Cambridge International AS & A Level * 2 5 4 2 2 1 3 6 5 1 * ACCOUNTING 9706/23 Paper 2 Fundamentals of Accounting October/November 2023 1 hour 45 minutes You must answer on the question paper. No additional materials are needed. 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 rough working. ● You may use a calculator. ● You should present all accounting statements in good style. ● International accounting terms and formats should be used as appropriate. ● You should show your workings. INFORMATION ● The total mark for this paper is 90. ● The number of marks for each question or part question is shown in brackets [ ]. This document has 20 pages. Any blank pages are indicated. DC (DE) 321962/3 © UCLES 2023 [Turn over

Cambridge International AS & A Level
* 2 5 4 2 2 1 3 6 5 1 *
ACCOUNTING 9706/23
Paper 2 Fundamentals of Accounting October/November 2023
1 hour 45 minutes
You must answer on the question paper.
No additional materials are needed.
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 rough working.
● You may use a calculator.
● You should present all accounting statements in good style.
● International accounting terms and formats should be used as appropriate.
● You should show your workings.
INFORMATION
● The total mark for this paper is 90.
● The number of marks for each question or part question is shown in brackets [ ].
This document has 20 pages. Any blank pages are indicated.
DC (DE) 321962/3
© UCLES 2023 [Turn over

2 1 B Limited provided the following information for the year ended 30 September 2023. $ 8% debenture (2025) 60 000 Administrative expenses 161 100 Allowance for irrecoverable debts at 1 October 2022 3 820 Cash and cash equivalents 4 680 Distribution costs 84 650 Dividend paid 4 000 Finance costs 3 950 Inventory 74 000 Other payables 1 860 Other receivables 940 Property plant and equipment at 1 October 2022 Cost / valuation 408 400 Accumulated depreciation 110 650 Retained earnings at 1 October 2022 45 850 Revaluation reserve at 1 October 2022 10 000 Share capital (ordinary shares of $1 each) at 1 October 2022 200 000 Share premium at 1 October 2022 14 000 Trade payables 57 150 Trade receivables 82 680 The revaluation reserve relates to land only. The gross profit for the year ended 30 September 2023 was $321 070. The following information is also available. Property plant and equipment at 1 October 2022 Cost / Accumulated Depreciation Allocation of valuation depreciation method depreciation $ $ Land 95 000 Nil – Nil Buildings 215 000 53 750 5% per annum 60% administrative straight line expenses Equipment 98 400 56 900 20% per annum 40% distribution reducing balance costs Total 408 400 110 650 There were no acquisitions or disposals of non-current assets during the year. © UCLES 2023 9706/23/O/N/23

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1 B Limited provided the following information for the year ended 30 September 2023.
$
8% debenture (2025) 60 000
Administrative expenses 161 100
Allowance for irrecoverable debts at 1 October 2022 3 820
Cash and cash equivalents 4 680
Distribution costs 84 650
Dividend paid 4 000
Finance costs 3 950
Inventory 74 000
Other payables 1 860
Other receivables 940
Property plant and equipment at 1 October 2022
Cost / valuation 408 400
Accumulated depreciation 110 650
Retained earnings at 1 October 2022 45 850
Revaluation reserve at 1 October 2022 10 000
Share capital (ordinary shares of $1 each) at 1 October 2022 200 000
Share premium at 1 October 2022 14 000
Trade payables 57 150
Trade receivables 82 680
The revaluation reserve relates to land only.
The gross profit for the year ended 30 September 2023 was $321 070.
The following information is also available.
Property plant and equipment at 1 October 2022
Cost / Accumulated Depreciation Allocation of
valuation depreciation method depreciation
$ $
Land 95 000 Nil – Nil
Buildings 215 000 53 750 5% per annum 60% administrative
straight line expenses
Equipment 98 400 56 900 20% per annum 40% distribution
reducing balance costs
Total 408 400 110 650
There were no acquisitions or disposals of non-current assets during the year.
© UCLES 2023 9706/23/O/N/23

3 The following have not yet been accounted for: On 30 September 2023 1 Land was revalued at $80 000. 2 A bonus issue of one ordinary share for every ten shares held was made. At 30 September 2023 1 Irrecoverable debts of $1480 were to be written off. 2 The directors proposed to maintain the allowance for irrecoverable debts at 5% of trade receivables. 3 Depreciation was to be charged for the year ended 30 September 2023. 4 Administrative expenses of $2480 were owing. 5 Distribution costs of $750 were prepaid. 6 Debenture interest for five months was owing. 7 The charge for taxation was estimated to be $12 500. [Turn over © UCLES 2023 9706/23/O/N/23

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The following have not yet been accounted for:
On 30 September 2023
1 Land was revalued at $80 000.
2 A bonus issue of one ordinary share for every ten shares held was made.
At 30 September 2023
1 Irrecoverable debts of $1480 were to be written off.
2 The directors proposed to maintain the allowance for irrecoverable debts at 5% of trade
receivables.
3 Depreciation was to be charged for the year ended 30 September 2023.
4 Administrative expenses of $2480 were owing.
5 Distribution costs of $750 were prepaid.
6 Debenture interest for five months was owing.
7 The charge for taxation was estimated to be $12 500.
© UCLES 2023 9706/23/O/N/23 [Turn over

4 (a) Prepare an extract from the statement of profit or loss for the year ended 30 September 2023 commencing with the gross profit for the year. B Limited Statement of profit or loss for the year ended 30 September 2023 $ Gross profit for the year Distribution costs Administrative expenses Profit from operations Finance costs Profit before taxation Taxation Profit for the year Workings: Distribution costs Administrative expenses [10] © UCLES 2023 9706/23/O/N/23

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(a) Prepare an extract from the statement of profit or loss for the year ended 30 September 2023
commencing with the gross profit for the year.
B Limited
Statement of profit or loss for the year ended 30 September 2023
$
Gross profit for the year
Distribution costs
Administrative expenses
Profit from operations
Finance costs
Profit before taxation
Taxation
Profit for the year
Workings:
Distribution costs
Administrative expenses
[10]
© UCLES 2023 9706/23/O/N/23

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

6 (b) Prepare the statement of financial position at 30 September 2023. Use the space provided on page 7 to show your workings. B Limited Statement of financial position at 30 September 2023 ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... © UCLES 2023 9706/23/O/N/23

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(b) Prepare the statement of financial position at 30 September 2023. Use the space provided on
page 7 to show your workings.
B Limited
Statement of financial position at 30 September 2023
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© UCLES 2023 9706/23/O/N/23

7 Workings: Non-current assets Trade and other receivables Retained earnings Trade and other payables [15] [Turn over © UCLES 2023 9706/23/O/N/23

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Workings:
Non-current assets
Trade and other receivables
Retained earnings
Trade and other payables
[15]
© UCLES 2023 9706/23/O/N/23 [Turn over

8 Additional information The directors wish to raise additional finance and they are considering two options. Option 1: make a rights issue of one ordinary share for every four shares held at a premium of $0.10 per share. Option 2: issue a further 8% debenture (2028) to raise $50 000. (c) Advise the directors which option they should choose. Justify your answer. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [5] [Total: 30] © UCLES 2023 9706/23/O/N/23

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Additional information
The directors wish to raise additional finance and they are considering two options.
Option 1: make a rights issue of one ordinary share for every four shares held at a premium of
$0.10 per share.
Option 2: issue a further 8% debenture (2028) to raise $50 000.
(c) Advise the directors which option they should choose. Justify your answer.
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[Total: 30]
© UCLES 2023 9706/23/O/N/23

9 2 Alex owns a business selling computer equipment. He provided the following information for the year ended 31 July 2023. 1 Opening inventory at 1 August 2022 was $19 100. 2 Gross profit for the year ended 31 July 2023 was $56 380. 3 Cash sales were $36 870. All other sales were made on credit. 4 All sales were made to achieve a gross margin of 25%. 5 All purchases were made on credit. 6 Inventory turnover was 8 times per annum. 7 Trade receivables at 31 July 2023 were $23 150. 8 Trade payables at 31 July 2023 were $17 370. (a) Calculate the trade receivables turnover (days) for the year ended 31 July 2023. State the formula used. Formula ................................................................................................................................................... ................................................................................................................................................... Calculation ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [3] (b) (i) State the formula used to calculate the rate of inventory turnover (times). ........................................................................................................................................... ..................................................................................................................................... [1] [Turn over © UCLES 2023 9706/23/O/N/23

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2 Alex owns a business selling computer equipment. He provided the following information for the
year ended 31 July 2023.
1 Opening inventory at 1 August 2022 was $19 100.
2 Gross profit for the year ended 31 July 2023 was $56 380.
3 Cash sales were $36 870. All other sales were made on credit.
4 All sales were made to achieve a gross margin of 25%.
5 All purchases were made on credit.
6 Inventory turnover was 8 times per annum.
7 Trade receivables at 31 July 2023 were $23 150.
8 Trade payables at 31 July 2023 were $17 370.
(a) Calculate the trade receivables turnover (days) for the year ended 31 July 2023. State the
formula used.
Formula
...................................................................................................................................................
...................................................................................................................................................
Calculation
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[3]
(b) (i) State the formula used to calculate the rate of inventory turnover (times).
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© UCLES 2023 9706/23/O/N/23 [Turn over

10 (ii) Calculate the closing inventory at 31 July 2023. ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ........................................................................................................................................... ..................................................................................................................................... [3] (c) Calculate the trade payables turnover (days) for the year ended 31 July 2023. State the formula used. Formula ................................................................................................................................................... ................................................................................................................................................... Calculation ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... [3] © UCLES 2023 9706/23/O/N/23

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(ii) Calculate the closing inventory at 31 July 2023.
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(c) Calculate the trade payables turnover (days) for the year ended 31 July 2023. State the
formula used.
Formula
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Calculation
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[3]
© UCLES 2023 9706/23/O/N/23

11 Additional information Alex understands that by comparing his business’s financial results with those of various other businesses he will learn how successful his own business is. (d) Advise Alex whether his understanding is correct. Justify your answer. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [5] [Total: 15] [Turn over © UCLES 2023 9706/23/O/N/23

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Additional information
Alex understands that by comparing his business’s financial results with those of various other
businesses he will learn how successful his own business is.
(d) Advise Alex whether his understanding is correct. Justify your answer.
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[Total: 15]
© UCLES 2023 9706/23/O/N/23 [Turn over

12 3 The directors of J Limited provided the following information at 1 September 2022. $ Share capital (ordinary shares of $0.50 each) 60 000 Share premium 21 800 Retained earnings 32 600 Total equity 114 400 During the year ended 31 August 2023 the following transactions took place. 1 December 2022 Made a rights issue of one ordinary share for every five shares held at a premium of $0.20. The issue was fully subscribed. 1 January 2023 Paid a final dividend of 4% on all shares in issue at 1 September 2022. 1 April 2023 Made a bonus issue of three ordinary shares for every eight shares held at that date. The directors wish to leave reserves in the most flexible form. 1 June 2023 Paid an interim dividend of $0.02 per ordinary share on all shares in issue at that date. Profit for the year ended 31 August 2023 was $16 500. © UCLES 2023 9706/23/O/N/23

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3 The directors of J Limited provided the following information at 1 September 2022.
$
Share capital (ordinary shares of $0.50 each) 60 000
Share premium 21 800
Retained earnings 32 600
Total equity 114 400
During the year ended 31 August 2023 the following transactions took place.
1 December 2022 Made a rights issue of one ordinary share for every five shares held at a
premium of $0.20. The issue was fully subscribed.
1 January 2023 Paid a final dividend of 4% on all shares in issue at 1 September 2022.
1 April 2023 Made a bonus issue of three ordinary shares for every eight shares held at
that date. The directors wish to leave reserves in the most flexible form.
1 June 2023 Paid an interim dividend of $0.02 per ordinary share on all shares in issue at
that date.
Profit for the year ended 31 August 2023 was $16 500.
© UCLES 2023 9706/23/O/N/23

13 (a) Prepare the following ledger accounts to record the transactions. Dates are not required. Share capital Details $ Details $ Balance b/d 60 000 Share premium Details $ Details $ Balance b/d 21 800 Retained earnings Details $ Details $ Balance b/d 32 600 [9] [Turn over © UCLES 2023 9706/23/O/N/23

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(a) Prepare the following ledger accounts to record the transactions. Dates are not required.
Share capital
Details $ Details $
Balance b/d 60 000
Share premium
Details $ Details $
Balance b/d 21 800
Retained earnings
Details $ Details $
Balance b/d 32 600
[9]
© UCLES 2023 9706/23/O/N/23 [Turn over

14 Additional information J Limited currently operates a manual system of bookkeeping and the directors are now considering introducing a computerised accounting system. (b) State three disadvantages of introducing a computerised accounting system. 1 ................................................................................................................................................ ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... 3 ................................................................................................................................................ ................................................................................................................................................... [3] (c) State three ways in which the security of data in a computerised accounting system can be assured. 1 ................................................................................................................................................ ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... 3 ................................................................................................................................................ ................................................................................................................................................... [3] [Total: 15] © UCLES 2023 9706/23/O/N/23

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Additional information
J Limited currently operates a manual system of bookkeeping and the directors are now
considering introducing a computerised accounting system.
(b) State three disadvantages of introducing a computerised accounting system.
1 ................................................................................................................................................
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[3]
(c) State three ways in which the security of data in a computerised accounting system can be
assured.
1 ................................................................................................................................................
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[3]
[Total: 15]
© UCLES 2023 9706/23/O/N/23

15 4 Dev manufactures two products, Aye and Bee. He operates a system of marginal costing. (a) Explain one difference between marginal costing and absorption costing. ................................................................................................................................................... ............................................................................................................................................. [2] (b) Explain one difference between a direct cost and an indirect cost. ................................................................................................................................................... ............................................................................................................................................. [2] (c) State the meaning of the following terms: (i) break-even point ........................................................................................................................................... ..................................................................................................................................... [1] (ii) margin of safety. ........................................................................................................................................... ..................................................................................................................................... [1] (d) State three situations where marginal costing can help in decision-making. 1 ................................................................................................................................................ ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... 3 ................................................................................................................................................ ................................................................................................................................................... [3] [Turn over © UCLES 2023 9706/23/O/N/23

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4 Dev manufactures two products, Aye and Bee. He operates a system of marginal costing.
(a) Explain one difference between marginal costing and absorption costing.
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(b) Explain one difference between a direct cost and an indirect cost.
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(c) State the meaning of the following terms:
(i) break-even point
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(ii) margin of safety.
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(d) State three situations where marginal costing can help in decision-making.
1 ................................................................................................................................................
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2 ................................................................................................................................................
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3 ................................................................................................................................................
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[3]
© UCLES 2023 9706/23/O/N/23 [Turn over

16 Additional information Dev’s business operates from one rented factory. The forecast data for the year ending 31 December 2024 is as follows: Aye Bee $ $ Revenue (60 000 units at $11.00) 660 000 Revenue (80 000 units at $8.50) 680 000 Direct materials (192 000) (256 000) Direct labour (156 000) (208 000) Supervisor fixed salaries (60 000) (35 000) Variable overheads (114 000) (152 000) Fixed factory overheads (33 000) (44 000) Profit / (loss) 105 000 (15 000) The fixed factory overheads are allocated on the basis of units produced. (e) Calculate the break-even point in units for Aye. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [3] (f) Calculate the break-even point in units for Bee. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [3] © UCLES 2023 9706/23/O/N/23

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Additional information
Dev’s business operates from one rented factory.
The forecast data for the year ending 31 December 2024 is as follows:
Aye Bee
$ $
Revenue (60 000 units at $11.00) 660 000
Revenue (80 000 units at $8.50) 680 000
Direct materials (192 000) (256 000)
Direct labour (156 000) (208 000)
Supervisor fixed salaries (60 000) (35 000)
Variable overheads (114 000) (152 000)
Fixed factory overheads (33 000) (44 000)
Profit / (loss) 105 000 (15 000)
The fixed factory overheads are allocated on the basis of units produced.
(e) Calculate the break-even point in units for Aye.
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(f) Calculate the break-even point in units for Bee.
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© UCLES 2023 9706/23/O/N/23

17 Additional information Dev is concerned about the forecast loss for Bee. He is considering two options. Option 1 Replace the current model Bee with an upgraded model Bee. Increase the selling price of Bee by 10%. Increase the direct material price by $0.45 per unit using an upgraded material. Pay $18 000 for an advertising campaign to announce the upgraded model. Dev believes that this will result in a 20% increase in units of Bee sold. Option 2 Discontinue production of Bee. Make the supervisor of Bee redundant thereby incurring redundancy costs of $6000. Increase the advertising budget for Aye initially by $8000. Reduce the selling price of Aye by $0.44 per unit. Dev believes that this will result in a 50% increase in units of Aye sold. (g) Calculate the revised total profit of the business if option 1 is adopted. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [5] [Turn over © UCLES 2023 9706/23/O/N/23

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Additional information
Dev is concerned about the forecast loss for Bee. He is considering two options.
Option 1
Replace the current model Bee with an upgraded model Bee.
Increase the selling price of Bee by 10%.
Increase the direct material price by $0.45 per unit using an upgraded material.
Pay $18 000 for an advertising campaign to announce the upgraded model.
Dev believes that this will result in a 20% increase in units of Bee sold.
Option 2
Discontinue production of Bee.
Make the supervisor of Bee redundant thereby incurring redundancy costs of $6000.
Increase the advertising budget for Aye initially by $8000.
Reduce the selling price of Aye by $0.44 per unit.
Dev believes that this will result in a 50% increase in units of Aye sold.
(g) Calculate the revised total profit of the business if option 1 is adopted.
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© UCLES 2023 9706/23/O/N/23 [Turn over

18 (h) Calculate the revised total profit of the business if option 2 is adopted. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [5] (i) Advise Dev which option he should choose. Justify your answer. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [5] [Total: 30] © UCLES 2023 9706/23/O/N/23

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(h) Calculate the revised total profit of the business if option 2 is adopted.
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(i) Advise Dev which option he should choose. Justify your answer.
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[Total: 30]
© UCLES 2023 9706/23/O/N/23

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© UCLES 2023 9706/23/O/N/23

20 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 9706/23/O/N/23

20
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 9706/23/O/N/23

9706_w23_qp_23