Cambridge International Advanced Subsidiary and Advanced Level

9706 Accounting June 2017

ACCOUNTING

Paper 9706/11
Multiple Choice

Question Question
Key Key
Number Number
1 D 16 A
2 D 17 A
3 B 18 B
4 C 19 D
5 C 20 C

6 B 21 C
7 C 22 A
8 A 23 B
9 C 24 D
10 B 25 C

11 B 26 D
12 D 27 D
13 C 28 B
14 C 29 C
15 C 30 B

Key messages

There were questions on why a business makes a charge for depreciation, bank reconciliation and financial
statements, identifying the correct figures to use when calculating accounting ratios, calculation of the wages
earned by a worker, together with the calculation of bonus payments.

General comments

Only 25% candidates achieved a score of 15 or more correct answers. The mean marks were 12.

There were five questions where less than 30% of candidates identified the correct key. These will be
discussed below.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

Comments on specific questions

Question 1

Questions designed to examine accounting concepts can often be open to interpretation. However, this one
should not have been so. The question dealt with the recording of a specific transaction and when it should
be recorded in the books of account. Neither the business entity nor substance over form were relevant in
this case and should really have been discounted immediately, leaving only realisation as the correct
response, being the concept applied to sale of the goods becoming a fact.

Question 2

This question required candidates to identify why a business charges depreciation on a non-current asset.
The answer was D, that is, to spread its cost over its useful life. Over half the candidates opted for B, to
show its value in the financial statements. The value will be recorded whether the asset is depreciated or not,
so this should have been ignored.

Question 6

The cash book showed a credit balance which should have led candidates to the fact that the balance was a
current liability. Of the two adjustments given, only one needed to be recorded in the cash book (the
unrecorded bank charges) and this would have increased the overdraft. Thus in the statement of financial
position the bank balance should be recorded as a current liability.

Question 19

Candidates were required to calculate the non-current asset turnover from the data. The issue was whether it
should be the non-current assets at cost or their net book value which should be compared with the revenue
(turnover), not the profit. It should have been their net book value which was used, thus leading to the key D.

Question 25

This concerned the calculation of an employee’s weekly pay, taking into account the basic rate, overtime and
a possible production bonus payment. The employee had worked more hours (41) than the basic
requirement (40), which meant that an overtime payment should be included. However, when the production
for the week of 161 items was divided by the 4 required for each hour worked, the employee did not make
enough to earn a production bonus, so this should have been ignored in the calculation, leading to the key C.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/12
Multiple Choice

Question Question
Key Key
Number Number
1 A 16 D
2 D 17 A
3 B 18 B
4 A 19 C
5 A 20 A

6 B 21 D
7 B 22 B
8 A 23 D
9 C 24 C
10 C 25 A

11 C 26 A
12 A 27 C
13 B 28 B
14 B 29 D
15 C 30 D

Key messages

This question paper included questions on the correction of errors using suspense accounts, the impact on a
company’s equity of bonus, right issues of ordinary shares, profit/volume analysis and the elimination or
changing of variable and fixed costs.

General comments

61% of candidates achieved a score of 15 or more. The mean mark for this paper was 17.

The performance of candidates in response to questions on financial accounting was significantly better than
those in respect of cost and management accounting.

One question, which will be discussed below, was answered incorrectly by the majority of candidates.

Comments on specific questions

Question 25

Candidates had to make a decision in respect of making or buying in a product. The current situation is that
the company makes a contribution of $10 per unit, $[25 – (12 + 3)]. The variable selling costs should be
excluded from the calculation as that will be paid whether the company buys or makes the product. Thus
candidates needed to identify a purchase price for the product which would still yield a $10 contribution. The
answer here is $15, being the variable costs which would be saved.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/13
Multiple Choice

Question Question
Key Key
Number Number
1 C 16 B
2 B 17 D
3 A 18 B
4 B 19 D
5 C 20 A

6 A 21 B
7 B 22 B
8 A 23 A
9 A 24 C
10 B 25 A

11 C 26 D
12 D 27 D
13 C 28 A
14 A 29 D
15 C 30 A

Key messages

This paper included questions on the following topics: bank reconciliation, financial statements, reconciliation
of control accounts with the sales, purchases ledger balances and separation of the fixed and variable
elements of a semi variable cost.

General comments

The majority of candidates achieved a score of 15 or more.

The questions on this paper were accessible. There was one question that the majority of candidates
answered incorrectly.

Comments on specific questions

Question 7

Candidates were required to identify the amount which should be shown in the statement of financial position
for the bank. Only one of the adjustments, the unrecorded insurance direct debit actually affected the cash
book figure which was given. Thus the key was B.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/21
Structured Questions

Key messages

It is important for candidates to show workings for computational questions.

In written questions, candidates should make sure that they provide sufficient development to their answers.
One or two word answers will seldom suffice.

Candidates must develop greater analytical skills and learn to extract information from scenarios to make
their answers relevant.

General comments

Overall candidates have performed reasonably well on the paper. Many candidates found the cost and
management accounts question challenging. The difficulty appears to be a lack of analytical and evaluative
skills.

Many candidates did not have appropriate presentation while answering computational questions. Good
structured workings can only help the candidate answer the question.

Comments on specific questions

Question 1

The question concentrated on limited company accounts

(a) The question required candidates to prepare an income statement in as much detail as possible
from the given data. Whilst the question was generally well answered, some candidates did not
understand that it had to be prepared in as much detail as possible. Consequently, the key was to
calculate the missing figure, opening inventory. Candidates who merely entered the cost of sales
as a single figure lost one mark.

(b) Suggestions as to why the balance on retained earnings may be lower than the profit for the year
were very mixed. The question was basically asking what adjustments may be processed through
retained earnings on the statement of changes in equity. Many candidates did not recognise the
connection.

(c) Candidates found calculation of the three ratios challenging. Many candidates were clearly unable
to recall the formula for the ratios.

(d) Whilst the well prepared candidates were able to offer very good discussion on the performance of
the company based on the ratios, less well prepared candidates struggled to gain more than one or
two marks of the available six. This highlighted a continuing problem of a lack of analytical skills
and a basic lack of understanding of the meaning and implication of the ratios.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(e) Most candidates performed reasonably well in advising the directors of the company which
company they should choose as suppliers.

(f) Calculation of the revised profit as a result of three errors was well answered by most candidates.

(g) Only the well prepared candidates were able to answer the question by identifying the differences
between a capital reserve and a revenue reserve.

Question 2

The question assessed candidates’ knowledge on partnership accounts.

(a) Whilst weaker candidates did not attempt the preparation of the realisation account on dissolution,
most candidates who did attempt it gained good marks. It must be remembered that a question
requiring the preparation of any account, requires a double entry account, not a list of figures
resulting in a calculation.

(b) Clearly, those candidates who were unable to complete the realisation account were also unable to
prepare a statement to show the settlement to one of the partners. This question did not require a
double entry account – a calculation sufficed.

(c) Most candidates were able to gain two marks by stating two reasons why a partnership may be
dissolved.

(d) Most candidates recognised that any debit balance on a partners account must be repaid to the
other partners, but few provided sufficient development to gain any further marks.

Question 3

The question focused on the reconciliation of the sales ledger control account with the list of sales ledger
balances.

(a) Many candidates were able to state two benefits of a double entry system, usually the prevention of
fraud / errors and ease of preparation of financial statements, but few were able to gain full marks
by stating a third benefit.

(b) Most candidates made a very good attempt at reconciling the control account balance with the total
sales ledger balances, though very few gained full marks.

(c) Whilst well prepared candidates were able to offer valid reasons why there may be a credit balance
on a sales ledger account, many candidates clearly gave the issue little constructive thought. Some
candidates made no attempt at the question whatsoever.

(d) Most candidates offered substantiated advice as to whether the trader should charge interest on
overdue sales ledger balances.

Question 4

The question concentrated on marginal costing.

(a) Most candidates were able to calculate the budgeted fixed costs from the given data.

(b) Whilst candidates would be very familiar with a break-even calculation, many were unable to
calculate the number of units required to earn the budgeted profit by adding that profit figure to the
fixed costs. Similarly, only the well prepared candidates were able to calculate the contribution to
sales ratio.

(c) Whilst the contribution to sales ratio is to an extent self-explanatory, many candidates were unable
to state the meaning of the ratio.

(d) Responses to the margin of safety question were better. Most candidates identified the ratio, but
explanations of the significance of the ratio were only adequately answered by very few
candidates.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(e) Almost half of candidates made no attempt at preparing the break-even chart. The responses did
highlight the fact that there is a lack of understanding of the basic principles of break-even analysis.

(f) This lack of understanding was again demonstrated in responses to the limitations of the
technique.

(g) Only a few candidates were able to calculate the number of units to be sold to match the budgeted
contribution of the current year, again highlighting the lack of understanding of the techniques.

(h) Evaluation of the trader’s decision regarding whether or not to increase his selling price, again
resulted in very poor responses and little evidence of analysis and evaluation of a problem.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/22
Structured Questions

Key messages

It is important for candidates to show workings for computational questions.

In written questions, candidates should make sure that they provide sufficient development to their answers.
One or two word answers will seldom suffice.

Candidates must develop greater analytical skills and learn to extract information from scenarios to make
their answers relevant.

General comments

Overall candidates have performed reasonably well on the paper. The well prepared candidate was given
ample opportunity to answer questions across the full range of the syllabus and consequently gain good
marks.

In some cases candidates struggled to produce good answers to the cost and management accounts
question mainly because of a lack of analytical skills.

Many candidates did not have appropriate presentation while answering computational questions. Good
structured workings can only help the candidate answer the question.

Comments on specific questions

Question 1

The question concentrated on preparation of limited company accounts.

(a) This part required candidates to prepare an income statement from a trial balance after processing
adjustments. The structure of the income statement was provided, but despite this, some
candidates were unclear under which heading some of the adjustments should be made. Some
candidates did not provide any workings and could not get any credit.

(b) The current assets extract from the statement of financial position was not well attempted by the
majority of candidates. For a limited company in particular, the items in this section must always be
shown in decreasing order of liquidity. The headings are always new terminology headings –
inventory, trade and other receivables and cash and cash equivalents. Furthermore, the provision
for doubtful debts should always be subtracted from the trade and other receivables. Few
candidates followed these basic rules.

(c) Explanations as to why a company should provide for depreciation on its non-current assets were
very mixed. Well prepared candidates scored good marks whilst others wrote long responses that
simply did not address the question in sufficient detail.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(d) Most candidates were able to explain two differences between ordinary shares and preference
shares.

Question 2

The second question tested candidates’ knowledge ratio analysis.

(a) Whilst many candidates scored full marks for stating two limitations of using ratio analysis to
analyse the performance of a business, some candidates simply referred to the dangers of
comparison of the results with those of other companies. That is not what the question was asking.

(b) Whilst it was clear that the majority of candidates were familiar with the formula to calculate the
current ration of a business, a number struggled to gather together the correct figures from the data
provided. The ratio should always be presented as a ratio, that is, 1.25:1. Candidates who simply
answered did not get the second mark.

(c) The same comments apply to the calculation of the liquid (acid test) ratio as those addressed
above for the current ratio.

(d) Calculation of the rate of inventory turnover was very well answered by the majority of candidates.

(e) Advice as to whether the trader should or should not take a loan, highlighted analytical prose in
less well-prepared candidates. Candidates should have referred back to the case study to back up
generic points.

Question 3

The question concentrated exclusively on partnership accounts and was generally very well answered.

(a) Many candidates gained full four marks by stating four provisions that would apply in the absence
of a partnership agreement.

(b) Preparation of the partners’ capital accounts was well answered, though candidates must be aware
that accounts must always be balanced off and the balance carried down.

(c) As was the case with question 2(e), candidates showed a lack of analytical skills and were not able
to relate their answer to the scenario.

Question 4

The final question concentrated on marginal costing and budgeting. The responses were very mixed.

(a) Most candidates were able to prepare the income statement in a marginal cost format, though a
number of candidates did not recognise that sales commission was a variable cost.

(b) Calculation of the break-even point was well answered. The major problem was that some
candidates did not appreciate that break-even point must be a whole number and that it must be
rounded up to the next whole number, not down.

(c) Candidates found it challenging to analyse the two proposals put forward by the directors and
calculate the number of units to be sold to achieve a stated profit. Whilst the technique was
understood by many candidates, the execution was not well done.

(d) The question was not well answered and candidates could not recommend which proposal to
adopt. The question required ‘discussion’ and many responses suffered through a clear lack of
development of points raised due to insufficient reference to the scenario.

(e) Stating three advantages and disadvantages of a system of budget preparation produced very
mixed results. Well prepared candidates were able to readily pick up six marks, though less well
prepared candidates struggled with this knowledge question.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/23
Structured Questions

Key messages

Many candidates who performed well also used correct terminology/label. There were cases of values being
presented with incorrect terminology and in some cases no supporting terminology.

Some candidates omitted to give a decision to support their analysis where questions required an analysis of
a given situation and a final decision.

Candidates need to carefully read the detail of question requirements and answer the question asked, rather
than the one they would have liked to have been asked.

General comments

There were cases of calculations being made and then incorrectly treated, for example, adding rather than
subtracting.

Comments on specific questions

Question 1

This question concerned a partnership where one of the partners was leaving.

(a) Many candidates made the correct adjustment for depreciation. However some candidates did
enter the six-month value of $2000 rather than the depreciation for the full year. Many candidates
adjusted the cost price by 20 per cent rather than the sales price. Whilst most candidates correctly
deducted the adjustments, some did add to the draft profit.

(b) The partnership appropriation account was well presented by many candidates. Some did not
identify entries against specific partners and did not show a sub-total for each aspect. Some
candidates entered the monthly salary as the total for the year and calculated interest on capital for
each partner on the total capital rather than the capital amount for each partner. A few candidates
reversed additions and subtractions.

(c) Few candidates responded with the question requirement on the valuation of goodwill and the
revaluation of assets when a partner retires. Many defined goodwill or responded on the reasons
for goodwill. There were also some responses on the accounting treatment for goodwill.

(d) There were few completely correct responses. Frequently candidates omitted the balance from the
current account in calculations. Many based the calculations on the capital account adjusted for
goodwill and revaluation only, although some did not make any adjustment to the values to reflect
the partnership sharing ratio. Most did apply 60 per cent to their adjusted amount to show how
much the partner leaving would receive based on their calculations.

(e) Although very few candidates gained full marks, most did achieve some marks. A few did relate to
the increase in income and the interest rate on the loan relative to an external rate. Responsibility
and security of employment were mentioned as non-financial factors although it was not always
clear to which option this applied. There were frequent responses to the impact for the partnership
rather than partner leaving. Some candidates did not give a final decision.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(f) Most candidates gained a mark for referring to the availability of funds, however very few made
reference to the security that may be required for a new loan or any risk to the business. Again,
some candidates did not give a final decision.

Question 2

This question related to the preparation of a statement for changes in equity and to bonus issues.

(a) There were many good responses and many candidates gained high marks for the statement.
Some candidates did not calculate the number of shares for the bonus issue and omitted to divide
the share capital by two. Likewise, some did not show the correct number of shares for the rights
issue basing it on the original share capital only. Some calculated dividend on the original share
capital and not including the additions for the bonus and rights issues. The revaluation and profit for
the year were correctly entered by most candidates. A few candidates did place items in incorrect
columns.

(b) Many candidates gained marks for relating bonus issues to giving a positive sign to potential
investors, but few mentioned that a bonus issue could be made instead of paying dividends to
existing shareholders. Few mentioned that cash could be used for reinvestment in the business.
There was some confusion between cash and capital. A few candidates compared bonus issues
with a rights issue.

Question 3

This question focused on ratios.

(a) There were few completely correct responses, although many candidates did gain high marks.
Most stated the correct formula. Some candidates omitted to deduct the cash sales in the
calculation for the trade receivables turnover and many did not round up final answers to the
nearest day.

(b) Some candidates gained high marks with the correct closing inventory. However, there were also
some who gained few or no marks, often for not calculating the cost of sales or inverting the
formula.

(c) Many candidates gained high marks for the correct calculation for the trade receivables turnover
and stating the correct formula. Some candidates did not round up final answers to the nearest
day.

(d) Few candidates referred to trend analysis and comparison with competitors as uses of ratio
analysis for a trader. Frequently responses related to how to calculate ratios and the different types
of ratios.

Question 4

The final question focused on cost and management accounting.

(a) The contribution per unit was correctly calculated by most candidates. An incorrect calculation was
usually the result of including a value for machine hours or omitting variable overhead.

(b) This question was well answered with many candidates earning the maximum marks. Some
candidates did not follow the question requirement to show maximum contribution.

(c) Most candidates gained the one mark available for showing the total machine hours. Some
candidates showed individual amounts but did not total.

(d) Many candidates demonstrated a good understanding of the limiting factor. Most were able to give
a priority for production based on reduced machine hours, although a few did base priority on the
contribution per unit only. Some candidates calculated the contribution for each product by
multiplying the unit quantity by the contribution per machine hour rather than by the contribution per
unit. A few candidates did not label calculations.

© 2017
 Cambridge International Advanced Subsidiary and Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(e) Few candidates gained the maximum marks available and frequently the focus was on machinery
not working and breaking down. Many did not use the financial information given in the question or
indicate that maximum demand could be met. Some related the response to profit changing, but
did not give any supporting calculations. Some candidates did not give a final decision.

(f) There were frequent references to limiting factor, which was given in the question. There were
many references correctly to make or buy, but few to other applications. Some candidates
responded with a description of marginal costing.

(g) Whilst there were many correct answers there were also some where the budgeted overheads
were divided by actual rather than the appropriate budgeted hours. Some candidates did not label
calculations.

(h) Many candidates compared actual overheads with budgeted overheads rather than with actual
hours multiplied by the rates calculated in (a). Some stated over absorption rather than the under
absorption.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/31
Structured Questions

General comments

Generally, candidate performance was reasonable. Responses to numerical questions are generally better
than responses to the written questions.

Comments on specific questions

Question 1

(a) Most candidates were able to state two required objectives.

(b) This was generally well answered with most candidates scoring reasonable marks. Some
responses incorrectly adjusted for depreciation which was charged to cost of sales. The better
answers correctly accounted for the closing inventory. Some responses included incorrect
adjustments for depreciation on motor vehicles. The best responses were laid out clearly in an
appropriate manner.

(c) This was very well answered with many candidates scoring full marks.

(d) This was not answered well. Many responses provided advice. Only the better responses included
a well explained justification.

Question 2

(a) Most candidates adjusted the trade receivables as was necessary. The better responses
accounted correctly for the rental deposit and rent prepayment. Relatively few responses included
application of IAS37.

(b) Responses to this question were mixed. The better responses explained how both items 1 and 2
should be treated. A number of responses had no appropriate explanation.

(c) This was well answered with nearly all candidates providing an explanation.

(d) This question was not answered well with many responses not answering the question posed.

(e) Many responses to this question included a recommendation about whether the method should be
changed. The better responses then gave a clear justification for this. A significant number of
responses included the statement ‘lower of cost and net realisable value’ which was not relevant.

Question 3

(a) This question was generally answered well with most candidates being aware of the benefits of the
joint venture. The better responses explained these benefits in the context of Greaves and Hurst.

(b) This was well answered with many candidates scoring full marks. A few responses erroneously
added the commission to the sales income.

(c) The ledger accounts were generally well prepared with most responses using the required double
entry skills.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(d) This was well answered with most responses including the required advice and then providing a
reasonable justification.

Question 4

(a) Most candidates demonstrated knowledge of the formulae but few obtained full marks. Some
responses didn’t adjust for the preference share dividend. The better responses used the formulae
correctly and figures were given to two decimal places.

(b) Evaluations of the calculated ratios were acceptable. The better responses gave developed
evaluation of points, rather than simply stating ‘higher’ or ‘lower’.

(c) Many responses obtained one of the two marks available for explaining gearing. The ratios
calculated for part (ii) were often incorrect. Analysis of the ratios was well answered.

(d) This was well answered with nearly all candidates providing the required advice and appropriate
reasons for their decision.

Question 5

(a) This was generally answered well. The better responses included the change in production as a
reason for flexing.

(b) Many candidates prepared a statement based on the budgeted figures. Those that did prepare a
statement based on the actual units often incorrectly adjusted the fixed overhead and consequently
there were few fully correct statements.

(c) The variances were invariably calculated correctly.

(d) This question was also well answered with many fully correct solutions.

(e) Most candidates provided two appropriate reasons for the adverse variance.

(f) This was well answered and many candidates did apply the given additional information rather than
providing a generic response.

Question 6

(a) This was well answered with a significant number of fully correct responses. Nearly all calculated
the costs driven by orders and production runs correctly but many did make errors with regard to
the costs driven by machine maintenance.

(b) Most candidates calculated the overhead cost for the products correctly.

(c) This question was not answered well. Many responses included limited explanations. The best
responses gave an appropriate explanation for the observed changes.

(d) This was well answered with nearly all candidates giving a recommendation and then appropriate
justification by making valid calculations and considering relevant factors. A high number of
candidates scored at least five of the six available marks.

(e) Most candidates provided two appropriate reasons.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/32
Structured Questions

Key messages

• When presenting work always ensure that full workings are shown. Not showing them often leads to
marks not being awarded.

• When presenting financial statements such as manufacturing accounts, statements of financial position
and income statements, always correctly label terms such as transfer price, profit for the year and
non-current assets. Labels should be in line with those identified by International Accounting Standards
(IAS).

• Avoid use of abbreviations as labels.

• When presenting answers to ratio questions always ensure that the correct prefix (say, $) or suffix (say
%) are shown against the answer.

General comments

Generally the paper was well attempted. There are some areas where improvements could be made. These
have been considered below.

Comments on specific questions

Section A: Financial accounting

Question 1

This question was based on the preparation of a manufacturing account and income statement. Generally it
was well done.

(a) With the manufacturing account the cost of raw materials was often not labelled. Likewise, the final
figure was often labelled 'cost' or 'market value', neither of which are the correct terms. The main
arithmetical error was the incorrect split of the reallocation of the rental cost.

(b) In some cases candidates incorrectly labelled some items, or provided no labels at all. Few
candidates used abbreviations as labels which should be avoided. The final figure should be
labelled as profit (or loss) for the year, in line with IAS terminology.

Arithmetically, the main issue was the incorrect calculation of the provision for unrealised profit.
The opening and closing inventories of finished goods were given at cost and transfer value
respectively. This point was often missed by candidates.

(c) Most candidates correctly identified the three elements of inventory and adjusted the closing
inventory for the unrealised profit.

(d) Candidates were required to explain why the owner should create a provision for unrealised profit.
Answers were often general using terms such as 'to ensure profits and assets are not over or
understated'. Specific mention of profits being overstated and/or inventories or current assets
notbeing overvalued are far more specific to the situation.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(e) Answers here were mixed. Most candidates could only correctly identify one advantage and one
disadvantage to Richard Ang of helping his sister.

Question 2

The calculation of accounting ratios before and after an investment opportunity was required. This question
was not well done. Before starting the calculation of the ratios candidates had to work out the profit from
operations. There was no indication in the question about finance costs, yet some candidates attempted to
introduce it. Other started (incorrectly) with the retained earnings figure. In all cases, credit was given
throughout the question where candidates were consistent in their approach.

In some cases candidates did not show the correct suffix or prefix with the ratio calculated.

(a) Candidates were required to calculate five ratios, three of which are specific to A Level. Many
candidates were unable to calculate the ratios. Adding a suffix or prefix was often not done by
those who did.

(b) Candidates were required to calculate changes in share capital and reserves as a result of a
proposed investment. This was reasonably well done. The most common error was in calculating
the new retained earnings where candidates often started with the wrong figure. The closing
retained earnings from the summarised statement of financial position should have been the
starting point.

(c) Using the information calculated in (b) candidates were required to rework two of the ratios. Many
candidates went back to the original data in part (a).

(d) Candidates were asked whether or not the company should proceed with the proposed investment.
Candidates were able to make a decision rather than hedge about the results.

Question 3

This question was concerned with IAS and audit requirements for a business. Responses were mixed,
however there was some good answers.

(a) This was a knowledge based question asking candidates to state reasons why a business should
comply with IAS. Responses were generally good, with many identifying at least three of the
reasons.

(b) Candidates were asked to explain stewardship and the role of the directors. Few identified that the
directors are the stewards of the shareholders. Less still went on to explain the requirement of the
directors to report to the shareholders.

(c) A revised statement of financial position was required resulting from information provided to the
auditor. This considered not only candidates knowledge of IAS and audit, but also basic double
entry. The areas which required changes were the non-current assets, trade receivables and
retained earnings. This was reasonably well attempted.

Many candidates incorrectly adjusted the cash and cash equivalents, believing that, in particular
the probable loss of the legal case required a payment to have been made. A significant number
also brought into the non-current assets the machinery which had been purchased at the start of
the year. This had already been included in the non-current assets. The issue was it should now be
subject to impairment loss and the adjustment made should have reflected this.

(d) Candidates were asked to explain the adjustments they had made in part (c). This obviously
followed their answer and a significant number correctly identified the relevant IAS which applied to
their adjustment.

(e) Finally candidates had to discuss the advantages and disadvantages to Jack of having his
accounts audited. Answers here were too general, simply stating the advantages and
disadvantages of an audit. The answer needed to be specific to the situation and very few identified
that as a sole trader there was no requirement for Jack to have his accounts audited.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

Question 4

This question concerned the sale of a partnership to an existing limited company. Apart from the final part (e)
this question was quite well done.

(a) Candidates were asked to explain what is meant by goodwill. A significant number stated the cause
of goodwill, brand name, location and so on.

(b) From the given data, candidates were asked to calculate the amount paid by the purchasing
company for goodwill. The most common errors were incorrectly calculating the purchase
consideration and candidates using the wrong value of assets and liabilities taken over. The value
which should have been used for the assets and liabilities was their 'fair value' rather than their
book value.

(c) The error of which value of assets to take in part (b) was compounded in part (c). Candidates were
asked to calculate the profit on realisation. Again, the wrong values were often used for the net
assets sold. This time it should have been the book value of the assets and liabilities, not their fair
value.

(d) The preparation of the partners' capital accounts to close their business was generally well
attempted. The most common errors were candidates bringing in the opening balances on the
partners' current accounts rather than the closing balances and the inclusion of goodwill as well as
the profit on realisation. The cash paid by C Limited was also included. This would have been paid
into the partnership bank account, not to each partner.

(e) Candidates were asked to discuss the advantages to C Limited of purchasing the partnership. This
was not well done. Very few candidates considered the financial benefits such as improved
profits/ROCE; the fact that the partnership had been successful so its purchase would have led to
higher market share or the elimination of a competitor. Most comments were about C Limited
having a 'bigger' share capital and more assets. Some candidates even identified possible
disadvantages, even though the question did not ask for it.

Section B

Question 5

A question focused on standard costing.

(a) From the given data for 1000 units, candidates were required to produce a flexed budget. This was
not well done. Most candidates did not including both the usual 1000 monthly units and the
additional 800 units, thus not working out total costs for 1800 units.

(b) Candidates then had to calculate two labour and two material variances for the month. These were
reasonably well attempted.

(c) A reason for the materials usage and materials price variance was asked for. In respect of material
usage, many gave a standard answer of lower quality materials, despite the data indicating that the
materials were of the usual quality, so could not have had any impact on the variance.

(d) A decision on a proposal put forward by management was required. This was generally well
attempted. Most recalculated the labour variances and considered the training costs, finally making
a definite decision.

(e) Finally a knowledge based question on the advantages to a business of using standard costing as
asked. This was not well attempted. Setting of budgets, identifying variances and setting prices are
the three major advantages and should have been stated.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

Question 6

(a) Candidates were required to show the change in cash flows resulting from the purchase of a new
machine. This was not well done, with the majority of candidates including both the existing cash
inflow and the additional cash inflow as one total. Only the additional net cash inflow was required.

(b) That said, the remainder of the question was based on the results the candidates had provided in
answer to part (a), thus some good marks for the question were achieved. In this section most
calculated the payback period based on their own figures, though the answer should have been
rounded up to the next whole month or day.

(c) Most correctly identified reasons why payback is used. It should be noted though that it is based on
cash and not profit, thus it was not possible to award marks for comments relating to payback
identifying the profitability of a project.

(d) The calculation of the net present value was also based on the answer provided in part (a). Thus,
again some good marks were achieved. The only real issue was some candidates not labelling
their final answer as 'net present value'.

(e) Most correctly calculated an IRR for the project. The two main issues were the incorrect use of the
formula, particularly when calculating the denominator where the figures should have been added
together, and not providing an answer to three decimal places despite being asked to do so in the
question.

(f) Most earned full marks for stating which machine Tisha should buy.

(g) This was not well done. Many candidates went back to discuss the factors already considered,
despite the fact the question specifically stated they should be ignored.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

ACCOUNTING

Paper 9706/33
Structured Questions

General comments

Generally, candidate performance was reasonable. Responses to numerical questions are generally better
than responses to the written questions.

Comments on specific questions

Question 1

(a) Most candidates were able to state two required objectives.

(b) This was generally well answered with most candidates scoring reasonable marks. Some
responses incorrectly adjusted for depreciation which was charged to cost of sales. The better
answers correctly accounted for the closing inventory. Some responses included incorrect
adjustments for depreciation on motor vehicles. The best responses were laid out clearly in an
appropriate manner.

(c) This was very well answered with many candidates scoring full marks.

(d) This was not answered well. Many responses provided advice. Only the better responses included
a well explained justification.

Question 2

(a) Most candidates adjusted the trade receivables as was necessary. The better responses
accounted correctly for the rental deposit and rent prepayment. Relatively few responses included
application of IAS37.

(b) Responses to this question were mixed. The better responses explained how both items 1 and 2
should be treated. A number of responses had no appropriate explanation.

(c) This was well answered with nearly all candidates providing an explanation.

(d) This question was not answered well with many responses not answering the question posed.

(e) Many responses to this question included a recommendation about whether the method should be
changed. The better responses then gave a clear justification for this. A significant number of
responses included the statement ‘lower of cost and net realisable value’ which was not relevant.

Question 3

(a) This question was generally answered well with most candidates being aware of the benefits of the
joint venture. The better responses explained these benefits in the context of Greaves and Hurst.

(b) This was well answered with many candidates scoring full marks. A few responses erroneously
added the commission to the sales income.

(c) The ledger accounts were generally well prepared with most responses using the required double
entry skills.

© 2017
 Cambridge International Advanced Level
9706 Accounting June 2017
Principal Examiner Report for Teachers

(d) This was well answered with most responses including the required advice and then providing a
reasonable justification.

Question 4

(a) Most candidates demonstrated knowledge of the formulae but few obtained full marks. Some
responses didn’t adjust for the preference share dividend. The better responses used the formulae
correctly and figures were given to two decimal places.

(b) Evaluations of the calculated ratios were acceptable. The better responses gave developed
evaluation of points, rather than simply stating ‘higher’ or ‘lower’.

(c) Many responses obtained one of the two marks available for explaining gearing. The ratios
calculated for part (ii) were often incorrect. Analysis of the ratios was well answered.

(d) This was well answered with nearly all candidates providing the required advice and appropriate
reasons for their decision.

Question 5

(a) This was generally answered well. The better responses included the change in production as a
reason for flexing.

(b) Many candidates prepared a statement based on the budgeted figures. Those that did prepare a
statement based on the actual units often incorrectly adjusted the fixed overhead and consequently
there were few fully correct statements.

(c) The variances were invariably calculated correctly.

(d) This question was also well answered with many fully correct solutions.

(e) Most candidates provided two appropriate reasons for the adverse variance.

(f) This was well answered and many candidates did apply the given additional information rather than
providing a generic response.

Question 6

(a) This was well answered with a significant number of fully correct responses. Nearly all calculated
the costs driven by orders and production runs correctly but many did make errors with regard to
the costs driven by machine maintenance.

(b) Most candidates calculated the overhead cost for the products correctly.

(c) This question was not answered well. Many responses included limited explanations. The best
responses gave an appropriate explanation for the observed changes.

(d) This was well answered with nearly all candidates giving a recommendation and then appropriate
justification by making valid calculations and considering relevant factors. A high number of
candidates scored at least five of the six available marks.

(e) Most candidates provided two appropriate reasons.

© 2017