Cambridge Assessment International Education

Cambridge International Advanced Subsidiary and Advanced Level

ACCOUNTING 9706/21
Paper 2 Structured Questions May/June 2019
MARK SCHEME
Maximum Mark: 90

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.

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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 2019 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and
some Cambridge O Level components.

This document consists of 14 printed pages.

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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 descriptors 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.

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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.

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Question Answer Marks

1(a) It will have up-to-date information of assets and liabilities / and will inform decision making (1) 3

The business can more easily chase trade receivables and keep up to date with trade payables (1)

The preparation of the financial statements is easier and more accurate / reducing the possibility of errors (1)

Accept other valid points.

1(b)(i) $ 3
$7000 − 2800 4200 (1)
Depreciation for 6 months (700) (1)
Net book value on disposal 3500
Part-exchange 3300
Loss on disposal (200) (1)

1(b)(ii) Total depreciation charge for motor vehicles for the year ended 30 April 2019 4

$
Depreciation on vehicles disposed 700 (1) OF
New vehicle 10 100 × 10% 1010 (1)
Remaining vehicles 18 000 × 20% 3600 (1)
Charge for the year 5310 (1) OF

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Question Answer Marks

1(c) Income statement for the year ended 30 April 2019 9

$ $
Revenue W1 58 430 (1)
Inventory on 1 May 2018 6 750
Purchases W2 25 970
32 720
Inventory on 30 April 2019 5 470 27 250 (1)
Gross profit 31 180
Wages W3 11 500 (1)
Rent W4 6 850 (1)
General expenses 2 300
Provision for doubtful debts 190 (1)
Loss on sale of motor vehicle 200 (1) OF
Depreciation on motor vehicles 5 310 (1) OF
Depreciation on equipment W5 2 900 (1) 29 250
Profit for the year 1 930 (1) OF

Workings: W1 Revenue 57 900 + 3790 − 3260 = 58 430

W2 Purchases 25 800 + 4560 − 4390 = 25 970
W3 Wages 10 700 + 2300 − 1500 = 11 500
W4 Rent 7500 − 1600 + 950 = 6850
W5 Depreciation equipment 20 500 − 17 600 = 2900

1(d) Application of concept of prudence (1) 4

Application of matching concept (1)
Profit may be overstated in the event of irrecoverable debts (1)
Trade receivables / current assets may be overstated (1)

Accept other valid points.

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Question Answer Marks

1(e) Loan Max 3 7

Annual interest will reduce / eliminate profit (1)

Does he want any security? (1)

Will he want capital repaid? (1)

However, it will clear the overdraft in the short-term. (1)

Accept other valid points.

Becoming a partner Max 3

Will bring in expertise / new ideas (1)

May generate additional gross profit (1)

May be able to reduce wages which is the main expense (1)

There may be conflict between the three partners (1)

Possibly less profit for Ahmed and Raji (1)

Accept other valid points.

1 for Advice

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Question Answer Marks

2(a)(i) Lawrence 4
Corrected purchases ledger control account

$ $
Discount received 280 (1) Balance b/d 16 970
Cash payment 120 (1) Contra 1 070 (1)
Contra 380 Discount allowed 70 (1)
Corrected balance c/d 17 330
18 110 18 110
Balance b/d 17 330

2(a)(ii) Lawrence 5
Corrected sales ledger control account

$ $
Balance b/d 42 350 Sales return 460 (1)
Dishonoured cheque 90 (1) Irrecoverable debt 190 (1)
Discount 140 (1)
Contra 380 (1)
Corrected balance c/d 41 270
42 440 42 440
Balance b/d 41 270

2(b) A transaction recorded in the wrong account of the same class (1) but using the correct amount and on the correct side. (1) 2

2(c)(i) Incorrect sales ledger balances could mean Lawrence not collecting the right amount from credit customers. (1) It may also 2
risk resulting in irrecoverable debts. (1)

Non-collection of debts would negatively impact cash balances. (1)

May lead to incorrect financial statements (1)

Max 2

Accept other valid points.

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Question Answer Marks

2(c)(ii) Incorrect purchase ledger balances could mean possible disputes with suppliers affecting deliveries (1) and may result in 2
credit facilities being withdrawn. (1)

May lead to overpaying suppliers (1)

May result in loss of opportunities of settlement discount. (1)

Max 2
Accept other valid points.

Question Answer Marks

3(a) $44 500 – $2000 (1) = $42 500 (1) OF 2

3(b) Statement of Changes in Equity for the year ended 30 September 2018 11

Ordinary Share Revaluation Retained

shares premium reserve earnings
$ $ $   $
At 1 October 2017 500 000 175 000 540 000
Profit for the year 42 500 (1) OF
Rights issue W1 200 000 } 120 000 } (3)
Bonus issue W2 420 000 (1) (295 000) (1) (125 000) (1)
Dividends paid W3 (224 000) (2)
Revaluation of buildings 350 000 (1)
At 30 September 2018 1 120 000 0 350 000 233 500 (1) OF

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Question Answer Marks

3(b) 2 000 000 (1)

W1 Rights issue: 500 000 × 4 =   = 800 000 (1) OF
5×2
800 000 × 0.25 = 200 000 } (1) OF both
800 000 × 0.15 = 120 000 }

W2 Bonus issue: 2 000 000 + 800 000 = 2 800 000

2 800 000
 = 1 680 000 (1) OF
5×3
1 680 000 × 0.25 = 420 000 (1) OF

W3 Dividends paid: 2 000 000 + 800 000 + 1 680 000 = 4 480 000

4 480 000 × 0.05 = 224 000 (1) OF

3(c) Capital reserves: 2

Non distributable

Cannot be used to pay dividends

Created via changes in capital structure / non-trading activities

Max 1
Accept other valid points.

Revenue reserves:

Distributable

Can be used to pay dividends

Created via trading activities

Max 1
Accept other valid points.

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Question Answer Marks

4(a)(i) $60 000 (1) 1

4(a)(ii) $40 000 (1) 1

4(a)(iii) $30 000 (1) 1

4(a)(iv) $20 000 (1) 1

Workings:

{ 90
{ Sales revenue
{ 80 (iv)
(iii) {
{ 70
{ Total costs
(i)
{ 60

50
$000 (ii) Fixed costs
40

30 Variable costs

20

10

0
0 10 20 30 40 50 60

Units (in thousands)

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Question Answer Marks

4(b) Budgeted profit 10

Budgeted units 105 000
$
Sales revenue 315 000
Less direct labour 210 000
Less direct materials 52 500
Contribution 52 500
Less allocated fixed costs 34 500
Budgeted profit 18 000 (1)
Profit with changes
$ per unit or $
Selling price $3 × 1.05 = 3.15 (1) × 105 000 units 330 750
Less direct labour $4 ×1.05 = $4.20 × 0.5 hour = 2.10 (1) × 105 000 units 220 500
Less direct materials $2 × 1.02 = $2.04 × 0.25 kilos = 0.51 (1) × 105 000 units 53 550
Contribution 0.54 56 700
Alternate working for contribution per unit
$
Selling price $315 000
 = $3.00 × 1.05 3.15
105 000
Less direct labour $210 000
 = $2 × 1.05 2.10
105 000
Less direct material $52 500
 = $0.5 × 1.02 0.51
105 000
Contribution per unit 0.54
$
Total contribution $0.54 × 105 000 units = 56 700 (1) OF
Less sales bonus 1 575 * see working
Less allocated fixed costs $34 500 + 6000 = 40 500 (1)
14 625 (1) OF
* sales bonus 105 000 – 80 000 = 25 000 units × $3.15 = $78 750 (1) OF × 2% = $1575 (1) OF
Budgeted profit = $18 000 New profit = − $14 625 Change = $3375 decrease (1) OF

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Question Answer Marks

4(c) Break-even 5
budgeted new
Allocated fixed costs $34 500 $40 500 (1) OF both
Contribution per unit ÷ 0 .50 ÷ 0 .54 (1) OF both
Break-even units 69 000 75 000
Selling price per unit × $3 × $3 .15 (1) OF both
Break-even $207 000 $236 250 (1) OF both = increase of $29 250 (1) OF

4(d) Margin of safety 2

New 105 000 – 75 000 = 30 000 units } (1) OF both
budgeted 105 000 – 69 000 = 36 000 units }
decrease of 6000 units (1) OF

4(e) Table to show analysis of results 5

Budgeted After changes

Contribution $52 500 $56 700

Profit $18 000 $14 625

Break-even 69 000 units 75 000 units

Break-even $207 000 $236 250

Margin of safety 36 000 units 30 000 units

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Question Answer Marks

4(e) Recommend: The changes are not worthwhile. (1)

Because:

Although budgeted contribution is higher, the profit after the changes is lower (1), due to allocated fixed costs increasing –
advertising and sales bonus. (1)

The margin of safety is lower (1) which means there is less of a buffer / comfort zone before Wye starts to make a loss. (1)

The break-even point is higher (1) which increases the risk (1) of Wye not making enough sales to cover fixed costs. (1)

Accept other valid points.

(1 mark) × any 4 reasons − Max 4

4(f) Possible answers: 4

Identify underperforming products (1)

Ensure sufficiently skilled labour is available to meet production (1)

Ensure sufficient finance is available to continue operations and any planned investments (1)

Ensure the correct quality/cost of material / discounts can be obtained from suppliers (1)

Be able to adapt to changes in the future / provides alternatives if financial targets are not being met (1)

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Question Answer Marks

4(f) Price products competitively (1)

Avoid ‘firefighting’ / avoid potential problems in the future (1)

Assess any competition / markets for products (1)

Estimate the likely future position of business − short term and long term (1)

Identify areas of responsibility of managers (1)

(1 mark) × any 4 advantages

Accept other valid points.

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