5 740
Additional information
Rent 4/5
Heat, light and power 4/5
General expenses 3/4
REQUIRED
(a) Prepare the manufacturing account for the year ended 31 December 2015. [9]
(b) Prepare the income statement for the year ended 31 December 2015. [10]
Additional information
10 000 units of the product were manufactured in the year, which is the maximum that can be
produced. A supplier has offered to supply the product to M Limited for $60 per unit in the future.
REQUIRED
(d) Advise the directors of M Limited whether or not they should accept this offer. Justify your
answer on financial grounds. [4]
[Total: 25]
REQUIRED
(a) State two reasons why the members of a not-for-profit organisation do not receive a
dividend. [2]
Additional information
$
Equipment at net book value 7 800
Subscriptions in advance 490
Subscriptions in arrears 270
Life membership fund 1 500
Trade payables for refreshments 265
Inventory of refreshments 420
Accumulated fund 7 825
2 The receipts and payments account for the year ended 31 August 2016 was as follows:
$ $
Bank balance b/d 1 590 Groundsman’s wages 7 500
Subscriptions 11 200 Repairs to clubhouse 700
Sale of equipment 4 000 Purchase of equipment 2 500
Match ticket sales 6 400 Cost of refreshments 1 700
Refreshments 2 500 Awards to players 1 450
Life membership 800 Administration expenses 760
Donation 3 500 Bank balance c/d 11 880
Savings account c/d 3 500
29 990 29 990
$
Subscriptions in advance 295
Subscriptions in arrears 165
Trade payables for refreshments 315
Inventory of refreshments 390
4 The donation of $3500 is to be used for the purchase of a new clubhouse. It had been
invested in a new savings account and is to be capitalised.
5 The club depreciates its equipment at 10% on the net book value. A full year’s depreciation is
charged in the year of purchase. No depreciation is charged in the year of sale.
7 The life membership fund is transferred to the income and expenditure account over 10
years in equal instalments.
8 For the year ended 31 August 2016 the club made a profit of $720 on the sale of
refreshments.
REQUIRED
(b) Prepare the income and expenditure account for the year ended 31 August 2016. [11]
(d) Explain why the club transfers life membership fund to the income and expenditure accounts
over 10 years. [4]
[Total: 25]
Before the end of year audit, the chairman made the following statement:
‘I am pleased to report that the profit for the year ended 31 March 2016 has increased from
$86 000 to $174 000. These results have been achieved through careful cost control and
concentrating on those areas which offer the greatest return.’
However during the end of year audit the auditors discovered the following:
1 Equipment with a net book value of $180 000 had become obsolete during the year but had
not been written off. The directors believed that the buildings have increased in value by
$200 000, which cancelled out any loss on the obsolete equipment. So no adjustment had
been made.
2 The method of inventory valuation had been changed at the end of the year from AVCO to
FIFO. The AVCO valuation had been $142 000 whereas the FIFO valuation was $184 000.
3 At 31 March 2016 the trade receivables amounted to $675 000. During the year a debt for
$81 000 had been written off. However, a cheque for 75% of this amount had been
discovered during the audit. The cheque had not been recorded in the books of account but
is expected to clear the bank.
REQUIRED
(c) State whether the published audit report will be qualified or not. [1]
(d) (i) Describe the correct accounting treatment of points 1, 2 and 3 with reference to the
relevant accounting standards. [9]
(ii) Analyse the effects of any correction on the profit for the year ended 31 March 2016. [6]
[Total: 25]
4 Hamid and Patel trade regularly with each other. Patel is based in India and Hamid is based in
Scotland.
On 15 November 2014 Hamid sent 100 cases of goods to Patel costing $12 000. The commission
on sales was agreed at 5% of the gross sales.
On the same day Hamid paid delivery charges of $610 and insurance of $110.
4 Storage charges of $350 and selling expenses of $245 had been paid by Patel.
REQUIRED
(a) Prepare in the books of Hamid the following accounts at 31 March 2015:
(b) Analyse the effect on profit of the irrecoverable debt incurred during the year. [2]
Additional information
Hamid and Patel are now considering forming a partnership rather than continuing to trade on a
consignment basis.
REQUIRED
(c) Advise whether or not Hamid and Patel should enter into a partnership with each other.
Justify your answer. [4]
[Total: 25]
5 N Limited is planning a new project, which has an initial cost of $225 000. If the project runs for
four years the marginal revenues and costs will be as follows:
Option 1 To stop the project at the end of year 2 when the scrap value of the project’s assets
will amount to $175 000.
Option 2 To continue with the project until the end of year 4 when the scrap value of the
assets will be $75 000.
The company’s cost of capital is 10%. Discount factors for this cost of capital are as follows:
REQUIRED
(a) Calculate the net present value (NPV) of each option. [10]
(b) Advise the directors which option they should choose. Justify your answer. [2]
Additional information
Before the directors make a decision, the finance director wishes to have further data on the
project.
REQUIRED
(c) Calculate, to two decimal places, the sensitivity of the option selected in your answer to (b)
to changes in the initial cost of the project. [3]
(d) Calculate, to two decimal places, the accounting rate of return (ARR) of the option selected
in your answer to (b). (Add scrap value to cost when calculating average investment.) [6]
(e) Explain to the directors which is the more valid method of investment appraisal.
Give reasons. [4]
[Total: 25]
REQUIRED
Additional information
The finished goods inventory held at 1 January 2017 is expected to be 200 units. This is
expected to increase by 20 units each month until 31 March 2017.
Unit sales from December 2016 to April 2017 are expected to be:
REQUIRED
(b) Prepare a production budget for each of the four months from January to April 2017. [4]
Additional information
1 Goods will be sold on credit with a selling price of $30 per unit. One third is expected to be
received in the month of sale with the balance being received in the following month.
2 Other income will arise from the interest received on an investment of $50 000 at 4% per
annum. Interest will be received quarterly starting 1 January 2017.
$
Direct materials 7
Direct labour 5
Overheads 6
18
4 Direct materials will be purchased to meet the current month’s production. Half the amount
due will be paid by cash in the month of production and the balance will be paid in the
following month. The number of units produced in December 2016 is expected to be 340.
5 Direct labour will be paid in the month that the cost is incurred.
6 Four-fifths of the overheads will be paid in the month in which they are incurred with the
balance being paid in the following month.
7 Some new equipment is expected to be acquired on 1 January 2017 at a cost of $12 000. A
50% deposit will be paid on delivery, with the remainder being paid on 1 April 2017. This
equipment will be depreciated at 10% using the straight-line method.
8 The bank account balance at 1 January 2017 is expected to be overdrawn by $10 450.
REQUIRED
(c) Prepare a cash budget for each of the three months from January to March 2017. [10]
(d) Analyse the options available to Sunil to avoid using a bank overdraft. [6]
(e) Advise Sunil whether or not he should apply for a loan rather than maintain an overdraft.
Justify your answer.
[3]
[Total: 25]
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