Cambridge AS & A Level Accounting 9706/12 (Feb/Mar 2024): Full MCQs with Answers & Reasons

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Full 9706/12 (Feb/Mar 2024) Accounting MCQs—complete questions, options & tables, with correct answers in bold and clear reasons.

1) Which statement about sole traders is correct?

  • A. They always trade by buying and selling goods.

  • B. They do not employ any staff.

  • C. They keep all their profit themselves.

  • D. They maintain a retained earnings account.
    Reason: A sole trader’s profit belongs to the owner (before personal taxes); they may employ staff and do not keep a corporate “retained earnings” account.

2) Which source of finance would be available to a public limited company but not to a partnership?

  • A. bank overdraft

  • B. debentures

  • C. leasing

  • D. trade credit
    Reason: Partnerships can borrow and lease but do not issue debentures; companies can.

3) Which items will be debited to accounts in the purchases ledger?

  1. discount allowed 2. payments to suppliers 3. purchases 4. purchases returns

  • A. 1 and 2

  • B. 1 and 4

  • C. 2 and 3

  • D. 2 and 4
    Reason: Payables (suppliers) are debited for payments and returns (reducing the amount owed).

4) Tom bought goods costing $100 on credit from Sam. He returned goods costing $20 as faulty. He deducted a cash discount and paid $76 by cheque in full settlement. Which amounts were recorded in Tom’s books of prime entry?

three-column cash book (bank) $ purchases returns journal $ purchases journal $
76 20 100

Correct option: C. 76 | 20 | 100
Reason: Purchases $100; return $20 → balance $80; cash paid $76 with $4 discount taken.

5) What are the characteristics of non-current assets?

  1. not intended for resale 2. provide future economic benefits 3. prevent business failure

  • A. 1 and 2 only

  • B. 1 and 3 only

  • C. 2 and 3 only

  • D. 1, 2 and 3
    Reason: They’re held for use and future benefit; they do not guarantee business survival.

6) A $34 000 motor vehicle bought on 1 Jan was (in error) recorded as motor expenses. Depreciation is 30% reducing balance. What is the effect on profit if not corrected?

  • A. $10 200 overstated

  • B. $23 800 understated

  • C. $25 000 understated

  • D. $34 000 understated
    Reason: Correct charge is depreciation only: 30% × $34 000 = $10 200. Expensing $34 000 understates profit by $34 000 − $10 200 = $23 800.

7) A machine bought 1 Apr 2021 for $25 000 is depreciated straight-line at 20%. A full year is charged in the year of purchase and none in the year of sale. It was sold 30 Jun 2023 for $12 500 (year end 31 Dec). What is the profit or loss on disposal?

  • A. $1250 loss

  • B. $1250 profit

  • C. $2500 loss

  • D. $2500 profit
    Reason: Dep’n 2021 = 5,000; 2022 = 5,000; 2023 = none. NBV at sale = 25,000 − 10,000 = 15,000; proceeds 12,500 → $2,500 loss.

8) Which error will cause a trial balance not to balance?

  • A. an invoice entered as a credit note on original input

  • B. a journal entry that does not balance

  • C. a transaction entered as the wrong amount on original input

  • D. a transaction not entered in the books of account
    Reason: Only an unequal journal breaks the equality of debits and credits.

9) A business prepared a trial balance that included a suspense account. Draft financial statements showed a profit for the year of $85 000. Errors found: (1) discounts allowed $1000 debited to discounts received; (2) $4000 motoring expenses debited to purchases; (3) a $5000 cash purchase correctly entered in the cash book but credited to drawings. After correcting these, the suspense balance was eliminated. What was the revised profit for the year?

  • A. $76 000

  • B. $78 000

  • C. $80 000

  • D. $82 000
    Reason: (1) and (2) are reclassifications → no net profit effect. (3) purchase omitted from purchases ⇒ profit overstated by $5000. Correct profit = 85,000 − 5,000 = 80,000.

10) Amit compared his bank statement with his cash book, updated the cash book, then prepared a bank reconciliation statement. Why was the bank reconciliation statement prepared?

  • A. To explain timing differences and bank errors after updating the cash book for bank charges.

  • B. To explain timing differences and bank charges after updating the cash book for bank errors.

  • C. To explain bank charges after updating the cash book for timing differences and bank errors.

  • D. To explain bank charges and bank errors after updating the cash book for timing differences.
    Reason: The reconciliation explains timing differences and bank errors; the cash book update handles items like bank charges.

11) A bank statement shows a credit balance of $1570 at 31 Dec. Differences: unpresented cheques $1250; uncredited bankings $1800; a $230 direct debit is shown as $320 in the cash book. What is the updated cash book balance?

  • A. $930

  • B. $1020

  • C. $2030

  • D. $2120
    Reason: From statement (overdraft) −1570: adjust −1250 (unpresented) and +1800 (uncredited) ⇒ −1020; cash book overstated payment by $90 → add back $90 ⇒ $930 overdraft.

12) What are the benefits of preparing a sales ledger control account?

  1. detecting errors of original entry 2. reduce possibility of fraud 3. provide totals for financial statements

  • A. 1, 2 and 3

  • B. 1 and 2 only

  • C. 1 and 3 only

  • D. 2 and 3 only
    Reason: Control accounts give totals and improve control/segregation of duties; they don’t fix source-document (original entry) errors.

13) Purchases ledger control account showed $15 960. Discovered: (1) discounts received $450 entered as $540; (2) a payment $720 not entered in a supplier’s account; (3) debit balances $110 omitted from the control; (4) contra $170 made in the ledger but not in the control. What is the correct total of trade payables?

  • A. $15 050

  • B. $15 240

  • C. $15 990

  • D. $16 150
    Reason: Correct the misposted discount (+$90 to payables), include debit balances (−$110) and contra (−$170); the unentered supplier payment affects the list, not the control. Net = $15 990.

14) Deepak’s allowance for irrecoverable debts was $600 at 3% at end of year 1 and $800 at 5% at end of year 2. By how much did total trade receivables change?

  • A. $4000 decrease

  • B. $4000 increase

  • C. $10 000 decrease

  • D. $10 000 increase
    Reason: TR₁ = 600 ÷ 3% = 20,000; TR₂ = 800 ÷ 5% = 16,000 ⇒ decrease $4,000.

15) A sole trader had opening capital $50 000. A vehicle was introduced at an agreed value of $16 000. Drawings were $20 000 and closing capital was $105 000. What was the profit for the year?

  • A. $39 000

  • B. $53 000

  • C. $59 000

  • D. $75 000
    Reason: Closing = Opening + Profit + Introduced − Drawings ⇒ Profit = 105,000 − 50,000 − 16,000 + 20,000 = 59,000.

16) Which provision of the Partnership Act 1890 applies when there is no partnership agreement?

  • A. Partners receive 5% interest on capital.

  • B. Partners are charged 5% interest on drawings.

  • C. Partners receive 5% interest on loans to the partnership.

  • D. Partners are entitled to equal salaries.
    Reason: By default, interest at 5% is allowed on partners’ loans; salaries and interest on capital require agreement.

17) A company uses a revenue reserve to make a bonus (scrip) issue. Which accounts are used?

  • A. credit share capital; debit general reserve

  • B. debit share capital; credit general reserve

  • C. credit retained earnings; debit share capital

  • D. credit share premium; debit share capital
    Reason: Bonus issues capitalise a revenue reserve (e.g., general reserve) into share capital.

18) Issued share capital: 400 000 $1 ordinary shares. A 1-for-5 bonus issue is followed by a 1-for-3 rights issue (fully taken). What is the balance on the share capital account after both?

  • A. $480 000

  • B. $533 333

  • C. $613 333

  • D. $640 000
    Reason: Bonus +80k → 480k; Rights 1-for-3 on 480k → +160k ⇒ 640k shares ($1 each).

19) Trial balance at 31 Dec (end Year 1): Ordinary share capital $800 000 (50c shares); Share premium $200 000; Retained earnings $1 000 000. On 1 Jan Year 2: 400 000 rights issued at a $0.70 premium; on 1 Jul Year 2: 1-for-4 bonus. Policy: keep reserves in the most flexible form. What is the share premium after these?

  • A. $230 000

  • B. $330 000

  • C. $355 000

  • D. $480 000
    Reason: Rights premium: 400k × $0.70 = +$280k ⇒ $480k. Bonus (500k × $0.50) is charged to the least flexible reserve first, so share premium −$250k ⇒ $230k.

20) Jim (a manager and small shareholder) checked the latest financial statements. Why?

  • A. to discover his department’s profit for a bonus

  • B. to find out if the company made a profit, making his job more secure

  • C. to know if dividends will increase over the next five years

  • D. to see if reputation will increase share value
    Reason: As an employee/shareholder, short-term profitability links to job security.

21) H Ltd data:

Year 1 Year 2
average inventory 65 000 100 000
credit purchases 760 000 910 000
cost of sales 750 000 850 000

Which statement regarding inventory turnover efficiency is correct?

  • A. Year 2 is better because average inventory is higher.

  • B. Year 2 is better because inventory turnover (in days) is higher.

  • C. Year 2 is worse because cost of sales is higher.

  • D. Year 2 is worse because the inventory turnover (in days) is higher.
    Reason: Inventory days ≈ 31.7 (Y1) vs ≈ 42.9 (Y2). More days = slower turnover = worse.

22) Which expense may be classified as a stepped cost?

  • A. direct labour

  • B. direct materials

  • C. factory rent

  • D. telephone
    Reason: Many rents jump at capacity thresholds (e.g., leasing another unit), a classic step-fixed pattern.

23) Which statements describe JIT inventory management?

  1. increases admin costs as more suppliers are required

  2. minimises inventory to increase efficiency

  3. hold only enough to meet maximum demand

  4. benefits cash flow and reduces capital tied up

  • A. 1 and 2

  • C. 2, 3 and 4

  • B. 1, 3 and 4

  • D. 3 and 4 only
    Reason: JIT focuses on very low buffer stocks, lean flow, and better cash; (1) isn’t inherent.

24) A batch of soft drinks: materials $10 000 for 50 000 cans; 60 direct labour hours @ $40/h; overhead absorbed at 250% of direct labour cost. What is the cost per can (nearest $)?

  • A. $0.20

  • B. $0.37

  • C. $0.44

  • D. $1.04
    Reason: Labour $2,400; OH 250% = $6,000; total conversion $8,400; + materials $10,000 = $18,400; / 50,000 ≈ $0.37.

25) What is an advantage of absorption costing?

  • A. It helps to determine a product’s selling price.

  • B. It is used to improve operational efficiency.

  • C. It makes it easy to analyse costs at different production levels.

  • D. It takes into account only variable costs.
    Reason: It includes fixed production overhead in unit cost, often used in pricing for full cost recovery.

26) Forecast for next month:

Units / $
Opening inventory 20 300 units
Closing inventory 22 500 units
Marginal profit $90 600
Absorption profit $100 400

What is the overhead absorption rate per unit?

  • A. $4.03

  • B. $4.45

  • C. $4.46

  • D. $4.95
    Reason: Absorption − Marginal profit = 9,800 = OAR × (22,500 − 20,300 = 2,200) ⇒ OAR ≈ $4.45.

27) X Ltd budgeted overheads $125 000 and set an OAR of $5 per machine hour. In July the overheads were under-absorbed by $1000. Which changes caused this?

  • A. machine hours 100 less; overheads $500 higher

  • B. machine hours 100 more; overheads $500 lower

  • C. machine hours 50 more; overheads $750 higher

  • D. machine hours 50 less; overheads $750 lower
    Reason: Under-absorption = (Actual OH − Absorbed OH). +$500 actual + (−100 × $5 = −$500 absorbed) ⇒ +$1000 under-absorption.

28) Which changes result in a decrease in the margin of safety?

  • A. total fixed costs ↓; unit variable cost ↓

  • B. total fixed costs ↑; unit variable cost ↓

  • C. total fixed costs ↓; unit variable cost ↑

  • D. total fixed costs ↑; unit variable cost ↑
    Reason: Higher fixed and higher variable costs push BEP up and shrink the safety margin.

29) Per unit: selling price $25; variable cost $10. Fixed costs $72 000. If fixed costs increase by 33%, how much does break-even sales value increase?

  • B. $40 000

  • C. $53 333

  • D. $60 000

  • A. $38 400
    Reason: Contribution ratio = 15/25 = 0.6. Treat 33% as one-third: ΔFC = $24 000 ⇒ ΔBE sales = 24,000 / 0.6 = $40,000.

30) Which statements about cost–volume–profit (CVP) analysis are correct?

  1. Fixed costs remain constant for a range of activity.

  2. Profits are calculated on an absorption costing basis.

  3. Sales revenue increases in direct proportion to output.

  4. There is only one product or a constant sales mix.

  • A. 1, 2, 3 and 4

  • B. 1 and 2 only

  • C. 1, 3 and 4 only

  • D. 2, 3 and 4 only
    Reason: CVP assumes constant price, fixed costs over a relevant range, and single product/constant mix; it uses marginal (not absorption) logic.