1

(c) State one advantage and one disadvantage of using the following methods of inventory For
valuation: Examiner's
Use

(i) FIFO

[2]

(ii) AVCO.

[2]

(d) Brahms currently uses FIFO to value his inventory. He is considering changing the
method to show a lower profit each year. State two reasons why he should not do this.
Make reference to any relevant accounting principles, concepts and conventions.

[4]

© UCLES 2013 9706/23/M/J/13 [Turn over

 2

(d) Explain the following concepts:

(i) Matching

[3]

(ii) Materiality

[3]

[Total: 30]

© UCLES 2014 9706/21/M/J/14

 3

Additional information

SMC is considering changing the depreciation method for equipment to reducing balance
method.

REQUIRED

(c) (i) State an accounting concept which is applied when depreciation is provided.

[1]

(ii) Explain the possible reasons why the business is considering this change.

[7]

[Total 30]

© UCLES 2014 9706/22/M/J/14 [Turn over

 4

(d) State and explain two accounting concepts that apply to depreciation.

[4]

(e) State why the reducing balance method of depreciation is more appropriate for non-current
assets like motor vehicles.

[4]

[Total: 30]

© UCLES 2015 9706/23/O/N/15 [Turn over

 5

REQUIRED

(c) Calculate the depreciation charge for the year ended 30 June 2015 in respect of the plant
and machinery.

[3]

(d) Calculate the rate of depreciation used by Annette for motor vehicles.

[4]

Additional information:

Annette is thinking of changing the method of depreciation each year in order to show the highest
profit possible.

REQUIRED

(e) Advise Annette whether or not she should do this, giving two reasons for your answer.

[3]

[Total: 15]
© UCLES 2014 9706/02/SP/16 [Turn over
 6

[4]

(b) Explain two accounting concepts which are being applied when depreciation is provided.

[4]

Additional information

K Limited is considering purchasing additional plant and equipment costing $30 000. This could
be financed by one of the following:

Bank loan
Issue of ordinary shares

REQUIRED

(c) Advise the directors which method of finance they should choose. Justify your answer.

[5]

[Total: 15]

© UCLES 2017 9706/22/O/N/17 [Turn over

 7

(b) Analyse the effect on the profit for the year ended 31 December 2016 if FA Limited had
always used the straight-line method of depreciation at 20% per annum. Show your
workings.

[5]

(c) Explain two accounting concepts that apply to making the annual charge for depreciation.

[4]

[Total: 15]

© UCLES 2018 9706/21/M/J/18

 8

(d) Explain one fundamental accounting concept relating to depreciation.

[2]

[Total: 15]

© UCLES 2018 9706/22/M/J/18

 9

2 A business depreciates its non-current assets.

REQUIRED

(a) Explain why a business should comply with the following concepts when accounting for
non-current assets.

Prudence

Accruals (matching)

[4]

Additional information

T Limited prepares accounts to 30 June.

The following balances are available at 30 June 2017:

$
Plant and machinery at cost 174 300
Provision for depreciation 48 700

On 1 July 2017 the company disposed of a machine which had a net book value of $20 000. The
machine had been purchased on 1 July 2015.

On 1 October 2017 a new machine was purchased for $68 600 paid by cheque.

The company depreciates plant and machinery at 20% using the reducing balance method
calculated on a month-by-month basis. No depreciation is charged in the year of disposal.

© UCLES 2018 9706/21/O/N/18

 10

(c) Prepare the provision for doubtful debts account for the year ended 31 December 2018. Dates
are required.

[2]

(d) Explain one accounting concept which is applied when making a provision for doubtful debts.

[2]

Additional information
Sofia is considering changing the basis of the provision for doubtful debts to a general provision
of 2.5% on all trade receivables.
She has calculated her profit for the year ended 31 December 2018 as $4300 after writing off
Dixie’s debt but before making any adjustment for the provision for doubtful debts.

REQUIRED
(e) Describe how this change will affect Sofia’s profit. Support your answer with relevant
calculations.

[5]

[Total: 15]

© UCLES 2019 9706/22/M/J/19

 11

(e) Explain the accounting concepts of:

(i) business entity

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
[2]

(ii) substance over form.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
[2]

© UCLES 2020 9706/22/M/J/20

 12

Additional information

Daniel had created a provision for doubtful debts of $672 on 31 December 2018. At this date trade
receivables appeared on the statement on financial position with a net value of $16 128.

At 31 December 2019 Daniel decided to maintain the provision for doubtful debts at the same rate
as in the previous year. Total trade receivables at 31 December 2019 were $15 300 before making
any adjustment for provision for doubtful debts.

REQUIRED

(d) Calculate the increase or decrease in the provision for doubtful debts at 31 December 2019.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [5]

(e) State two accounting concepts which are applied when creating a provision for doubtful
debts.

1 ................................................................................................................................................

2 ................................................................................................................................................
[2]

(f) State two factors that a business could consider when setting a rate for provision for doubtful
debts.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 15]

© UCLES 2020 9706/23/M/J/20

 13

2 Khalid runs a business. His non-current assets with a total value of $200 000 consist of a motor
vehicle and a machine with a life expectancy of 5 years. He anticipates that the machine will make
products at a steady rate during that period.

REQUIRED

(a) State three methods of depreciation which may be used by a business.

1 ................................................................................................................................................

2 ................................................................................................................................................

3 ................................................................................................................................................
[3]

(b) Advise Khalid which method of depreciation he should use for each asset. Justify your advice.

Motor vehicle ............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Machine ....................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [6]

(c) State which accounting concept Khalid did not apply in each of the following scenarios.

Scenario Concept
Khalid used the business bank
account to pay for a deposit for a
family holiday. This was treated as
a business expense.
A stapler for $10 paid by Khalid
out of the business bank account
was added to the business office
equipment account balance.
Khalid became aware that a
customer owing $1500 was
bankrupt. He took no action when
preparing the financial statements.
[3]

© UCLES 2020 9706/22/O/N/20

 14

1 Suyin owns a small retail business. She has not maintained full accounting records.

REQUIRED

(a) State two reasons why the owner of a small business may decide not to maintain full
accounting records.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

Additional information

Suyin has been informed that the accounting concepts of matching and prudence must be followed
when preparing financial statements.

REQUIRED

(b) Explain how these accounting concepts are applied when a business prepares financial
statements.

Matching

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Prudence

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

© UCLES 2021 9706/21/M/J/21

 15

1 Adam owns a retail business. He is aware that he must follow certain accounting concepts when
preparing his business’s financial statements.

REQUIRED

(a) Explain how each of the following concepts is applied when preparing a business’s financial
statements.

(i) Consistency

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) Realisation

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

(iii) Materiality

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

© UCLES 2021 9706/23/M/J/21

 16

2 Rakesh prepared his business’s end of year financial statements on 30 September 2021.

REQUIRED

(a) Define the following accounting concepts. Give one example of each.

(i) Matching

Definition ...........................................................................................................................

...........................................................................................................................................

Example ............................................................................................................................

...........................................................................................................................................
[2]

(ii) Going concern

Definition ...........................................................................................................................

...........................................................................................................................................

Example ............................................................................................................................

...........................................................................................................................................
[2]

(iii) Materiality

Definition ...........................................................................................................................

...........................................................................................................................................

Example ............................................................................................................................

...........................................................................................................................................
[2]

© UCLES 2022 9706/23/M/J/22 [Turn over

 17

(b) State one reason why non-current assets are depreciated, with reference to an appropriate
accounting concept.

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(c) Explain one difference between capital expenditure and revenue expenditure.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(d) State one example of a:

(i) capital receipt

..................................................................................................................................... [1]

(ii) revenue receipt

..................................................................................................................................... [1]

[Total: 15]

© UCLES 2022 9706/21/O/N/22

 18

(f) Explain two differences between capital reserves and revenue reserves.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

(g) Explain one accounting concept applied when making a provision for doubtful debts.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

[Total: 30]

© UCLES 2022 9706/22/O/N/22

 19

(f) State two causes of depreciation of non-current assets.

1 ................................................................................................................................................

2 ................................................................................................................................................
[2]

(g) Explain, with reference to an accounting concept in each case, why:

(i) a business should make a provision for depreciation of non-current assets

Accounting concept

...........................................................................................................................................

Explanation

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

(ii) a business should make an adjustment for damaged inventory.

Accounting concept

...........................................................................................................................................

Explanation

...........................................................................................................................................

...........................................................................................................................................

..................................................................................................................................... [2]

© UCLES 2022 9706/23/O/N/22 [Turn over

 20

1 Hamza owns a retail business with a financial year end of 31 December.

On 31 December 2022 inventory was valued at $15 330. However, this figure included 30 damaged
items which had a cost price of $32 each. Of the damaged items, 23 will be scrapped with no
value. The remaining 7 items will require repairs costing a total of $126 before being sold at the
normal price of $48 each.

REQUIRED

(a) Explain, with reference to an accounting concept, how damaged inventory should be valued.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(b) Calculate the corrected valuation of inventory at 31 December 2022.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [4]

© UCLES 2023 9706/23/M/J/23

 21

(b) Prepare journal entries to correct the errors. Narratives are not required.

Journal

Debit Credit
$ $

[8]

(c) State what is meant by an error of principle. Support your answer with one example.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(d) Explain, with reference to an accounting concept, why Sana needs to make an entry for
goods taken for own use.

Accounting concept ..................................................................................................................

Explanation ...............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[3]

[Total: 15]

© UCLES 2024 9706/21/M/J/24 [Turn over

 22

Zahid
Statement of profit or loss for the year ended 31 December 2023 (extract)

Gross profit ............................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[12]

(d) Explain, with reference to an accounting concept, why Zahid made adjustments to his income
and expenses when preparing the statement of profit or loss.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [3]

© UCLES 2024 9706/22/M/J/24 [Turn over

 * 0019655310810 *

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23
,

 

,

3 Usman began selling goods on credit on 1 January 2021. He maintains an allowance for
irrecoverable debts at each financial year end.

(a) Explain two accounting concepts which are applied when making an allowance for
irrecoverable debts.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

DO NOT WRITE IN THIS MARGIN

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

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(b) State two factors which should be considered when deciding the percentage that should be
used for an allowance for irrecoverable debts.

1 ................................................................................................................................................

2 ................................................................................................................................................
[2]

Additional information

The following information is available about total trade receivables at the financial years ended
31 December:

DO NOT WRITE IN THIS MARGIN

$
2021 18 200
2022 17 300
2023 19 600

The allowance for irrecoverable debts has been maintained at 4% each year.
DO NOT WRITE IN THIS MARGIN

ĬÑĉ¯Ġ³íÇùÙđÝĢÜó¸Ď×
© UCLES 2024 ĬěĜãÂĥÆīÎùöĬāćđġ´Ă
ĥĥµÕµĕåÕąĥÅÕÕĕŵµÕ
9706/23/M/J/24
 * 0000800000005 *
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24
,










,

(b) Explain, with reference to an accounting concept, why adjustments 5, 6 and 11 on page 2
were to be made to the financial statements.

Adjustment
5 Goods for own use Concept
...........................................................................................

Explanation

.........................................................................................................
DO NOT WRITE IN THIS MARGIN

.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................

6 Irrecoverable debt Concept

...........................................................................................

Explanation
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.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................

11 Motor insurance Concept

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...........................................................................................

Explanation

.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................
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[6]

Ĭ×Ċ®Ġ´íÈõÏĪÅĊàú¸Ā×
© UCLES 2024 ĬåÓúÍĞĒĦëö÷ĐČĞĕêħĂ
ĥÅĥĕõµĥµĥµåÅąµĥĕåÕ
9706/22/O/N/24 [Turn over
 * 0000800000006 *

DO NOT WRITE IN THIS MARGIN

26
,










,

(c) Explain, with reference to an accounting concept, why Bilal:

(i) maintains an allowance for irrecoverable debts

concept ..............................................................................................................................

explanation ........................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

DO NOT WRITE IN THIS MARGIN

[2]

(ii) always uses the same method of depreciation for each class of non-current asset.

concept ..............................................................................................................................

explanation ........................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
[2]

DO NOT WRITE IN THIS MARGIN

Additional information

Bilal hopes to expand his business and to move to larger premises. He is considering the following
options.

Option A: Renting out the whole of the current business premises and taking out a lease on new
premises.

Option B: Selling the current business premises and using the proceeds to partly finance the
purchase of new premises. He is aware that he will also need a bank loan to finance the balance
of the purchase price of the new premises.

DO NOT WRITE IN THIS MARGIN

DO NOT WRITE IN THIS MARGIN

ĬÙĊ®Ġ´íÈõÏĪÅĊßûµþ×
© UCLES 2025 ĬīĕòØĬùĂ×ĂĂ×Ā¿æúćĂ
ĥĥĕÕµõĥÕĥĕąąÅĕåÕåÕ
9706/21/M/J/25