Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025.

Subject content

A Level content
3 Financial accounting (A Level)
3.1 Preparation of financial statements

Candidates will develop the skills established in 1.5 in respect of the preparation of financial statements. This will
involve exploring the impact of changes in the composition of a partnership, in addition to extending the range
of financial statements and associated notes required for limited companies. Candidates will further encounter
the specific requirements for how manufacturing businesses account for the cost of production, and those for
non-profit making organisations in the form of clubs and societies.

Note: For the expected formats for the standard financial statements, see the document Teacher Guidance for
9706 Accounting which accompanies this syllabus.

3.1.1 Financial statements

Candidates should have an understanding of:
• the need for and purpose of financial statements for specific types of business

3.1.2 Partnerships
Candidates should have an understanding of:
• goodwill and the difference between purchased goodwill and inherent goodwill
• how to prepare partners’ capital and current accounts to record changes required in respect of goodwill and
revaluation of assets on:
– a change in the partners’ profit-sharing ratio
– the introduction of a new partner
– the retirement of an existing partner
– the dissolution of a partnership
• how to prepare the partnership appropriation account, statement of profit or loss and statement of financial
position including changes in a partnership occurring part-way through an accounting year
• how to prepare a realisation account and a revaluation account

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3.1 Preparation of financial statements continued

3.1.3 Clubs and societies

Candidates should have an understanding of:
• the distinction between a receipts and payments account and an income and expenditure account
• how to define and calculate the accumulated fund
• how to prepare, from full or incomplete accounting records:
– a receipts and payments account
– accounts for trading and revenue-generating activities
– a subscriptions account
– an income and expenditure account
– a statement of financial position
• how to account for other receipts, including life memberships and donations
• how to make adjustments to financial statements (as detailed in 1.5.1)
• how to evaluate possible sources of finance and methods of fundraising

3.1.4 Manufacturing businesses

Candidates should have an understanding of:
• how to prepare a manufacturing account, to differentiate between direct and indirect expenses and to
include factory profit
• how to prepare, for a manufacturing business, a statement of profit or loss and a statement of financial
position
• how to account for manufacturing profit and the elimination of unrealised profit from unsold inventory
• the reasons why a business may account for manufacturing profit

3.1.5 Limited companies

Candidates should have an understanding of:
• how to prepare for a limited company in line with the relevant international accounting standards and legal
requirements:
– statement of profit or loss
– statement of financial position
– statement of cash flows
– statement of changes in equity
– schedule of non-current assets

Candidates are expected to use their understanding of the financial accounts of partnerships, clubs and societies,
manufacturing businesses and limited companies to evaluate relevant information and make informed business
decisions.

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Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025. Subject content

3.2 Regulatory and ethical considerations

Candidates will examine the regulatory framework by exploring a number of International Accounting Standards
and how they are applied within a set of financial statements. Candidates will further consider the wider ethical
issues which underpin the practice of accounting and the need for accountants and businesses to behave in an
appropriate manner. Related to this, candidates will assess the nature of stewardship in the context of a limited
company, which will enable candidates to develop a more detailed appreciation of the issues of ownership
and control introduced in 1.1.1 and the associated requirement for an independent examination of financial
statements by an auditor.

3.2.1 International Accounting Standards

Candidates should have an understanding of:
• the main provisions of each of the following International Accounting Standards (IAS):
– IAS 1   Presentation of financial statements
– IAS 2  Inventories
– IAS 7   Statement of cash flows
– IAS 8   Accounting policies, changes in accounting estimates and errors
– IAS 10 Events after the reporting period
– IAS 16 Property, plant and equipment
– IAS 36 Impairment of assets
– IAS 37 Provisions, contingent liabilities and contingent assets
– IAS 38 Intangible assets

Note: For guidance on the scope of each IAS that candidates are expected to be familiar with, teachers are
advised to consult the document Teacher Guidance for 9706 Accounting which accompanies this syllabus.

3.2.2 Ethical considerations

Candidates should have an understanding of:
• the need for an ethical framework in accounting
• the fundamental principles of:
– integrity
– objectivity
– professional competence and due care
– confidentiality
– professional behaviour
• how the ethical behaviour of accountants and auditors impacts the business and other stakeholders
• the social implications of decision-making

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3.2 Regulatory and ethical considerations continued

3.2.3 Auditing and stewardship of limited companies

Candidates should have an understanding of:
• the role and responsibilities of the auditor
• the differences between an external audit and an internal audit
• the difference between a qualified and unqualified audit report
• stewardship and the role of directors and their responsibilities to shareholders
• the importance of a true and fair view in respect of financial statements

Candidates are expected to use their understanding of ethical considerations and auditing to evaluate relevant
information and make informed business decisions

3.3 Business acquisition and merger

Candidates will investigate reasons why businesses may choose to grow by acquiring or merging with different
types of business entity and how to account for the acquisition or merger. This will involve assessing the
distinction between the acquisition of a business as a whole and the individual assets of a business, as well as an
appraisal of business valuation and types of purchase consideration.

3.3.1 Business acquisition and merger

Candidates should have an understanding of:
• the nature and purpose of the merger of different types of businesses to form a new business entity
• how to prepare journal entries and make entries in the relevant ledger accounts to record the:
– merger of two or more sole trader businesses to form a partnership or a limited company
– merger of a sole trader’s business with an existing partnership to form a new partnership
– acquisition of a sole trader’s business or partnership by a limited company
• how to calculate the value of goodwill on the acquisition of a business by another entity
• how to prepare statements of profit or loss and statements of financial position for the newly formed
business entity following the acquisition or merger, for example the limited company acquiring the
partnership
• the advantages and disadvantages of the acquisition or merger

Candidates are expected to use their understanding of business acquisition and merger to evaluate relevant
information and make informed business decisions

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Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025. Subject content

3.4 Computerised accounting systems

Candidates will further expand their understanding of accounting systems gained in 1.2 to encompass the
specific challenges posed by the introduction of a computerised accounting system. Candidates will explore
approaches to managing the transfer of accounting data to a computerised system and the necessary safeguards
required to ensure that the manual data is transferred completely and accurately to the new system.

3.4.1 Computerised accounting systems

Candidates should have an understanding of:
• the process of transferring the business accounts to a computerised accounting system
• ways in which the integrity of the accounting data can be ensured during the transfer to a computerised
accounting system

Note: Knowledge of specific applications or software is not required.

3.5 Analysis and communication of accounting information

Candidates will further enhance their appreciation of the use of accounting ratios by extending knowledge of
the range of ratios beyond those introduced in 1.6, in particular with reference to investment ratios applicable
to limited companies. Candidates will assess how these ratios may be interpreted with a view to linking
performance indicators and providing justified advice to stakeholders, as well as being able to suggest possible
measures for improvement.

3.5.1 Analysis and communication of accounting information

Candidates should have an understanding of:
• how to calculate the following ratios:
– working capital cycle (in days)
– net working assets to revenue (sales)
– interest cover
– gearing ratio
– earnings per share
– price/earnings ratio
– dividend per share
– dividend yield
– dividend cover
Note: Candidates must use the formula given in the appendix to section 3. These are the only formulae
accepted in candidate responses.
• how to analyse and evaluate the results of the ratios and draw conclusions
• how to make appropriate recommendations to stakeholders on the basis of the analysis undertaken
• the interrelationships between ratios

Candidates are expected to use their understanding of the calculation and evaluation of ratios to make informed
business decisions using relevant information.

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 Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025. Subject content

4 Cost and management accounting (A Level)

4.1 Activity based costing (ABC)

Candidates will explore the application of activity based costing as a contrast to the traditional costing methods
encountered in 2.2. Candidates will gain an insight into how overheads may be allocated to products using
measures which are not directly related to traditional overhead absorption bases, such as direct labour hours, but
rather to the activities which cause the costs to be incurred in the production process (cost drivers). Candidates
will also assess the uses and limitations of such a system.

4.1.1 Activity based costing

Candidates should have an understanding of:
• the application of activity based costing (ABC)
• the uses and limitations of ABC
• what is meant by a cost driver
• how to use ABC to:
– identify the appropriate cost driver
– apportion and allocate overheads
– calculate the total cost and selling price of a unit
• the effect of different methods of overhead absorption on cost and profit
• how to apply ABC costing techniques to make business decisions and recommendations using supporting
data

4.2 Standard costing

Candidates will consider how a business may use a system of predetermined values as a basis for comparison
with actual costs and revenues in order to assess performance. Candidates will explore possible reasons for the
differences between actual and expected costs and revenues and how there may be interrelationships between
these differences. This will require an evaluation of how such information can be used to improve the budget
preparation process and business performance. Candidates will also evaluate non-financial considerations which
may have an impact on business decisions.

4.2.1 Standard costing

Candidates should have an understanding of:
• the meaning of a system of standard costing in an organisation
• the advantages and disadvantages of a standard costing system
• how standard costing can be used as an aid to improve the performance of a business
• how to calculate the following variances:
– direct material price and usage
– direct labour rate and efficiency
– fixed overhead expenditure and volume
– fixed overhead capacity and efficiency sub-variances
– sales price and volume
• possible causes of favourable or adverse variances and their relationship to each other
• how to make business decisions and recommendations using supporting data
• the significance of non-financial factors

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Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025. Subject content

4.3 Budgeting and budgetary control

Candidates will investigate the reasons why an organisation uses a system of budgetary control. This will involve
exploring the nature, purpose and contents of budgets and how they may be used for the purposes of planning
and control to meet an organisation’s objectives. Candidates will consider how an organisation may compare
expected and actual results and in so doing assess how the budgeting process can affect human responses to
achievement of budget targets. Candidates will also evaluate non-financial considerations which may have an
impact on business decisions.

4.3.1 Budgeting and budgetary control

Candidates should have an understanding of:
• the advantages and disadvantages of a budgetary control system to an organisation
• the advantages and disadvantages of preparing budgets using spreadsheets
• what is meant by a master budget
• how to prepare the following budgets:
– sales
– production
– purchases
– labour
– trade receivables
– trade payables
– cash
– budgeted statement of profit or loss
– budgeted statement of financial position
• the effect of limiting factors on the preparation of budgets
• the benefits of flexible budgeting over fixed budgeting
• how to prepare a flexible budget statement
• possible causes of differences between actual and flexible budgeted data
• how to prepare a statement reconciling the flexible budgeted cost of production with the actual cost of
production
• how to prepare a statement reconciling the flexible budgeted profit with the actual profit
• how to make business decisions and recommendations using supporting data
• the behavioural aspects of budgeting, including targets, incentives and motivation
• the significance of non-financial factors

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 Cambridge International AS & A Level Accounting 9706 syllabus for 2023, 2024 and 2025. Subject content

4.4 Investment appraisal

Candidates will address ways in which a business may make a decision about a prospective capital investment.
This will require an assessment of the strengths and limitations of various investment appraisal techniques,
including examining the time value of money and discerning the difference between accounting profits and
cash flows. Candidates will also evaluate non-financial considerations which may have an impact on investment
decisions.

4.4.1 Investment appraisal

Candidates should have an understanding of:
• future net cash inflows and outflows arising from the project
• how to apply the following capital investment appraisal techniques:
– payback
– accounting rate of return (ARR = (average profit / average investment) × 100)
– net present value (NPV)
– internal rate of return (IRR)
• the advantages and disadvantages of these capital investment appraisal techniques
• how to make investment decisions and recommendations using supporting data
• the significance of non-financial factors

Note: Questions on discounted payback will not be set.

Note: Questions involving a residual value of an investment at the end of a project will not be set.

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