MOCK EXAMINATION 2024

Advanced Subsidiary Level

ACCOUNTING 9706/22
Paper 2 Structured Questions Mock 2024
1 hour 30 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use an HB pencil for rough working.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

All accounting statements are to be presented in good style.
International accounting terms and formats should be used as appropriate.
Workings must be shown.
You may use a calculator.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 20 printed pages.

[Turn over
1 The following balances were extracted from the books of K Limited at 30 September 2018.

Debit Credit
$000 $000
8% Debentures (2022-2024) 75
Administrative expenses 42
Cash and cash equivalents 11
Cost of sales 587
Debenture interest 3
Distribution costs 46
Dividends paid 60
Equipment
cost 90
provision for depreciation at 1 October 2017 30
Land and buildings
cost 980
provision for depreciation at 1 October 2017 135
Inventory at 30 September 2018 19
Issued share capital: ordinary shares of $0.50 each 450
Retained earnings at 1 October 2017 106
Revenue 936
Share premium 90
Trade payables 35
Trade receivables 41

The following information is also available.

1 Administrative expenses includes a payment, $9000, for insurance for the three months
ended 30 November 2018.

2 Carriage inwards of $3000 had been included in distribution costs.

3 Land and buildings includes land at a cost of $260 000.

4 The company’s depreciation policy is as follows:

20% per annum using the reducing

Equipment Charged to distribution costs
balance method
2½% per annum using the
Buildings Charged to administrative expenses
straight-line method

Land No depreciation
REQUIRED

(a) Prepare the income statement for the year ended 30 September 2018.

K Limited
Income statement for the year ended 30 September 2018

$000

Workings:

[10]
 4

Additional information

During the year ended 30 September 2018 the directors had made a rights issue of 1 ordinary
share for every 2 shares held at a price of $0.70 per share. The issue was fully subscribed and
had been recorded in the books of account.

REQUIRED

(b) Prepare the statement of changes in equity for the year ended 30 September 2018.

Share Share Retained Total

capital premium earnings
$000 $000 $000 $000

Workings:

[6]
 5

Additional information

The directors wish to raise additional finance. They are considering making either a further rights
issue of ordinary shares or issue another debenture.

REQUIRED

(c) Advise the directors which option they should choose. Justify your answer.

[5]
 6

Additional information

The directors have provided the following information:

Year ended Year ended Industry

30 September 30 September average for
2018 2017 both years
Trade payables turnover 29 days 35 days 34 days
Trade receivables turnover 39 days 31 days 32 days

REQUIRED

(d) Analyse the effect that the changes in each of these ratios had on the company’s liquidity
using all the available information.

[3]
 7

(e) State three ways in which a business could reduce trade receivables turnover.

[3]

(f) State three drawbacks of increasing trade payables turnover.

[3]

[Total: 30]
 2 Myra owns a delivery business. The following information is available about her business’s delivery
vehicles.

Vehicle Date of purchase Cost

$
A 1 August 2017 30 000
B 1 February 2018 36 000
C 1 June 2019 39 000

Vehicles are depreciated using the straight-line method at 20% per annum. Depreciation is
charged on a month-by-month basis. The business’s financial year end is 31 December.

REQUIRED

(a) Calculate the balance on the provision for depreciation of vehicles account at
31 December 2019.

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[4]
On 1 March 2020, Vehicle A was sold in part exchange for Vehicle D. Vehicle D cost $42 000 of
which $29 200 was paid by cheque.

REQUIRED

(b) Prepare the vehicle disposal account.

Vehicle disposal account

$ $

[5]
(c) Prepare the provision for depreciation of vehicles account for the year ended
31 December 2020.

Provision for depreciation of vehicles account

$ $

[3]
 Businesses may use the revaluation method of depreciation for some of their non-current assets.

REQUIRED

(d) Explain one reason why some businesses may use the revaluation method of depreciation.

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[2]

(e) State how an annual depreciation charge is calculated using the revaluation method.

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[1]

[Total: 15]
3 Noor, a sole trader, was preparing her business’s financial statements for the year ended
31 December 2018.

The following information is available.

At 1 January 2018
$
General expenses prepaid 480

During the year ended 31 December 2018

$
General expenses paid 12 400
Insurance premiums paid 6 480
Rent received 5 460

At 31 December 2018

1 General expenses, $1210, were due but unpaid.

2 Insurance premiums paid included $630 covering the six months ended 31 January 2019.

3 Rent receivable of $1200 for the three months ended 28 February 2019 had not yet been
received.

4 Inventory had been valued at a cost of $11 400. However, it included several damaged items
which had a selling price of $840. All goods are sold with a mark-up of 50%. The damaged
items could be sold but would require repairs costing $360.

REQUIRED

(a) Calculate the amount to be recorded in the income statement for the year ended
31 December 2018 for each of the following items.

(i) General expenses

[3]

(ii) Insurance
[1]
 (iii) Rent receivable

[1]

(iv) Closing inventory

[3]

Additional information

Noor’s policy is to maintain a provision for doubtful debts at 5% of trade receivables at the end of
the financial year.

REQUIRED

(b) State two accounting concepts which are applied when recording a provision for doubtful
debts.

2 [2]
At 31 December 2017 Noor’s trade receivables were $34 200 after deducting the provision for
doubtful debts.

At 31 December 2018 total trade receivables were $37 200. This total included the accounts of
the following two credit customers.

$
MN Limited 680
S Wells 360

Noor decided to write off these two accounts. She will maintain her provision for doubtful debts at
5% of trade receivables.

REQUIRED

(c) Calculate the increase or decrease in the provision for doubtful debts at 31 December 2018.

[5]

[Total: 15]
4 W Limited operates a system of marginal costing. The company makes two products, Product A
and Product B. The directors provided the following budgeted information for a year.
Product A Product B
Production and sales (units) 10 000 6 000
$ $

Allocated fixed overheads 130 000 120 000

Per unit
selling price 60 80
direct material 14 16
direct labour 15 21
variable overheads 10 15

REQUIRED

(a) Prepare a statement for the year to show:

the budgeted total contribution for each product

the budgeted total profit for each product
the budgeted total profit.

Product A Product B Total

$ $ $

[8]
Included in the allocated fixed overheads is rental of machinery at a cost of $100 000 a year. This
cost is allocated 75% to Product A and 25% to Product B.

The directors are now considering two options.

Option 1: Continue with the existing machinery rental on the same terms.

Option 2: Taking out a new rental agreement for new machinery. The new rental agreement
would consist of a fixed fee of $28 000 a year plus $4 for each unit produced. The fixed
fee would be split across the products in the same proportions as under the current
agreement.

REQUIRED

(b) Complete the following table to show the effect of Option 2.

Product A Product B Total

Revised unit contribution

Revised allocated total

fixed overheads, total for
the year

Revised budgeted profit

for the year

Workings:

[9]
(c) Advise the directors which option they should choose. Justify your answer using both
financial and non-financial factors.

[7]

(d) Explain how unit contribution can be used by a business manufacturing multiple products
when there is a shortage of production materials.
[4]
(e) State two other uses of marginal costing to a business.

[2]

[Total: 30]