Cambridge International AS & A Level

SUBJECT 9706/31
Paper 3 Structured Questions October/November 2020
MARK SCHEME
Maximum Mark: 150

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 October/November 2020 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 9 printed pages.

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9706/31 Cambridge International AS & A Level – Mark Scheme October/November
PUBLISHED 2020

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.

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) 40 000 – 15 000 (1) = 25 000 (1)OF 2

1(b) 25 000 2
(1)OF × 100 = 25% (1)OF
(125 000 − 25 000)

1(c) Barry 14
Income statement for the year ended 31 December 2019
$ $
Revenue 1 550 000
Inventory 1 January 2019 140 000
Production cost at transfer price 1 000 000 W1
1 140 000
Inventory 31 December 2019 125 000 (1)
Cost of sales 1 015 000 (1)OF
Gross profit 535 000 (1)OF
Factory profit 200 000 (1)OF
Decrease in provision for unrealised profit 15 000 (1)
Distribution costs 212 000
Administrative expenses 484 000 (1) 696 000
Profit from operations 54 000 (1)OF
Finance charges 20 000 (1)
Profit for the year 34 000 (1)OF

W1 505 000 (1) + 283 000 (1) + 12 000 (1) + 200 000 (1)OF = 1 000 000 (1)OF

1(d) This suggestion would remove the link with the market price (1) and therefore 5
be subjective (1).
This would increase factory profit (1) but decrease gross profit (1) and leave
overall profit unchanged (1).
Any production bonuses for staff and/or the manager in the factory could be
inflated (1).
A fixed rate would be consistent year on year (1) and would avoid large
fluctuations in the provision for unrealised profit (1) and would simplify the
accounting function (1).
Accept other valid points
Max (4) for comments plus (1) for decision

1(e) In the manufacturing account (1) within cost of raw materials 2

consumed/added to purchase cost of raw materials (1) as it is the additional
cost of purchasing the raw materials (1) Max 2

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Question Answer Marks

2(a) $ 3
Profit from operations 63 000 (1)
Interest (12 – 3 + 5) 14 000 (1)
Profit for the year 49 000 (1)(OF)

2(b) PL plc 16
Statement of financial position (extract) at 31
December 2019
Equity $
Ordinary share capital 341 000 W1
Share premium 59 000 W2
Revaluation reserve 95 000 (1)
General reserve 30 000 (1)
Retained earnings 75 000 W3
600 000
Non-current liabilities
Bank loans 85 000 (1)

Current liabilities
Trade and other payables 72 000 W4
Bank loan 20 000 (1)

Total equity and liabilities (1) 777 000 (1)(OF)

W1 250 000 + 60 000 (1) + 31 000 = 341 000 (1)(OF)

W2 90 000 (1) – 31 000 = 59 000 (1)(OF)
W3 76 000 + 49 000 (1)(OF)– 20 000 (1) – 30 000 (1) = 75 000 (1)(OF)
W4 67 000 (1) + 5 000 = 72 000 (1)(OF)

2(c) The company has purchased another business as a going concern (1) and 2
paid a purchase consideration higher than the value of the net assets taken
over (1).

2(d) Good reputation of business (1) 2

Good location of premises (1)
Profitability of business (1)
Efficiency of employees (1)
Good customer base (1)
Accept other valid points

Max 2

2(e) An independent check on a business’s accounting records (1) by an 2

independent, qualified person (1) to check for material errors and to check
compliance with accounting standards and relevant legislation (1), resulting in
a report (1) stating whether or not the financial statements give a true and fair
view (1).
Accept other valid points

Max 2

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Question Answer Marks

3(a)(i) Consignment to Nakula account 5

$ $
goods on consignment 6000 * Nakula 4000 (1)
bank (freight) 600 } Bal c/d 4180
Nakula (selling) 400 }(1)both
Nakula (commission) 720 (1)
profit on consignment 460 *(1)both
8180 8180
Bal b/d 4180 (1)OF

3(a)(ii) consignment to Pedro account 4

$ $
goods on consignment 15 000 * Pedro 28 000 (1)
Pedro (freight) 1 600 }
Pedro (selling) 1 200 }(1)both
Pedro (commission) 2 800 (1)(OF)
profit on consignment 7 400 *(1) both
28 000 28 000

3(b) 2800 2
(1)(OF)× 100 = 10% (1)(OF)
28 000
OF relates to numerator only, denominator CF

3(c)(i) Nakula account 4

$ $
Consignment a/c N 4000 (1) Consignment a/c N 400 (1)
Consignment a/c N 720 (1)
Bal c/d 2880
4000 4000
Bal b/d 2880 (1)(OF)

3(c)(ii) Pedro account 4

$ $
consignment a/c P 28 000 (1) consignment a/c P 1 600 }
consignment a/c P 1 200 }(1)
consignment a/c P 2 800 (1)(OF)
bank 22 400 (1)(OF)
28 000 28 000

3(d) At lower of cost (1) plus the relevant portion of the costs of getting the 3
inventory into a position and condition to sell (1) and net realisable value (1)

3(e) 4180 (1of) 3

= 38 units (1)(OF)
110 (1)

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Question Answer Marks

4(a) Absolute values may not be useful in isolation. (1) 3

The use of ratios puts values into context. (1)
Ratios may enable trends over time to be monitored. (1)
Ratios enable comparisons with other companies or with industry averages.
(1)
Ratios may help in decision making. (1)
Accept other valid points
Max 3

4(b)(i) 20 000 2
(1) × 100 = 9.30% (1)(OF)
215 000

4(b)(ii) It shows that the company has a good ability to pay the interest out of profits. 1
(1)

4(b)(iii) gearing ratio (1) 1

4(c)(i) 195 000 2

(1) = 2.44 times (1)(OF)
80 000

4(c)(ii) The company is ploughing back the majority of its profits into the business 1
which should increase its profit generating abilities. (1)

4(d)(i) 0.08 2
(1) × 100 = 10.67% (1)(OF)
0.75

4(d)(ii) An investor will get back more than 10% of the amount he would pay now to 1
buy shares each year. (1)

4(e) earnings per share (1) 3

195 000
(1) = $0.195 (1)(OF)
1000 000

4(f) price earnings ratio (1) 4

0.75 (1)
= 3.85 (1)(OF)
0.195 (1of)

4(g) The directors’ report does give a review of performance (1) and details of 5
dividends (1) but Fred would likely want more detail than this (1).
The financial statements deal with historic data (1) and may not be a good
indicator of future performance (1) but the directors’ report also covers likely
future developments of the company (1).

Decision (1)
Max (4) for comments

Accept other valid points.

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Question Answer Marks

5(a) A B 5
$ $
sales 58 000 138 000 (1) both
direct materials 16 000 36 000 }
direct labour 20 000 33 000 } (1) both
overheads 18 098 (1) 43 062 (1)
total profit 3 902 25 938
profit per unit 1.95 8.65 (1)(OF)both

Accept alternative formats

5(b) A B 8
$ $
Rent 16 800 25 200 (1) both
Machine set up costs 3 000 (1) 5 000 (1)
Packaging 3 850 (1) 2 310 (1)
Quality inspections 1 500 (1) 3 500 (1)
25 150 36 010 (1)(OF)both

5(c) Rent cannot be allocated under ABC (1) 3

Max 2 of the following
it is a fixed cost (1)/not affected by the level of production (1)/not subject to
changes in activity level (1)/apportioned on a suitable basis i.e. floor area. (1)

5(d) 4
A B
$ $

old profit 3 902 25 938 *

add old overheads 18 098 43 062 *(1)(OF)both

less new overheads 25 150 36 010 (1)(OF)both

new profit/loss (3150) 32 990 (1)(OF)both

new profit/loss per unit (1.58) 11.00 (1)(OF)both

accept alternative formats

5(e) The changes in allocation of overheads has not changed total profit. (1) 5
Product A now makes a loss per unit. (1)
However it still has a positive contribution. (1)
Most of the increase in the overheads for product A relate to the rent which is
still apportioned rather than allocated and is therefore subjective. (1)
Bob needs to consider what his competitors are charging/what the market can
bear. (1)
If he increased the price of A sales might fall. (1)
If sales of A fell total contribution might decrease. (1)
If sales of A fell the rent being a fixed cost would still have to be paid. (1)

Accept other valid points

Decision (1)
Max (4) for four comments.

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Question Answer Marks

6(a)(i) 1
year 1 year 2
$ $

revenue – original 800 000 913 000 (1 both)

6(a) (ii) 1
year 1 year 2
$ $

revenue – revised 1 056 000 1 195 200 (1 both)

6(b)(i) 2
year 1 year 2
$ $

variable cost – original 240 000 (1) 249 000 (1)

6(b)(ii) 2
year 1 year 2
$ $

variable cost – revised 288 000 (1) 298 800 (1)

6(c) 8
incr in incr in incr in net cash discount discounted
revenue var fixed flow factor cash flow
$ costs costs $ $
$ $

y1 256 000 48 000 125 000 83 000 0.909 75 447 (1)(OF)

(1)(OF)

y2 282 200 49 800 125 000 107 400 0.826 88 712 (1)(OF)
(1)(OF) (1)(OF) (1) for (1)(OF)
for both for both both

NPV 164 159 (1)(OF)

6(d) 3
increase in fixed costs $125 000
increased income from existing sales [8 000 × $10] $80 000
$45 000 (1)
new ticket sales [45 000/(100 + 10)] 409.09 (1)(OF)
total ticket sales (8 000 + 410) 8 410 (1)(OF)

6(e) It would increase the risk (1) as it involves a substantial increase in the fixed 2
costs (1) with no guarantee that the extra revenue will happen (1). In year 2
the ticket sales are very close to the maximum (1). What will happen if
someone wants to buy a ticket for a day which is fully booked – will he chose
to book on another day? (1)
Accept other valid points.
Max 2

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Question Answer Marks

6(f) It increases an already positive NPV. (1) 3

He could consider other methods of appraisal. (1)
It increases the risk of the plan. (1)
It is based on estimates. (1)
Non-financial factors are not considered. (1)
Accept other valid points
Decision (1)
Max (2) for comments

6(g) It deals with forecast figures (1) to measure the effect on an outcome of a 3
change in a variable cost or income (1). It is useful when a project lasts for a
number of years (1).
Accept other valid points

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