An original Thinka practice paper modelled on the structure and difficulty of the Nov 2023 (V1) Cambridge International A Level Accounting (9706) paper. Not affiliated with or reproduced from Cambridge.
Paper 11 (Multiple Choice)
Answer all 30 multiple choice questions. Each question carries 1 mark.
30 Question · 30 marks
Question 1 · multipleChoice
1 marks
A sole trader operates with a standard mark-up on cost of 25%. The following information is available for the year ended 31 December 2023:
During the year, the owner took goods costing $4,000 for personal use. No entries have been made in the accounts to record this.
The closing inventory at 31 December 2023 includes damaged goods costing $3,000. These goods can be sold for $1,800 after repair work costing $400 has been completed.
What is the correct valuation of the closing inventory at 31 December 2023?
A.$43,400
B.$45,000
C.$47,400
D.$49,000
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Worked solution
First, calculate the cost of sales using the revenue and the mark-up on cost of 25%:
\(\text{Cost of Sales} = \frac{\text{Revenue}}{1.25} = \frac{\$200,000}{1.25} = \$160,000\)
Next, calculate the unadjusted closing inventory at cost using the inventory equation:
\(\text{Cost of Sales} = \text{Opening Inventory} + \text{Purchases} - \text{Drawings} - \text{Closing Inventory at Cost}\)
\(\$160,000 = \$205,000 - \text{Closing Inventory at Cost}\)
\(\text{Closing Inventory at Cost} = \$205,000 - \$160,000 = \$45,000\)
The inventory valuation must be adjusted for the damaged goods, which must be valued at the lower of cost and net realizable value (NRV).
* Cost of damaged goods: $3,000 * NRV of damaged goods: $1,800 - $400 = $1,400
Since NRV is lower, the inventory must be written down by:
\(\$3,000 - \$1,400 = \$1,600\)
Therefore, the correct closing inventory valuation is:
\(\$45,000 - \$1,600 = \$43,400\)
Marking scheme
1 mark for the correct option (A). - Calculating correct Cost of Sales of $160,000 (method mark). - Adjusting purchases for drawings: $185,000 - $4,000 = $181,000 (method mark). - Calculating unadjusted closing inventory at cost of $45,000 (method mark). - Calculating NRV of damaged goods of $1,400 and writing down closing inventory by $1,600 to arrive at the final accuracy value of $43,400 (accuracy mark).
Question 2 · multipleChoice
1 marks
At 1 January 2023, the equity of a limited company was as follows:
* Share capital (ordinary shares of $0.50 each): $200,000 * Share premium: $60,000 * Retained earnings: $140,000
During the year ended 31 December 2023, the following occurred:
1. A rights issue of 1 share for every 4 held was made at $0.80 per share. This was fully subscribed. 2. A bonus issue of 1 share for every 10 held was made after the rights issue, utilising the share premium account to the maximum extent. 3. Profit for the year was $75,000. 4. An ordinary dividend of $0.05 per share was paid on all shares in issue at the year-end.
What is the balance of retained earnings at 31 December 2023?
A.$187,500
B.$190,000
C.$162,500
D.$215,000
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Worked solution
Let's perform the calculations step-by-step:
1. **Initial shares in issue**: \(\frac{\$200,000}{\$0.50} = 400,000\text{ shares}\)
2. **Rights issue** (1 for every 4 shares): \(\text{Rights shares} = \frac{400,000}{4} = 100,000\text{ shares}\) * Nominal value = \(100,000 \times \$0.50 = \$50,000\) (added to Share Capital) * Share premium = \(100,000 \times (\$0.80 - \$0.50) = \$30,000\) (added to Share Premium) * New Share Capital = \(\$250,000\) (500,000 shares in issue) * New Share Premium = \(\$60,000 + \$30,000 = \$90,000\)
3. **Bonus issue** (1 for every 10 shares held): \(\text{Bonus shares} = \frac{500,000}{10} = 50,000\text{ shares}\) * Nominal value of bonus shares = \(50,000 \times \$0.50 = \$25,000\) Since the company utilises the share premium account to the maximum extent, this $25,000 is fully funded from the Share Premium account. Thus, Retained Earnings are unaffected by the bonus issue. * New total shares in issue = \(500,000 + 50,000 = 550,000\text{ shares}\)
4. **Profit for the year**: \(\$75,000\) is added to Retained Earnings. \(\text{Retained Earnings before dividend} = \$140,000 + \$75,000 = \$215,000\)
5. **Dividends paid**: Paid on all shares in issue at the year-end (550,000 shares): \(\text{Dividends} = 550,000 \times \$0.05 = \$27,500\) (deducted from Retained Earnings)
1 mark for the correct option (A). - Method mark for determining correct final share quantity (550,000 shares). - Method mark for applying bonus issue to Share Premium instead of Retained Earnings. - Accuracy mark for calculating correct dividend of $27,500 and the final balance of $187,500.
Question 3 · multipleChoice
1 marks
A business's cash book showed a debit balance of $8,450 at 31 October 2023. Comparing this with the bank statement, the following differences were found:
1. Bank charges of $120 had been deducted by the bank but not recorded in the cash book. 2. A cheque for $450 received from a customer and entered in the cash book was returned by the bank as dishonoured. 3. A direct debit for insurance of $380 had been paid by the bank but not entered in the cash book. 4. Cheques written but not yet presented to the bank totalled $1,640. 5. Receipts of $920 entered in the cash book on 31 October were not credited by the bank until 2 November.
What is the balance showing on the bank statement at 31 October 2023?
A.$6,780 credit
B.$6,780 debit
C.$8,220 credit
D.$8,220 debit
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Worked solution
First, update the Cash Book to find the corrected bank balance:
\(\text{Unadjusted Cash Book balance (debit)} = \$8,450\) * Less bank charges: $-$120\) * Less dishonoured cheque: $-$450\) * Less direct debit: $-$380\)
Because \(X\) is positive (and corresponds to a debit balance in the cash book), it is a credit balance on the bank statement.
Marking scheme
1 mark for the correct option (C). - Correctly adjusting the cash book balance to $7,500 (method mark). - Correctly reconciling to find the bank statement figure of $8,220 (accuracy mark). - Correctly identifying the balance as credit (accuracy mark).
Question 4 · multipleChoice
1 marks
A company sells a single product for $60 per unit. Current variable costs are:
* Direct materials: $18 per unit * Direct labour: $12 per unit * Variable overheads: $6 per unit
Fixed costs are $180,000 per year.
The company wants to achieve a target profit of $54,000 next year.
The selling price is expected to fall by 10%, while direct material costs will increase by 20% per unit. All other costs and variables remain unchanged.
How many units must the company sell next year to achieve its target profit?
A.9,750 units
B.12,500 units
C.13,000 units
D.16,250 units
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Worked solution
First, calculate the new selling price and new variable costs for next year:
* **New selling price**: \(\$60 \times 0.90 = \$54.00\) * **New direct material cost**: \(\$18 \times 1.20 = \$21.60\) * **Other variable costs** (unchanged): Direct labour ($12.00) + Variable overheads ($6.00) = $18.00 * **Total new variable cost per unit**: \(\$21.60 + \$18.00 = \$39.60\)
Next, calculate the new contribution per unit:
\(\text{New contribution} = \text{New selling price} - \text{Total new variable cost} = \$54.00 - \$39.60 = \$14.40\text{ per unit}\)
Calculate the total target contribution required to cover fixed costs and achieve target profit:
\(\text{Required unit sales} = \frac{\text{Target contribution}}{\text{New contribution per unit}} = \frac{\$234,000}{\$14.40} = 16,250\text{ units}\)
Marking scheme
1 mark for the correct option (D). - Method mark for calculating the new contribution per unit of $14.40. - Method mark for calculating target contribution of $234,000. - Accuracy mark for calculating 16,250 units.
Question 5 · multipleChoice
1 marks
A business budgets for overheads of $240,000 and 60,000 direct labour hours for the year. During the year, actual direct labour hours worked were 58,000 and the actual overheads incurred were $238,000.
What is the over- or under-absorption of overheads for the year?
A.$2,000 over-absorbed
B.$2,000 under-absorbed
C.$6,000 over-absorbed
D.$6,000 under-absorbed
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Worked solution
1. **Calculate the predetermined overhead absorption rate (OAR)**:
\(\text{OAR} = \frac{\text{Budgeted overheads}}{\text{Budgeted direct labour hours}} = \frac{\$240,000}{60,000\text{ hours}} = \$4\text{ per direct labour hour}\)
2. **Calculate the overheads absorbed during the year**:
\(\text{Overheads absorbed} = \text{Actual direct labour hours} \times \text{OAR} = 58,000\text{ hours} \times \$4 = \$232,000\)
Since actual overheads incurred ($238,000) are greater than absorbed overheads ($232,000), there is an **under-absorption of $6,000**.
Marking scheme
1 mark for the correct option (D). - Method mark for calculating OAR of $4/hour. - Method mark for calculating absorbed overheads of $232,000. - Accuracy mark for the final result of $6,000 under-absorbed.
Question 6 · multipleChoice
1 marks
A and B are in partnership sharing profits and losses in the ratio 3:2 respectively. The following details relate to partner B for the year ended 31 December 2023:
* Current account balance at 1 January 2023: $4,500 Credit * Capital account balance throughout the year: $80,000 * Annual salary: $15,000 * Drawings during the year: $18,000 * Interest on capital: 5% per annum * Interest on drawings: 10% of total drawings during the year
The capital account balance of partner A was $120,000, and drawings were $12,000.
The partnership net profit for the year before any appropriations was $64,000.
What is B's current account balance at 31 December 2023?
A.$11,500 Credit
B.$19,300 Credit
C.$20,500 Credit
D.$22,300 Credit
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Worked solution
Let's work through the profit appropriation and current account step-by-step:
1. **Appropriation Account**: * Net Profit before appropriations: $64,000 * Add Interest on Drawings: * A: \(10\% \times \$12,000 = \$1,200\) * B: \(10\% \times \$18,000 = \$1,800\) * Total Interest on Drawings = \(\$3,000\) * Profit pool = \(\$64,000 + \$3,000 = \$67,000\) * Less Interest on Capital: * A: \(5\% \times \$120,000 = \$6,000\) * B: \(5\% \times \$80,000 = \$4,000\) * Total Interest on Capital = \(\$10,000\) * Less B's Salary: \(\$15,000\) * Residual Profit to share = \(\$67,000 - \$10,000 - \$15,000 = \$42,000\) * B's share of residual profit (2/5): \(\frac{2}{5} \times \$42,000 = \$16,800\)
2. **B's Current Account**: * Opening Balance: $4,500 (Credit) * Add Interest on Capital: $4,000 (Credit) * Add Salary: $15,000 (Credit) * Add Share of Profit: $16,800 (Credit) * Less Drawings: $18,000 (Debit) * Less Interest on Drawings: $1,800 (Debit)
1 mark for the correct option (C). - Method mark for calculating residual profit of $42,000. - Method mark for calculating B's profit share of $16,800. - Accuracy mark for calculating B's closing current account balance of $20,500 Credit.
Question 7 · multipleChoice
1 marks
A business has the following total production costs at different levels of activity:
* 4,000 units: $50,000 * 8,000 units: $86,000
When production exceeds 5,000 units, total fixed costs increase by $6,000.
What is the variable cost per unit?
A.$4.50
B.$7.50
C.$9.00
D.$10.50
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Worked solution
Let \(v\) be the variable cost per unit, and \(F\) be the initial fixed costs (applicable for production up to 5,000 units).
For 4,000 units (below the step-up threshold): \(F + 4,000v = \$50,000\) --- (Equation 1)
For 8,000 units (above the step-up threshold): \((F + \$6,000) + 8,000v = \$86,000\) \(F + 8,000v = \$80,000\) --- (Equation 2)
1 mark for the correct option (B). - Method mark for setting up the high-low simultaneous equations factoring in the $6,000 step-up in fixed costs. - Accuracy mark for calculating the correct variable cost of $7.50 per unit.
Question 8 · multipleChoice
1 marks
A business purchased a machine on 1 January 2021 for $80,000.
The machine was depreciated at 20% per annum using the reducing balance method. A full year's depreciation is charged in the year of purchase, but no depreciation is charged in the year of disposal.
On 30 June 2023, the machine was sold for $48,000.
What was the gain or loss on the disposal of the machine?
A.$3,200 loss
B.$1,920 gain
C.$7,040 gain
D.No gain or loss
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Worked solution
First, calculate the depreciation and carrying value (net book value) over the holding period:
* **Year 1 (31 Dec 2021)**: * Depreciation charged = \(20\% \times \$80,000 = \$16,000\) * Net Book Value (1 Jan 2022) = \(\$80,000 - \$16,000 = \$64,000\) * **Year 2 (31 Dec 2022)**: * Depreciation charged = \(20\% \times \$64,000 = \$12,800\) * Net Book Value (1 Jan 2023) = \(\$64,000 - \$12,800 = \$51,200\) * **Year 3 (Disposal year - 2023)**: * As policy states, no depreciation is charged in the year of disposal. * Carrying Value at date of disposal = \(\$51,200\)
1 mark for the correct option (A). - Method mark for calculating the correct carrying value of $51,200 at the start of 2023. - Accuracy mark for determining that there was a loss of $3,200 on disposal.
Question 9 · multipleChoice
1 marks
On 1 November 2022, a sole trader had an inventory of \(\\$28,000\). During the year ended 31 October 2023, purchases were \(\\$195,000\) and sales were \(\\$240,000\). The trader applies a constant mark-up of \(25\\%\) on cost. On 31 October 2023, a fire destroyed part of the inventory. Salvaged inventory was valued at \(\\$4,500\). What was the value of the inventory destroyed by the fire?
A.\(\\$26,500\)
B.\(\\$31,000\)
C.\(\\$38,500\)
D.\(\\$43,000\)
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1 mark for the correct final answer of \(\\$26,500\).
Question 10 · multipleChoice
1 marks
A company's equity on 1 January 2022 was: Ordinary shares (\(\\$0.50\) each): \(\\$200,000\); Share premium: \(\\$40,000\); Retained earnings: \(\\$115,000\). During the year ended 31 December 2022, the following took place: (1) A rights issue of 1 ordinary share for every 4 shares held was made at a price of \(\\$0.80\) per share. The issue was fully subscribed. (2) A bonus issue of 1 ordinary share for every 2 shares held (including the rights issue shares) was made, utilizing the share premium account as far as possible. (3) The profit for the year was \(\\$62,000\). (4) An ordinary dividend of \(\\$15,000\) was paid during the year. What was the balance of the Retained Earnings account on 31 December 2022?
A.\(\\$107,000\)
B.\(\\$122,000\)
C.\(\\$162,000\)
D.\(\\$37,000\)
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Worked solution
1. Calculate rights issue: \(400,000\) shares / \(4 = 100,000\) shares. Ordinary share capital increases by \(100,000 \times \\$0.50 = \\$50,000\). Share premium increases by \(100,000 \times \\$0.30 = \\$30,000\) to a total of \(\\$70,000\). 2. Calculate bonus issue: \(500,000\) shares / \(2 = 250,000\) shares. Total nominal value = \(250,000 \times \\$0.50 = \\$125,000\). Funded first from Share Premium (\(\\$70,000\)), with the remaining \(\\$55,000\) funded from Retained Earnings. 3. Adjust Retained Earnings: Opening balance \(\\$115,000\) + Profit \(\\$62,000\) - Dividend \(\\$15,000\) - Bonus issue \(\\$55,000\) = \(\\$107,000\).
Marking scheme
1 mark for the correct final answer of \(\\$107,000\).
Question 11 · multipleChoice
1 marks
At 1 May 2023, the debit balance on a trader's sales ledger control account was \(\\$42,600\). During May 2023, the following transactions occurred: Credit sales: \(\\$184,500\); Cash sales: \(\\$23,400\); Cash received from credit customers: \(\\$168,200\); Discount allowed: \(\\$3,100\); Bad debts written off: \(\\$1,800\); Returns inward: \(\\$4,200\); Contra entry with purchase ledger: \(\\$2,500\); Interest charged to customer on overdue account: \(\\$300\). What was the balance of the sales ledger control account on 31 May 2023?
A.\(\\$47,300\)
B.\(\\$47,600\)
C.\(\\$50,100\)
D.\(\\$71,000\)
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Worked solution
Opening Debit Balance: \(\\$42,600\). Add: Credit Sales \(\\$184,500\) + Interest Charged \(\\$300 = \\$227,400\). Less: Cash received from credit customers \(\\$168,200\) - Discount allowed \(\\$3,100\) - Bad debts written off \(\\$1,800\) - Returns inward \(\\$4,200\) - Contra entry \(\\$2,500 = \\$179,800\). Closing Balance = \(\\$227,400 - \\$179,800 = \\$47,600\). Note: Cash sales are excluded from the Sales Ledger Control Account.
Marking scheme
1 mark for the correct final answer of \(\\$47,600\).
Question 12 · multipleChoice
1 marks
A company makes and sells a single product. The following information is available: Selling price per unit: \(\\$30\); Variable cost per unit: \(\\$16\); Total fixed costs: \(\\$80,000\) per year. Next year, variable costs are expected to rise by \(12.5\\%\), and fixed costs are expected to increase by \(\\$10,000\). The selling price will remain unchanged. How many units must the company sell next year to achieve a target profit of \(\\$42,000\)?
A.7,500 units
B.10,167 units
C.11,000 units
D.8,714 units
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Worked solution
New variable cost per unit = \(\\$16 \times 1.125 = \\$18\). New contribution per unit = \(\\$30 - \\$18 = \\$12\). New total fixed costs = \(\\$80,000 + \\$10,000 = \\$90,000\). Target contribution required = Fixed costs + Target profit = \(\\$90,000 + \\$42,000 = \\$132,000\). Units required = \(\\$132,000 / \\$12 = 11,000\) units.
Marking scheme
1 mark for the correct final answer of 11,000 units.
Question 13 · multipleChoice
1 marks
A manufacturing company uses a predetermined overhead absorption rate based on direct labour hours. The budget and actual results for the year were as follows: Budgeted overheads: \(\\$240,000\); Budgeted direct labour hours: 40,000 hours; Actual overheads incurred: \(\\$258,000\); Actual direct labour hours: 41,500 hours. What was the under or over-absorption of overheads?
A.\(\\$9,000\) under-absorbed
B.\(\\$9,000\) over-absorbed
C.\(\\$18,000\) under-absorbed
D.\(\\$18,000\) over-absorbed
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1 mark for the correct final answer of \(\\$9,000\) under-absorbed.
Question 14 · multipleChoice
1 marks
X and Y are in partnership sharing profits and losses in the ratio 3:2 respectively. The partnership agreement provides for: Interest on capital of \(5\\%\) per annum; A partner salary to Y of \(\\$12,000\) per annum. At 1 January 2022, the capital account balances were: X: \(\\$80,000\); Y: \(\\$50,000\). The profit for the year ended 31 December 2022, before any interest on capital or salary, was \(\\$75,000\). What was Y's total share of profit (including salary and interest on capital) for the year?
A.\(\\$22,600\)
B.\(\\$34,600\)
C.\(\\$37,100\)
D.\(\\$37,900\)
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Worked solution
Interest on Capital: X: \(\\$80,000 \times 5\\% = \\$4,000\); Y: \(\\$50,000 \times 5\\% = \\$2,500\). Salary to Y = \(\\$12,000\). Residual profit = \(\\$75,000 - \\$4,000 - \\$2,500 - \\$12,000 = \\$56,500\). Y's share of residual profit = \(\\$56,500 \times 2/5 = \\$22,600\). Y's total share of profit = \(\\$2,500\) (interest) + \(\\$12,000\) (salary) + \(\\$22,600\) (residual) = \(\\$37,100\).
Marking scheme
1 mark for the correct final answer of \(\\$37,100\).
Question 15 · multipleChoice
1 marks
A company's total production costs at two different levels of activity are as follows: Activity level of 8,000 units: Total cost of \(\\$114,000\); Activity level of 12,000 units: Total cost of \(\\$150,000\). The variable cost per unit remains constant up to 15,000 units. However, fixed costs increase by \(\\$10,000\) once activity exceeds 10,000 units. What would be the total production cost for an activity level of 14,000 units?
A.\(\\$153,000\)
B.\(\\$163,000\)
C.\(\\$168,000\)
D.\(\\$178,000\)
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Worked solution
Let variable cost per unit be \(v\) and base fixed cost be \(F\). At 8,000 units: \(8,000v + F = \\$114,000\). At 12,000 units (with step-up): \(12,000v + F + \\$10,000 = \\$150,000 \Rightarrow 12,000v + F = \\$140,000\). Subtracting the first equation: \(4,000v = \\$26,000 \Rightarrow v = \\$6.50\) per unit. Base fixed cost \(F = \\$114,000 - (8,000 \times \\$6.50) = \\$62,000\). At 14,000 units (which exceeds 10,000 units), fixed costs are \(\\$62,000 + \\$10,000 = \\$72,000\). Total production cost = \((14,000 \times \\$6.50) + \\$72,000 = \\$91,000 + \\$72,000 = \\$163,000\).
Marking scheme
1 mark for the correct final answer of \(\\$163,000\).
Question 16 · multipleChoice
1 marks
The following information is available for a company at the end of its financial year: Current ratio: 2.5 : 1; Liquid (acid test) ratio: 1.5 : 1; Total current liabilities: \(\\$80,000\); Cash and bank balance: \(\\$12,000\). What is the value of the trade receivables?
A.\(\\$80,000\)
B.\(\\$108,000\)
C.\(\\$120,000\)
D.\(\\$200,000\)
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Worked solution
Current Assets = Current Ratio \(\times\) Current Liabilities = \(2.5 \times \\$80,000 = \\$200,000\). Liquid Assets = Liquid Ratio \(\times\) Current Liabilities = \(1.5 \times \\$80,000 = \\$120,000\). Trade Receivables = Liquid Assets - Cash and Bank Balance = \(\\$120,000 - \\$12,000 = \\$108,000\).
Marking scheme
1 mark for the correct final answer of \(\\$108,000\).
Question 17 · multipleChoice
1 marks
A sole trader applies a constant markup of 25% on cost. During the year ended 31 December 2022, her records showed the following:
A fire occurred at the end of the year, destroying some of the inventory. Undamaged inventory was valued at $12,000. What was the cost of the inventory destroyed by the fire?
A.$8,000
B.$12,000
C.$20,000
D.$23,000
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Worked solution
1. Calculate the cost of sales from sales revenue using the markup percentage: \(\text{Cost of Sales} = \frac{\text{Sales}}{1 + \text{Markup}} = \frac{\$200,000}{1.25} = \$160,000\)
2. Calculate the expected closing inventory before any fire loss: \(\text{Expected Closing Inventory} = \text{Opening Inventory} + \text{Purchases} - \text{Cost of Sales}\) \(\text{Expected Closing Inventory} = \$15,000 + \$165,000 - \$160,000 = \$20,000\)
1 mark for the correct calculation showing a loss of $8,000.
Question 18 · multipleChoice
1 marks
A company had a retained earnings balance of $85,000 on 1 January 2022. During the year ended 31 December 2022, the following transactions and events took place:
* Profit for the year: $42,000 * Interim dividend paid: $10,000 * Final dividend proposed by the directors on 15 December 2022 but not yet approved by shareholders: $15,000 * Transfer to general reserve: $12,000 * Property revalued upwards by: $30,000
What was the balance of retained earnings on 31 December 2022?
A.$90,000
B.$105,000
C.$117,000
D.$135,000
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Worked solution
1. Under IAS 10, proposed dividends are not recognised as a liability or deducted from retained earnings until they are formally approved by shareholders. Therefore, the proposed final dividend of $15,000 is ignored. 2. The property revaluation surplus of $30,000 is credited directly to the Revaluation Reserve, not Retained Earnings. 3. The adjusted retained earnings balance is calculated as: \(\text{Opening Retained Earnings} + \text{Profit for the year} - \text{Interim Dividend} - \text{Transfer to General Reserve}\) \(\$85,000 + \$42,000 - \$10,000 - \$12,000 = \$105,000\)
Marking scheme
1 mark for identifying that proposed dividends and revaluation surpluses are excluded, and correctly calculating $105,000.
Question 19 · multipleChoice
1 marks
On 31 May, a business's cash book showed a debit balance of $4,500 at the bank. The bank statement on that date showed a different balance. Comparison of the two records revealed the following:
* Bank charges of $120 had not been recorded in the cash book. * A cheque for $950 paid to a supplier had been recorded in the cash book as $590. * Unpresented cheques amounted to $1,400. * Lodgements in transit (deposits not yet credited) amounted to $850.
What was the credit balance shown on the bank statement on 31 May?
A.$3,470
B.$4,020
C.$4,570
D.$5,120
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Worked solution
First, update the cash book: * Unadjusted Cash Book balance: $4,500 (Dr) * Less: Bank charges: -$120 * Less: Correction of supplier cheque error (under-recorded payment of \(\$950 - \$590\)): -$360 * Adjusted Cash Book balance = \(\$4,500 - \$120 - \$360 = \$4,020\) (Dr)
Next, perform the bank reconciliation: * Let \(X\) be the Bank Statement Balance. * \(\text{Adjusted Cash Book Balance} = \text{Bank Statement Balance} + \text{Lodgements in transit} - \text{Unpresented cheques}\) * \(\$4,020 = X + \$850 - \$1,400\) * \(\$4,020 = X - \$550\) * \(X = \$4,020 + \$550 = \$4,570\)
Marking scheme
1 mark for calculating the corrected cash book balance of $4,020 and reconciling to get the bank statement balance of $4,570.
Question 20 · multipleChoice
1 marks
A company produces and sells a single product. The current operating data is as follows:
* Selling price: $50 per unit * Variable cost: $30 per unit * Fixed costs: $120,000 per year
The company is considering purchasing a new automated machine. This would increase fixed costs by $20,000 per year but would reduce variable costs by $5 per unit.
At what level of annual sales (in units) would the total profit be the same under both the current and the proposed methods?
A.4,000 units
B.6,000 units
C.8,000 units
D.12,000 units
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Worked solution
Let \(X\) be the number of units where profits are equal.
* Equating the two profits: \(20X - 120,000 = 25X - 140,000\) \(5X = 20,000\) \(X = 4,000\text{ units}\)
Marking scheme
1 mark for setting up the equation for equal profit and solving for \(X = 4,000\).
Question 21 · multipleChoice
1 marks
A manufacturing business uses a predetermined overhead absorption rate of $8.50 per direct labour hour. During a period, the following data were recorded:
* Budgeted direct labour hours: 15,000 hours * Actual direct labour hours: 14,200 hours * Actual manufacturing overhead cost incurred: $118,500
What was the under or over absorption of overheads for the period?
A.$2,200 under-absorbed
B.$2,200 over-absorbed
C.$9,000 under-absorbed
D.$9,000 over-absorbed
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Worked solution
1. Calculate the overhead absorbed based on actual hours worked: \(\text{Overhead Absorbed} = \text{Actual Hours} \times \text{Predetermined Rate}\) \(\text{Overhead Absorbed} = 14,200 \times \$8.50 = \$120,700\)
Since the overhead absorbed ($120,700) is greater than the actual overhead incurred ($118,500), overheads were over-absorbed by $2,200.
Marking scheme
1 mark for calculating correct absorption using actual hours and determining that it is $2,200 over-absorbed.
Question 22 · multipleChoice
1 marks
X and Y are in partnership sharing profits and losses in the ratio 3:2. The partnership agreement provides for interest on capital of 5% per annum and an annual partner's salary to Y of $12,000.
On 1 January 2022, the capital account balances were:
* X: $100,000 * Y: $80,000
The profit for the year ended 31 December 2022, before charging interest on capital and Y's salary, was $65,000.
What was Y's total share of the profit (including interest, salary and residual share) for the year?
A.$17,600
B.$29,600
C.$33,600
D.$38,000
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1 mark for calculating correct total share of profit for Y of $33,600.
Question 23 · multipleChoice
1 marks
A business has recorded the following total costs at two different activity levels:
* Activity level: 4,000 units, Total cost: $26,000 * Activity level: 7,500 units, Total cost: $40,500
Fixed costs increase by $4,000 once activity exceeds 6,000 units.
What is the variable cost per unit?
A.$2.00
B.$3.00
C.$4.14
D.$5.40
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Worked solution
1. Adjust the total cost at 7,500 units to eliminate the step increase of $4,000 in fixed costs: \(\text{Adjusted Cost at 7,500 units} = \$40,500 - \$4,000 = \$36,500\)
2. Now apply the standard high-low method formula using the adjusted cost: \(\text{Variable Cost per unit} = \frac{\text{Change in Cost (Adjusted)}}{\text{Change in Activity}}\) \(\text{Variable Cost per unit} = \frac{\$36,500 - \$26,000}{7,500 - 4,000} = \frac{\$10,500}{3,500} = \$3.00\text{ per unit}\)
Marking scheme
1 mark for adjusting the step-up cost first and then calculating the correct variable cost per unit of $3.00.
Question 24 · multipleChoice
1 marks
A business purchased a machine on 1 January 2020 for $40,000. It is depreciated using the reducing balance method at 20% per annum. A full year's depreciation is charged in the year of acquisition, and none is charged in the year of disposal.
The machine was sold on 1 September 2022 for $23,000.
What was the profit or loss on the disposal of the machine?
A.$2,520 profit
B.$2,600 loss
C.$2,600 profit
D.$7,720 loss
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Worked solution
1. Calculate depreciation for 2020: \(\text{Depreciation} = 20\% \times \$40,000 = \$8,000\) \(\text{Net Book Value (NBV) on 31 Dec 2020} = \$40,000 - \$8,000 = \$32,000\)
2. Calculate depreciation for 2021: \(\text{Depreciation} = 20\% \times \$32,000 = \$6,400\) \(\text{NBV on 31 Dec 2021} = \$32,000 - \$6,400 = \$25,600\)
3. Depreciation for 2022 (year of disposal): $0 (as per policy). \(\text{NBV at disposal date} = \$25,600\)
4. Calculate profit/loss on disposal: \(\text{Loss on disposal} = \text{Net Book Value} - \text{Disposal Proceeds}\) \(\text{Loss on disposal} = \$25,600 - \$23,000 = \$2,600\text{ loss}\)
Marking scheme
1 mark for correctly applying the depreciation policy (no depreciation in the year of disposal) to find the correct loss of $2,600.
Question 25 · multipleChoice
1 marks
Brenda, a sole trader, provides the following information for the year ended 31 December 2022:
During the year, Brenda took goods costing $1,200 for personal use, but no entry has been made in the books of account. In addition, goods costing $800 were destroyed by a fire, and the insurance company has agreed to settle the claim for $500.
What was Brenda's cost of sales for the year?
A.$77,500
B.$78,000
C.$78,300
D.$79,500
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Worked solution
To calculate the correct cost of sales, purchases must be adjusted for goods taken for personal use and goods destroyed by fire:
Now, calculate the Cost of Sales: $$\text{Cost of Sales} = \text{Opening inventory} + \text{Adjusted Purchases} - \text{Closing inventory}$$ $$\text{Cost of Sales} = \$14,000 + \$80,000 - \$16,500 = \$77,500$$
Note: The insurance claim settlement of $500 is treated as other income / reduction of loss and does not affect the cost of sales.
Marking scheme
1 mark for the correct answer of $77,500. Reject other options which fail to adjust purchases correctly or incorrectly include the insurance settlement.
Question 26 · multipleChoice
1 marks
A company has the following equity structure at 1 January 2023:
1. A bonus issue of 1 ordinary share for every 5 held was made using the share premium account. 2. An interim dividend of $0.05 per share was paid on all shares in issue after the bonus issue. 3. Profit for the year was $115,000.
What is the balance of retained earnings at 31 December 2023?
A.$167,000
B.$247,000
C.$255,000
D.$271,000
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Worked solution
First, calculate the number of shares in issue: - Initial ordinary shares: $$400,000 / $0.50 = 800,000$ shares. - Bonus issue: $800,000 \times \frac{1}{5} = 160,000$ shares. - Total shares in issue after bonus issue: $800,000 + 160,000 = 960,000$ shares.
Note: The bonus issue was funded using the share premium account, so it does not reduce retained earnings.
Finally, calculate the closing balance of retained earnings: $$\text{Closing Retained Earnings} = \text{Opening Retained Earnings} - \text{Dividend paid} + \text{Profit for the year}$$ $$\text{Closing Retained Earnings} = \$180,000 - \$48,000 + \$115,000 = \$247,000$$
Marking scheme
1 mark for the correct answer of $247,000. Reject options where dividend is calculated on the pre-bonus share capital or where the bonus issue is incorrectly deducted from retained earnings.
Question 27 · multipleChoice
1 marks
At 31 October, a business's cash book showed a bank balance of $3,850 debit.
On comparing the cash book with the bank statement, the following differences were found:
1. Bank charges of $120 had not been entered in the cash book. 2. A cheque for $640 received from a customer and entered in the cash book had been returned by the bank as dishonoured. 3. Unpresented cheques amounted to $1,450. 4. Lodgements in transit amounted to $980.
What was the balance shown on the bank statement on 31 October?
A.$2,620 credit
B.$2,620 debit
C.$3,560 credit
D.$3,560 debit
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Worked solution
First, calculate the corrected cash book balance: $$\text{Corrected Cash Book Balance} = \$3,850 \text{ (debit)} - \$120 \text{ (bank charges)} - \$640 \text{ (dishonoured cheque)} = \$3,090 \text{ (debit)}$$
Next, set up the bank reconciliation statement: $$\text{Bank Statement Balance} + \text{Lodgements in transit} - \text{Unpresented cheques} = \text{Corrected Cash Book Balance}$$ $$X + \$980 - \$1,450 = \$3,090$$ $$X - \$470 = \$3,090$$ $$X = \$3,560$$
Since the result is positive, it represents a credit balance on the bank statement of $3,560.
Marking scheme
1 mark for the correct bank statement balance of $3,560 credit. Reject debit/credit mismatches and values resulting from unadjusted cash books.
Question 28 · multipleChoice
1 marks
A business manufactures and sells a single product. The following data is available:
- Selling price per unit: $45 - Variable production cost per unit: $18 - Variable selling cost per unit: $3 - Annual fixed overheads: $360,000
The business aims to achieve an annual profit of $120,000.
How many units must be sold to achieve this target profit?
A.15,000 units
B.17,778 units
C.20,000 units
D.22,857 units
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Worked solution
First, calculate the contribution per unit: $$\text{Contribution per unit} = \text{Selling price} - \text{Total variable cost}$$ $$\text{Contribution per unit} = \$45 - (\$18 + \$3) = \$24$$
Next, calculate the required sales volume to achieve the target profit: $$\text{Required Sales Volume (units)} = \frac{\text{Fixed overheads} + \text{Target profit}}{\text{Contribution per unit}}$$ $$\text{Required Sales Volume} = \frac{\$360,000 + \$120,000}{\$24} = \frac{\$480,000}{\$24} = 20,000 \text{ units}$$
Marking scheme
1 mark for the correct answer of 20,000 units. Reject break-even volume of 15,000 units or volume calculated without variable selling costs.
Question 29 · multipleChoice
1 marks
A manufacturing company uses a predetermined overhead absorption rate based on direct labor hours.
The following budget and actual information is available for the last period:
- Budgeted overheads: $240,000 - Budgeted direct labor hours: 40,000 hours - Actual overheads incurred: $258,000 - Actual direct labor hours worked: 41,500 hours
What was the under- or over-absorption of overheads?
A.$9,000 over-absorbed
B.$9,000 under-absorbed
C.$18,000 over-absorbed
D.$18,000 under-absorbed
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Worked solution
First, calculate the predetermined overhead absorption rate (OAR): $$\text{OAR} = \frac{\text{Budgeted overheads}}{\text{Budgeted direct labor hours}} = \frac{\$240,000}{40,000 \text{ hours}} = \$6.00 \text{ per direct labor hour}$$
Finally, compare the absorbed overheads with actual overheads incurred: $$\text{Overheads under-absorbed} = \text{Actual overheads incurred} - \text{Absorbed Overheads}$$ $$\text{Overheads under-absorbed} = \$258,000 - \$249,000 = \$9,000$$
Marking scheme
1 mark for the correct under-absorbed overhead amount of $9,000. Reject over-absorbed option and options based on direct budget comparisons.
Question 30 · multipleChoice
1 marks
Xavier and Yasmin are in partnership sharing profits and losses in the ratio 3:2.
The partnership agreement provides for: - Interest on capital at 5% per annum - Partner salary for Yasmin of $12,000 per annum
At 1 January 2023, the capital account balances were: - Xavier: $80,000 - Yasmin: $60,000
During the year ended 31 December 2023, the profit for the year was $75,000.
What was Yasmin’s total share of the profit (including salary and interest on capital) for the year?
A.$22,400
B.$30,000
C.$37,400
D.$42,200
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Worked solution
First, calculate the interest on capital for each partner: - Xavier: $$80,000 \times 5\% = $4,000$ - Yasmin: $$60,000 \times 5\% = $3,000$ - Total Interest on Capital: $$7,000$
Next, calculate the residual profit to be shared according to the profit sharing ratio: $$\text{Residual Profit} = \text{Profit for the year} - \text{Total Interest on Capital} - \text{Yasmin's salary}$$ $$\text{Residual Profit} = \$75,000 - \$7,000 - \$12,000 = \$56,000$$
Finally, calculate Yasmin's total share of the profit: $$\text{Yasmin's Total Share} = \text{Interest on capital} + \text{Salary} + \text{Share of residual profit}$$ $$\text{Yasmin's Total Share} = \$3,000 + \$12,000 + \$22,400 = \$37,400$$
Marking scheme
1 mark for the correct answer of $37,400. Reject options that include only residual profit share or make errors in the allocation of partner salary.
Paper 21 (AS Level Structured)
Answer all questions. Show your workings. Present financial statements in good style.
4 Question · 90 marks
Question 1 · structuredQuestion
22.5 marks
Fiona is a sole trader who prepared the following trial balance on 31 December 2023. Revenue: $180,000; Purchases: $95,000; Inventory at 1 January 2023: $12,000; Trade receivables: $24,000; Provision for doubtful debts (1 January 2023): $800; Equipment (at cost): $50,000; Motor Vehicles (at cost): $30,000; Accumulated depreciation (1 January 2023) - Equipment: $15,000; Motor Vehicles: $12,000; Administrative expenses: $22,400; Distribution costs: $14,500; Drawings: $18,000. Additional information: (1) Inventory at 31 December 2023 was valued at $14,500. This included some damaged items costing $1,200 which can be repaired for $300 and then sold for $1,100. (2) A trade debt of $1,000 is to be written off. The provision for doubtful debts is to be adjusted to 5% of remaining trade receivables. (3) Depreciation is to be charged as follows: Equipment at 10% per annum on cost; Motor vehicles at 20% per annum using the reducing balance method. (4) Fiona had taken goods costing $1,500 for her personal use. No entry had been made in the books. (5) Administrative expenses include a prepayment of $600. Distribution costs accrued were $400. Required: (a) Calculate the cost of sales for the year ended 31 December 2023. (b) Prepare the Income Statement for the year ended 31 December 2023. (c) State two differences between capital expenditure and revenue expenditure.
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Worked solution
(a) Cost of Sales: Opening Inventory $12,000 + Adjusted Purchases ($95,000 - $1,500 drawings = $93,500) - Adjusted Closing Inventory ($14,500 - $1,200 cost + $800 NRV = $14,100) = $91,400. (b) Fiona - Income Statement for the year ended 31 December 2023: Revenue $180,000. Cost of sales ($91,400). Gross profit $88,600. Expenses: Administrative expenses ($22,400 - $600) = $21,800; Distribution costs ($14,500 + $400) = $14,900; Bad debts written off $1,000; Increase in provision for doubtful debts ($1,150 - $800) = $350; Depreciation - Equipment (10% * $50,000) = $5,000; Depreciation - Motor vehicles (20% * ($30,000 - $12,000)) = $3,600. Total expenses = $46,650. Profit for the year = $88,600 - $46,650 = $41,950. (c) Capital expenditure is spent on acquiring or improving non-current assets and is recorded in the Statement of Financial Position, whereas revenue expenditure is incurred on day-to-day running expenses of the business and is recorded in the Income Statement.
Marking scheme
(a) Opening inventory $12,000 (1). Adjusted purchases $93,500 (1). Adjusted closing inventory $14,100 (1). Cost of sales $91,400 (1). Total 4 marks. (b) Revenue $180,000 (1). Cost of Sales $91,400 (1 OF). Gross Profit $88,600 (1 OF). Administrative expenses $21,800 (1). Distribution costs $14,900 (1). Bad debts $1,000 (1). Provision for doubtful debts increase $350 (2). Depreciation Equipment $5,000 (2). Depreciation Motor vehicles $3,600 (2). Profit for the year $41,950 (2 OF). Total 14 marks. (c) Difference 1: Definition of Capital vs Revenue expenditure (2.5 marks). Difference 2: Statement of Financial Position vs Income Statement presentation (2 marks). Total 4.5 marks.
Question 2 · structuredQuestion
22.5 marks
The equity balances of Zenith PLC on 1 January 2023 were: Ordinary shares of $0.50 each: $300,000; Share premium: $60,000; Retained earnings: $140,000; General reserve: $30,000. During the year ended 31 December 2023, the following transactions took place: (1) On 1 March 2023, a final dividend for the year ended 31 December 2022 of $0.04 per share was paid. (2) On 1 June 2023, the company made a rights issue of 1 share for every 4 shares held at a price of $0.80 per share. The issue was fully subscribed. (3) On 1 September 2023, an interim dividend of $0.02 per share was paid on all shares in issue. (4) On 15 November 2023, a bonus issue of 1 share for every 5 shares held was made, utilizing the share premium account to its maximum capacity. (5) The profit for the year ended 31 December 2023 was $85,000. (6) On 31 December 2023, the directors transferred $20,000 to the general reserve. Required: (a) Prepare the Statement of Changes in Equity for the year ended 31 December 2023. (b) State the purpose of the share premium account and list two ways it can be used. (c) Explain the difference between an interim dividend and a final dividend.
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Worked solution
(a) Zenith PLC - Statement of Changes in Equity for the year ended 31 December 2023. Balances at 1 Jan 2023: Ordinary Shares $300,000, Share Premium $60,000, General Reserve $30,000, Retained Earnings $140,000, Total $530,000. Final Dividend: Retained Earnings ($24,000), Total ($24,000). Rights Issue: Ordinary Shares $75,000, Share Premium $45,000, Total $120,000. Interim Dividend: Retained Earnings ($15,000), Total ($15,000). Bonus Issue: Ordinary Shares $75,000, Share Premium ($75,000), Total $0. Profit for the year: Retained Earnings $85,000, Total $85,000. Transfer to Reserve: General Reserve $20,000, Retained Earnings ($20,000), Total $0. Balances at 31 Dec 2023: Ordinary Shares $450,000, Share Premium $30,000, General Reserve $50,000, Retained Earnings $166,000, Total $696,000. (b) The share premium account is a non-distributable reserve representing the excess premium paid over nominal value of shares. Uses: to fund a bonus issue of shares, or to write off preliminary/formation expenses. (c) An interim dividend is declared and paid by directors during the financial year before the annual profit is finalized. A final dividend is proposed by the directors after the financial year-end and must be approved by the shareholders at the Annual General Meeting (AGM) before payment.
Marking scheme
(a) 14 marks: Initial balances (1). Final dividend payment calculated correctly as $24,000 (2). Rights issue shares $75,000 and premium $45,000 (2). Interim dividend calculated as $15,000 (2). Bonus issue shares $75,000 and premium debit $75,000 (2). Profit for the year $85,000 (1). General reserve transfer (1). Columns and totals correctly reconciled (3). (b) Purpose definition (2 marks). Two uses listed (2 marks). Total 4 marks. (c) Explanation of interim dividend (2 marks). Explanation of final dividend and requirement of AGM shareholder approval (2.5 marks). Total 4.5 marks.
Question 3 · structuredQuestion
22.5 marks
Marcus runs a wholesaling business. On 31 March 2024, his Sales Ledger Control Account balance was $42,500, but the total of the list of balances in the sales ledger was $39,850. The following errors were later discovered: (1) The sales day book had been undercast by $1,200. (2) A customer, Brenda, returned goods with a selling price of $450. This had been correctly entered in the sales ledger but recorded as $540 in the sales returns journal. (3) No entry had been made in the control account for a contra entry of $850 with the purchases ledger. The sales ledger entry had been correctly completed. (4) A credit sale of $620 to Arthur had been entered in his individual account as $260. The sales day book was correct. (5) A bad debt of $380 had been written off in the sales ledger but no entry had been made in the control account. (6) An invoice for $900 sent to a customer had been entirely omitted from the books. (7) A credit sale of $2,350 to a customer had been correctly recorded in the sales journal but omitted from the customer's individual ledger account. Required: (a) Prepare the corrected Sales Ledger Control Account for the month ended 31 March 2024, starting with the uncorrected balance of $42,500. (b) Prepare a statement reconciling the total of the list of personal balances in the sales ledger with the corrected Sales Ledger Control Account balance. (c) State three benefits of maintaining control accounts.
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Worked solution
(a) Sales Ledger Control Account: Debit Side: Balance b/d $42,500; Sales day book undercast $1,200; Sales returns overstatement error correction ($540 - $450) $90; Omitted sales invoice $900. Credit Side: Contra entry $850; Bad debts written off $380; Balance c/d $43,460. Total Debits: $44,690, Total Credits: $44,690. (b) Statement of Reconciliation: Total of original list of balances: $39,850. Add: Understated credit sale to Arthur ($620 - $260) $360; Omitted invoice $900; Omitted customer debit entry $2,350. Corrected total of list of balances: $43,460. (c) Benefits: (1) Helps to detect errors and fraud quickly. (2) Provides a summary of total trade receivables for the Statement of Financial Position. (3) Acts as an independent check on the accuracy of the subsidiary books.
Marking scheme
(a) Correct initial balance $42,500 (1). Undercast correction $1,200 (2). Returns error correction $90 (2). Contra entry $850 (1). Bad debts $380 (1). Omitted invoice $900 (2). Balance c/d $43,460 (1 OF). Total 10 marks. (b) Original total $39,850 (1). Arthur correction $360 (2). Omitted invoice $900 (2). Omitted debit entry $2,350 (2). Reconciled total $43,460 (1 OF). Total 8 marks. (c) Three benefits (1.5 marks each for 4.5 marks).
Question 4 · structuredQuestion
22.5 marks
Vanguard Ltd manufactures a single product, the 'Sigma'. The following budgeted information is available: Selling price per unit: $40; Direct materials per unit: $12; Direct labour per unit (2 hours @ $6 per hour): $12; Variable overheads per unit: $4; Total budgeted fixed overheads per year: $120,000; Budgeted production and sales: 15,000 units. Required: (a) Calculate: (i) The contribution per unit. (ii) The break-even point in units. (iii) The margin of safety as a percentage of budgeted sales. (iv) The profit for the year. (b) The company has received a one-off special order for 3,000 units from an overseas customer. The customer has offered to pay $32 per unit. Additional variable selling costs of $2 per unit would be incurred for this order. There is sufficient spare capacity to fulfill this order, and regular sales will not be affected. (i) Calculate the net financial effect on profit if this special order is accepted. (ii) Advise the directors whether they should accept this order, considering both financial and non-financial factors.
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Worked solution
(a)(i) Contribution per unit = Selling price - Variable costs = $40 - ($12 + $12 + $4) = $12. (ii) Break-even point = Fixed overheads / Contribution per unit = $120,000 / $12 = 10,000 units. (iii) Margin of safety (units) = Budgeted sales - Break-even units = 15,000 - 10,000 = 5,000 units. Margin of safety % = (5,000 / 15,000) * 100% = 33.33%. (iv) Profit = Total contribution - Fixed overheads = (15,000 * $12) - $120,000 = $180,000 - $120,000 = $60,000. (b)(i) Special order analysis: Selling price per unit: $32. Variable cost per unit: Materials ($12) + Labour ($12) + Variable overhead ($4) + Special selling cost ($2) = $30. Contribution per unit of special order = $32 - $30 = $2. Net profit effect = 3,000 units * $2 = $6,000 increase in profit. (b)(ii) Financial advice: The special order generates a positive contribution of $2 per unit, leading to a total increase in profit of $6,000. It covers its variable costs and makes a contribution to fixed overheads. Non-financial advice: Benefits: utilizes spare capacity, potential to establish a foothold in overseas markets. Risks: regular domestic customers might demand a similar discount if they find out; could lead to labor issues if capacity limits are tested or overtime required. Conclusion: Recommend accepting the order because it is profitable and utilises spare capacity, provided that the domestic market can be segmented to protect normal pricing.
Marking scheme
(a)(i) Contribution $12 (2). (ii) Break-even 10,000 units (2). (iii) Margin of safety 33.33% (3). (iv) Profit $60,000 (3). Total 10 marks. (b)(i) Revenue from order $96,000 (1). Variable production costs $84,000 (1). Variable selling costs $6,000 (1). Contribution of $2 per unit (1). Net financial gain of $6,000 (1 OF). Total 5 marks. (b)(ii) Financial benefits discussed (2). Non-financial benefits discussed (2). Non-financial risks discussed (2.5). Final decision/justification (1). Total 7.5 marks.
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