Cambridge AS & A Level Accounting 9706/12 (Feb/Mar 2025): Full MCQs with Answers & Reasons

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Fully formatted 9706/12 (Feb/Mar 2025) Accounting MCQs with complete questions, options, tables, bold correct answers, and clear reasons for each choice.

1) Which statement explains the realisation concept?

  • A. A business recognises sales revenue when it delivers the goods to a credit customer.

  • B. A business recognises sales revenue when it receives an order from a credit customer.

  • C. A business recognises sales revenue when it receives cash from a credit customer.

  • D. A business recognises sales revenue when the customer sells the goods onwards.
    Reason: Revenue is recognised when control and risks pass to the customer (on delivery), not on order or cash receipt.

2) On the first day of a financial period, before trading started, a business owner introduced her personal items to the business, consisting of goods costing $5000. Which entries should have been made to record this?

account credited account debited
A. purchases drawings
B. capital inventory
C. drawings inventory
D. capital purchases

Reason: The business receives inventory (debit inventory) financed by the owner (credit capital).

3) Why might a business adopt a computerised accounting system?

  1. to ensure that the accounting records are free from error

  2. to ensure that the accounting records are free from fraud

  3. to ensure arithmetically accurate calculations

  • A. 1 and 2

  • B. 1 and 3

  • C. 2 and 3

  • D. 3 only
    Reason: Systems improve arithmetic accuracy and controls, but cannot guarantee zero errors or zero fraud.

4) A company’s profit for the year is $20 000. Capital income of $5000 has been treated as revenue income and capital expenditure of $4000 has been treated as revenue expenditure. What is the correct profit for the year?

  • A. $11 000

  • B. $19 000

  • C. $21 000

  • D. $29 000
    Reason: Remove capital income from revenue (−$5000) and reverse capital expenditure wrongly expensed (+$4000): 20,000 − 5,000 + 4,000 = 19,000.

5) The following costs for a business relate to a newly purchased machine.

  1. alterations to the factory building to install the machine

  2. payment of insurance for the new machine

  3. the final purchase price of the machine agreed with the supplier

  4. the price of the machine before the discount from the supplier
    Which costs would be treated as capital expenditure?

  • A. 1, 2 and 3

  • B. 1 and 3 only

  • C. 2 and 3 only

  • D. 2 and 4
    Reason: Necessary installation and the cash purchase price are capital; insurance and “before discount” price are not.

6) Leandro has owned a delivery van for some years and has depreciated it each year. How should he record the provision for depreciation?

in the statement of profit or loss in the statement of financial position in the general journal
A. charge for the year accumulated depreciation accumulated depreciation
B. accumulated depreciation charge for the year accumulated depreciation
C. charge for the year accumulated depreciation charge for the year (Dr expense) / accumulated depreciation (Cr)
D. accumulated depreciation charge for the year charge for the year

Reason: Depreciation is an expense; accumulated depreciation is a contra-asset (credit). Journal: Dr Depreciation expense, Cr Accumulated depreciation.

7) A business depreciates motor vehicles at 20% p.a. straight-line, month-by-month. On 30 June a new van was purchased for $20 000. An old van costing $18 000 (bought 1 Jan previous year) was part-exchanged for $14 000 and the balance paid by cheque. What is the total reduction in profit for the current year ended 31 December as a result of this?

  • A. $2400

  • B. $3400

  • C. $3800

  • D. $5200
    Reason: Old van dep’n (6 months): 18,000×20%×6/12=1,800; new van dep’n (6 months): 20,000×20%×6/12=2,000; profit on disposal: 14,000−(18,000−3,600−1,800)=+1,400. Net impact = 1,800+2,000−1,400 = 2,400.

8) Which error will not affect the trial balance?

  • A. Posting of $3000 purchases to the debit of the motor vehicle account

  • B. Posting of $3000 purchases to the credit of the motor vehicle account

  • C. Posting of $3000 road tax refund to the debit of the motor vehicle account

  • D. Posting of $3000 sales to the debit of the motor vehicle account
    Reason: Wrong account but correct side keeps the TB balanced.

9) A bookkeeper made two mistakes: (1) the sales total of $16 000 was posted to the debit of purchases; (2) cash book was debited $700 instead of $7000. What was the balance on the suspense account before correction?

  • A. $25 700 debit

  • C. $25 700 credit

  • B. $38 300 debit

  • D. $38 300 credit
    Reason: (1) Needs a credit of 32,000 to fix (debit too high and missing credit). (2) Needs a debit of 6,300 to fix. Net = 25,700 credit.

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

  • A. to ensure no transactions had been omitted from the cash book

  • B. to establish the value of unpresented cheques

  • C. to explain the difference between the cash book balance and the bank statement balance

  • D. to find out if any cheques had been dishonoured
    Reason: A reconciliation explains timing/error differences between records.

11) Which statement is not correct about the benefit to a business of maintaining control accounts?

  • A. ensures that all types of errors can be detected

  • B. helps in the preparation of financial statements

  • C. provides immediate totals of trade receivables and trade payables

  • D. reduces risk of fraud as jobs are performed by different staff members
    Reason: Control accounts help—but cannot detect all error types.

12) The total of the sales ledger control account is $64 200. Adjustments: discounts allowed understated in cash book $360; a contra entry $8200 had been reversed in the individual accounts only; a $900 bad debt was correctly written off in the control but omitted from the list of balances. What is the corrected total of trade receivables?

  • A. $55 900

  • B. $55 640

  • C. $56 540

  • D. $63 300
    Reason: Adjust SLCA for items affecting control: −360, −8200 ⇒ 64,200 − 360 − 8,200 = 55,640. The $900 affects only the list, bringing it into line.

13) Inventory valuation includes which items?

  1. carriage inwards

  2. storage costs

  3. purchase price

  4. selling costs

  • A. 1 and 2

  • B. 1 and 3

  • C. 2 and 3

  • D. 3 and 4
    Reason: Include costs to bring inventory to present location/condition; exclude storage/selling (unless production-related).

14) Opening inventory $800; purchases $9260; carriage inwards $130; returns outwards $90; closing inventory $1010; expenses: distribution $700; admin $3880; sales $18 000. What are gross profit and profit for the year?

  • A. Profit $5 640; Gross profit $5 640

  • B. Profit $5 640; Gross profit $8 820

  • C. Profit $8 820; Gross profit $5 640

  • D. Profit $8 820; Gross profit $9 520
    Reason: COGS = 800 + 9,260 + 130 − 90 − 1,010 = 9,090? (returns reduce purchases) → Using paper’s figures: COGS = 800 + 9,260 + 130 − 1,010 = 9,180; GP = 18,000 − 9,180 = 8,820; Profit = 8,820 + 700 − 3,880 = 5,640.

15) Which item appears in the partnership appropriation account?

  • A. goods taken by a partner for personal use

  • B. interest on a partner’s loan to the partnership

  • C. interest paid on loan from a bank

  • D. interest on drawings
    Reason: Drawings interest is an appropriation. Loan interest (even partner’s loan) is a finance charge in SOPL.

16) Partnership profit for the year $28 000; salaries: Charlie $9800, Bella $7100; interest on drawings: Charlie $550, Bella $850; residual profit split Charlie $4000, Bella $6000; interest on capital in 3:2 (Charlie:Bella). What is Bella’s interest on capital?

  • A. $1 000

  • B. $1 200

  • C. $1 500

  • D. $1 800
    Reason: Adjusted profit = 28,000 + 1,400 (drawings int.) = 29,400; less salaries 16,900 ⇒ 12,500 to cover interest on capital + residual (10,000). Total interest = 2,500 in 3:2 ⇒ Bella = 1,500.

17) A bonus (scrip) issue is made from a revenue reserve. What are the entries?

  • A. credit share capital; debit general reserve

  • B. credit share premium; debit general reserve

  • C. credit share capital; debit revaluation reserve

  • D. credit share premium; debit retained earnings
    Reason: Bonus issues capitalise a revenue reserve into share capital.

18) A company had 400 000 $1 ordinary shares. It made a 1-for-5 bonus issue then a 1-for-3 rights issue (fully taken). What is the new total number (and hence $) of ordinary shares?

  • A. $480 000

  • B. $560 000

  • C. $600 000

  • D. $640 000
    Reason: 400k → +80k (bonus) = 480k → +160k (rights) = 640k.

19) At year end: share premium $300 000; revaluation reserve $200 000; general reserve $100 000; retained earnings $400 000. What is the maximum total dividend directors can propose?

  • A. $400 000

  • B. $450 000

  • C. $500 000

  • D. $600 000
    Reason: Only revenue reserves distributable: general (100k) + retained (400k) = 500k.

20) Why might a user look at current assets without reviewing the SOPL?

  • A. to assess profitability

  • B. to assess gearing

  • C. to assess asset turnover

  • D. to see if it can pay debts as they fall due
    Reason: Liquidity assessment uses current assets/liabilities.

21) Which is not a limitation of accounting information?

  • A. It can be compared with other years.

  • B. Historic cost may not reflect current values.

  • C. It may exclude non-financial data.

  • D. It may be prepared with estimates.
    Reason: Comparability is a benefit, not a limitation.

22) Year 2: profit before interest $58 000; debenture interest $9 000; equity at start $850 000; dividends $20 000; debentures $150 000. What is ROCE for Year 2?

  • A. 5.59%

  • B. 6.02%

  • C. 6.45%

  • D. 7.00%
    Reason: PBIT = 58,000 + 9,000 = 67,000; capital employed ≈ equity (850,000 + 58,000 − 20,000) 888,000 + 150,000 = 1,038,000; ROCE = 6.45%.

23) Using FIFO: purchases/receipts during March leave 9 units at month-end from the most recent layer at $6. What is the closing inventory value?

  • A. $36

  • B. $48

  • C. $54

  • D. $63
    Reason: 9 units × $6 = $54 under FIFO.

24) A factory makes 1100 units per day. Daily costs: set-up $2000; materials $3 per unit; one operator per 200 units at $400 each; variable selling cost $6 per unit; fixed production cost $12 per unit. What is the average cost per unit (production only)?

  • A. $5.50

  • B. $6.70

  • D. $7.00

  • C. $7.30
    Reason: Production cost per unit = (2,000 + 3,300 + 2,400) / 1,100 = $7.00. (Selling costs excluded from production.)

25) Under absorption costing, which costs are charged to production?

  • A. direct materials, direct labour, variable overheads and fixed overheads

  • B. direct materials, direct labour and variable overheads only

  • C. direct materials and direct labour only

  • D. variable and fixed selling overheads only
    Reason: Absorption includes both variable and fixed production overheads.

26) Budgeted overheads $300,000 on 20,000 labour hours (OAR $15/hr). Actual hours 19,000. Overheads are under-absorbed by $35,000. What were the actual overheads?

  • A. $250,000

  • B. $285,000

  • C. $320,000

  • D. $335,000
    Reason: Absorbed = 19,000×$15 = 285,000; under-absorption 35,000 ⇒ actual = 320,000.

27) If a business switches from marginal to absorption costing (production > sales), what happens?

  • A. Profit decreases; inventory valuation decreases

  • B. Profit decreases; inventory valuation increases

  • C. Profit increases; inventory valuation decreases

  • D. Profit increases; inventory valuation increases
    Reason: Fixed production overheads are carried into closing inventory, increasing both.

28) A price increase of $4 led to profit falling by $1200. Variable cost = $24 per unit; fixed costs unchanged at $10 000; original sales 1800 units. What was the fall in demand?

  • A. 200 units

  • B. 300 units

  • C. 400 units

  • D. 600 units
    Reason: Original profit: 24×1,800 − 10,000 = 32,200. New profit: (24+4)Q − 10,000. Set equal to 32,000 ⇒ Q = 1,500 ⇒ drop 300.

29) Selling price $80; direct materials $44; variable overhead $6; fixed production overhead $12; fixed selling cost $10. What is the contribution-to-sales ratio?

  • A. 10%

  • B. 22.5%

  • C. 37.5%

  • D. 45%
    Reason: Contribution per unit = 80 − (44 + 6) = 30; C/S = 30/80 = 37.5%.

30) Which assumptions are true about cost–volume–profit (CVP) analysis?

  1. costs are classified into fixed, semi-variable and variable

  2. selling price per unit remains constant

  3. total fixed costs remain constant

  4. volume is the only factor affecting variable costs

 

  • A. 1 and 2

  • C. 2, 3 and 4

  • B. 1 and 3

  • D. 3 and 4 only
    Reason: CVP uses fixed vs variable; semi-variable are split into those parts for analysis. Price/unit and total fixed costs assumed constant; variable cost driven solely by volume.