Cambridge International AS & A Level

* 6 4 0 0 2 2 1 2 9 1 *

ACCOUNTING 9706/31
Paper 3 Financial Accounting October/November 2023

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.

This document has 12 pages. Any blank pages are indicated.

DC (RW) 316845/3
© UCLES 2023 [Turn over
 2

1 Read Source A in the insert.

(a) Calculate the revised profit for the year after making the necessary amendments for matters
1 to 5.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [7]

Additional information

When the draft financial statements were prepared, the market price of one share in CB plc was
$3.90. The directors calculated the price/earnings ratio at this time using the draft profit figure.

Amendments were made to the draft financial statements as in part (a).

When the final financial statements were published, the market price of one share was $3.10.

© UCLES 2023 9706/31/O/N/23

 3

(b) Calculate, to two decimal places, the change between the price/earnings ratio which the
directors calculated and the price/earnings ratio based on the published financial statements.

ratio based on published financial

ratio calculated by directors
statements

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

...................................................................... ......................................................................

Change .................................................................................................................................
[5]

(c) Advise the directors whether or not they should be concerned about the change in the
price/earnings ratio. Justify your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [4]

© UCLES 2023 9706/31/O/N/23 [Turn over

 4

Additional information

The directors believe that the gearing ratio of the company is too high.

(d) Explain three measures which the company could take which would cause the gearing ratio
to decrease.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[6]

Additional information

Businesses prepare a statement of profit or loss to show how their profits have been calculated.

(e) State three other reasons a limited company has for preparing a statement of profit or loss.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[3]

[Total: 25]

© UCLES 2023 9706/31/O/N/23

 5

2 Read Source B in the insert.

(a) Advise Suhail whether or not he should have had his accounts audited before HJ Limited
inspected them. Justify your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [5]

© UCLES 2023 9706/31/O/N/23 [Turn over

 6

Additional information

Once negotiations were complete HJ Limited took over Suhail’s business on 1 May 2023 for a
purchase consideration of $135 000. This was settled by $25 000 cash and 50 000 ordinary shares
of $1 each.

Suhail’s statement of financial position on 30 April 2023 was as follows:

$ $
Non-current assets 76 000

Current assets
Inventory 11 200
Trade receivables 16 400
Bank 3 100 30 700
Total assets 106 700

Capital 90 900

Current liabilities
Trade payables 15 800
Total capital and liabilities 106 700

Fees relating to the sale of the business, paid by Suhail, amounted to $2000.

HJ Limited took over all the assets and liabilities of the business except for the bank account and
one vehicle which Suhail took over at a carrying value of $10 000. Trade payables were taken over
at their carrying value. Assets were taken over at the following valuations.

$
Non-current assets 114 000
Inventory 9 700
Trade receivables 13 200

(b) Prepare the following accounts in Suhail’s books.

(i) Realisation account

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [7]

© UCLES 2023 9706/31/O/N/23

 7

(ii) Capital account

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [7]

(c) Prepare the journal entry in HJ Limited’s books to record the purchase of Suhail’s business.
A narrative is not required.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [6]

[Total: 25]

© UCLES 2023 9706/31/O/N/23 [Turn over

 8

3 Read Source C in the insert.

(a) Prepare the statement of cash flows for the year ended 30 June 2023 in accordance with
IAS 7.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
© UCLES 2023 9706/31/O/N/23
 9

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

........................................................................................................................................... [17]

© UCLES 2023 9706/31/O/N/23 [Turn over

 10

(b) Discuss how shareholders are likely to view the changes in the company’s capital employed
which would have taken place during the year. Calculations are not required.

Your answer should consider separately each element of capital employed.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [8]

[Total: 25]
© UCLES 2023 9706/31/O/N/23
 11

BLANK PAGE

© UCLES 2023 9706/31/O/N/23

 12

BLANK PAGE

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.

© UCLES 2023 9706/31/O/N/23