Cambridge Assessment International Education

Cambridge International Advanced Subsidiary and Advanced Level

ACCOUNTING 9706/22
Paper 2 Structured Questions May/June 2019
MARK SCHEME
Maximum Mark: 90

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge International will not enter into discussions about these mark schemes.

Cambridge International is publishing the mark schemes for the May/June 2019 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and
some Cambridge O Level components.

This document consists of 13 printed pages.

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Generic Marking Principles

These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.

GENERIC MARKING PRINCIPLE 1:

Marks must be awarded in line with:

• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.

GENERIC MARKING PRINCIPLE 2:

Marks awarded are always whole marks (not half marks, or other fractions).

GENERIC MARKING PRINCIPLE 3:

Marks must be awarded positively:

• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.

GENERIC MARKING PRINCIPLE 4:

Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.

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GENERIC MARKING PRINCIPLE 5:

Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).

GENERIC MARKING PRINCIPLE 6:

Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.

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Question Answer Marks

1(a) Lee 13
Income statement for the year ended 30 April 2019

$ $
Revenue 161 800 (1)

Opening inventory 12 500

Purchases 97 110 (1)
109 610
Less: Goods for own use 250 (1)
109 360
Add: Carriage inwards 670 (1)
110 030
Less Closing inventory 23 340 (1)
Cost of sales 86 690 (1)OF
Gross profit 75 110 (1)OF

Decrease in provision for doubtful debts 650 (1)

75 760

Other operating expenses 61 990

Loan interest 450 (1)
Irrecoverable debts 690 (1)
Depreciation: motor vehicles 6 000 (1)
office equipment 580 (1)
Profit for the year 6050 (1)OF

1(b)(i) Current assets 4

Inventory 23 340 (1) OF
Trade receivables 44 000 (1)
Less: Provision for doubtful debts (2 200) (1) 41 800
6 140 (1) OF

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Question Answer Marks

1(b)(ii) 4
Current liabilities

Trade payables (21 640 + 940) 22 580 (1)

3% Loan 4 000 (1)

Bank overdraft 11 240 (1)

Other payables   400 (1)

38 220

1(c) Benefits: (Max 2) 4

Entitled to all profits (1)

Quicker decision making (1)

Full control of business operations (1)

Drawbacks: (Max 2)

Unlimited liability / no separate legal entity (1)

All the risk / responsibilities (1)

Limited opportunities for new ideas (1)

Accept other valid points.

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Question Answer Marks

1(d) Decision (1) 5

Limited company (Max 2)

There would be a potential dividend cost of $7500

Payment of dividends is discretionary

Lee retains control of the business as he is the majority shareholder

Partnership (Max 2)

Marvin’s interest on capital will cost a fixed $3000 per annum

Marvin is entitled to 30% of future profits but will also have to bear 30% of future losses

The partnership will have unlimited liability

Question Answer Marks

2(a) Dr Irrecoverable debts (1) 2

Cr Dixie (1)

2(b) $10 900 × 5% = $545 (1) 4

$5 040 × 7.5% = $378 (1)
$923 (2/1)OF

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Question Answer Marks

2(c) Provision for doubtful debts account 2

2018 $ 2018 $
Dec 31 Income statement 177 (1) OF Jan 1 Balance b/d 1100
Balance c/d 923
1100 1100
2019
Jan 1 Balance b/d 923 (1) OF

2(d) Prudence (1) 2

Profit/current assets/trade receivables should not be overstated (1)

OR

Matching / accruals (1)

Revenue of an accounting period is matched against the costs of the same period (1)

2(e) Sofia’s profit would now be $4075 (4) a decrease of $402. (1) 5

Workings
Using the existing policy the profit would be $4477 (1) due to a decrease in the provision for doubtful debts (1) OF
Under proposed change, the closing balance on the provision for doubtful debts account would be $1325 (1).

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Question Answer Marks

3(a) Companies may use different accounting policies (1) 3

Historical cost is used to prepare accounts therefore may be misleading (1)

There may be different year-ends/seasonal factors (1)

There may be non-monetary factors to consider (1)

Relative size of each business (1)

The effect of window dressing (1)

Accept any other valid responses

Max 3 marks

3(b)(i) $459 991 3

Average inventory = = $61 332 (1)
7.5

Average inventory × 2 = $122 664 (1)OF

Closing inventory = $122 664 – $57 682

= $64 982 (1)OF

3(b)(ii) ( 35 × $742 630 ) = $71 211 (1)

1
365

3(b)(iii) ( 32 × $367 993 * ) = $32 262 (1) OF

2
365

* Credit purchases = $459 991 × 80% = $367 993 (1)

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Question Answer Marks

3(c) X Limited 3
Income Statement for the year ended 30 April 2019

$
Revenue 742 630
Cost of sales (459 991)
Gross profit 282 639

Distribution costs (148 526) (1)

Administrative expenses (74 263) (1)

Profit from operations 59 850

Finance costs (2 850) (1)
Profit for the year 57 000

3(d) $312 500 (1) / 5 = 62 500 shares (1) × $1.50 = $93 750 (1)OF 3

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Question Answer Marks

4(a) Workings:

Per kilo Issues Total

Date Kilos
$ $ $

March 1 Opening balance 1500 1.90

3 Receipts 3500 1.92

5 Issues 3000 1500 × 1.90 2850

1500 × 1.92 2880
5730

10 Receipts 2000 1.95

17 Receipts 1500 2.00

23 Issues 4500 2000 × 1.92 3840

2000 × 1.95 3900
500 × 2.00 1000
8740

31 Closing balance 1000 × 2.00 2000

4(a)(i) 2850 (1) + 2880 (1) = 5730 2

4(a)(ii) 3840 (1) + 3900 (1) + 1000 (1) = 8740 3

4(a)(iii) 2000 (1) 1

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Question Answer Marks

4(b) Easy to calculate (1) 2

Inventory value is closer to current market value (1)

An accepted method of valuing inventory for the financial statements (1)

Max 2 marks

Accept other valid points.

4(c) 6
Service cost
Production cost centres
centre
Total
$ Stores
Machining Assembly
$ $
$

Depreciation 9 760 6 344 1 952 1 464 (1) row

Heat and Light 13 850 8 310 4 155 1 385 (1) row

Machinery maintenance 6 500 5 200 1 300 - (1) row

Total overheads 19 854 7 407 2 849

apportioned

Re-apportionment of stores 2 137  712 (2 849) (1) row

Total overhead cost 21 991 (1) OF 8 119 (1) OF

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Question Answer Marks

4(d) Machining 4
Overhead cost $21 991
Machine hours 13 400 = $1.64 (1) OF per machine hour (1)

Assembly
Overhead cost $8 119
Labour hours 6 300 = $1.29 (1) OF per direct labour hour (1)

4(e) $ 7
Direct materials (3 kilos × $2.00 ) 6.00 (1)
Direct labour (2.5 hours × $4) 10.00 (1)
Overheads (machining 1.5 hours × $ 1.64) 2.46 (1) OF
Overheads (assembly 2 hours × $1.29 ) 2.58 (1) OF
Cost per unit 21.04
× 200 units
Total cost 4 208 (1) OF
Mark-up/profit (25%) 1 052 (1) OF
Total selling price 5 260 (1) OF

OR $
Direct materials 1 200 (1)
Direct labour 2 000 (1)
Overheads 492 (1) OF
Overheads 516 (1) OF
Total cost 4 208 (1) OF
Mark-up/profit (25%) 1 052 (1) OF
Total selling price 5 260 (1) OF

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Question Answer Marks

4(f) The offer still provides a positive contribution/generates profit (1) 5

This will result in increased overall profits for the business (1) albeit the offer price will not achieve the usual mark up of 25%
(1)

The order will make use of existing spare capacity (1) which could be used to manufacture goods with a better mark-up (1)

Is this a one-off order or will the customer expect future orders at the same price (1). Other customers could also want to buy
at a reduced price (1) , and it could cause ill feeling with other customers (1)

Decision (1)

(1 mark) × any 4 points – Max 4 for comments

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