A Level Accounting: Preparation of financial statements (AS) (Cambridge 9706) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 1.5 Preparation of financial statements (AS Level, Topic 1) of the Cambridge International AS & A Level Accounting 9706 syllabus for exams in 2026, 2027 and 2028. All businesses and figures are invented and all amounts are in dollars. Read the study guide and revision notes first, and see the course hub, the checklist and the free diagnostics.

Questions

1. Kingsford Garden Centre has a year end of 30 September 2027. Electricity paid in the year was 3,860; 410 was owing at the start and 520 at the end. Rent of 6,000 was received from a sub-tenant, of which 1,500 is for the next year. Calculate the electricity expense and the rent income for the statement of profit or loss, and state where the 1,500 appears in the statement of financial position. [4]

2. Kingsford’s trade receivables are 31,400 before adjustments. Irrecoverable debts of 1,400 are to be written off. The allowance is to be 3% of remaining receivables; the existing allowance is 1,150. A debt of 250 written off last year has been recovered. (a) Calculate the new allowance and the change. [2] (b) State the net effect of all three items on profit. [2] (c) State how trade receivables appear in the statement of financial position. [1]

3. (a) Kingsford’s inventory is recorded at cost of 24,600. Damaged items included in it cost 1,800 and can be sold for 900 net. Calculate closing inventory and the effect on profit. [3] (b) Profit is 18,300 before correcting an error: a display rack costing 2,500, bought at the start of the year, was debited to repairs. Depreciation is 20% of cost. Calculate the corrected profit. [3]

4. Tobias Veldt grows vegetables and keeps no full records. Opening assets were equipment 6,500, inventory 2,100, receivables 1,300 and bank 2,800; payables were 1,900. Closing assets were equipment 5,850, inventory 2,400, receivables 1,650 and bank 3,950; payables were 1,500. He drew 8,400 and introduced 1,000. Customers paid him 52,300 and he paid suppliers 31,200. (a) Calculate profit for the year. [4] (b) Calculate credit sales. [2] (c) Calculate purchases. [1]

5. A consultancy has fees of 96,400. Salaries paid were 41,000, with 1,200 owing; rent paid was 12,000, with 1,000 prepaid; general expenses were 9,800; irrecoverable debts were 700 and the allowance increases by 150; equipment cost 25,000 is depreciated at 12% of cost. Calculate profit for the year. [6]

6. Iverson, Linford and Mehra are architects. Profit for the year ended 31 December 2027 was 83,800 after all expenses. The agreement: interest on capital at 5% (Iverson 80,000, Linford 60,000, Mehra 40,000); a salary of 16,000 for Mehra; interest on drawings of 500, 400 and 300 respectively; remaining profit shared 4 : 3 : 3. (a) Prepare the appropriation account, showing each partner’s total share. [5] (b) Mehra’s current account began with a debit balance of 1,900 and her drawings were 14,500. Calculate the closing balance. [3] (c) Explain why the partners keep separate capital and current accounts. [2]

7. Two partners have no agreement. Ana invested 90,000 and Bilal 10,000. Profit was 24,000. (a) State how the profit is shared under the Partnership Act 1890. [2] (b) State two other provisions of the Act. [2] (c) State one item an agreement would normally contain and one disadvantage to partners of having one. [2]

8. Wyndham Packaging Ltd issues 60,000 ordinary shares of 1 at 1.40, all paid in cash. (a) Prepare the ledger entries. [4] (b) Classify the reserve created as capital or revenue. [1]

9. Wyndham has 300,000 ordinary shares of 1. (a) It makes a rights issue of 1 for 6 at 1.60. Calculate the shares issued and the entries. [3] (b) It then makes a bonus issue of 1 for 10 on 350,000 shares from retained earnings. Give the entry. [2] (c) What happens to total equity because of the bonus issue? [1]

10. In a separate scenario, Wyndham starts a year with share capital 350,000, share premium 30,000, general reserve 20,000 and retained earnings 62,000. During the year it made a rights issue of 1 for 7 at 1.35, profit for the year was 54,000, dividends paid were 21,000, and 8,000 was transferred to general reserve. (a) Calculate the closing balance of each component and total equity. [6] (b) State which components are revenue reserves. [2] (c) Debentures are 117,500, non-current assets 600,000, current assets 150,000 and current liabilities 70,000. Show that net assets equal total equity. [2]

11. Wyndham needs 400,000 for new machinery and compares issuing shares with issuing 7% debentures. (a) Calculate the annual debenture interest and state where it appears. [2] (b) Explain two advantages and two disadvantages of debentures for the company. [4] (c) Recommend one option, giving a reason. [2] (d) Suggest a source of finance for a short-term seasonal cash gap. [1]

Answers

1. Electricity 3,860 + 520 − 410 [1] = 3,970 [1]. Rent income 6,000 − 1,500 = 4,500 [1]. The 1,500 is a current liability (income received in advance) [1]. Examiner insight: Show the opening and closing accruals in the working, so a slip in one figure still leaves your method visible.

2. (a) Remaining receivables 30,000; allowance 3% = 900 [1]; change = 1,150 − 900 = a 250 decrease [1]. (b) Expense of 1,400 [1]; the decrease (250) and the recovery (250) are income, so net effect is −1,400 + 250 + 250 = 900 reduction [1]. (c) Receivables 30,000 less allowance 900 = 29,100 [1]. Examiner insight: The allowance is judged on the change, so a decrease must be treated as a credit rather than charged again.

3. (a) Write down 1,800 − 900 = 900 [1]; closing inventory 24,600 − 900 = 23,700 [1]; profit falls by 900 [1]. (b) The rack is capital expenditure, so add back 2,500 [1]; deduct depreciation 20% × 2,500 = 500 [1]; profit 18,300 + 2,500 − 500 = 20,300 [1]. Examiner insight: Name the type of expenditure first. It explains the two-part correction and keeps your reasoning visible.

4. (a) Opening capital 12,700 − 1,900 = 10,800 [1]; closing capital 13,850 − 1,500 = 12,350 [1]; profit = 12,350 − 10,800 − 1,000 [1] + 8,400 = 8,950 [1]. (b) 52,300 + 1,650 − 1,300 [1] = 52,650 [1]. (c) 31,200 + 1,500 − 1,900 = 30,800 [1]. Examiner insight: Capital introduced is subtracted and drawings are added. Writing the formula before substituting guards against reversing them.

5. Salaries 41,000 + 1,200 = 42,200 [1]; rent 12,000 − 1,000 = 11,000 [1]; depreciation 12% × 25,000 = 3,000 [1]; irrecoverable debts 700 + 150 = 850 [1]; total expenses 42,200 + 11,000 + 3,000 + 9,800 + 850 = 66,850 [1]; profit 96,400 − 66,850 = 29,550 [1]. Examiner insight: A consultancy sells services, so there is no cost of sales and fees go straight against expenses; listing each adjusted expense makes marking easier.

6. (a) Interest on capital 4,000, 3,000, 2,000 [1]. Residual = 83,800 + 1,200 − 16,000 − 9,000 = 60,000 [2]. Shares 24,000, 18,000, 18,000 [1]. Totals: Iverson 4,000 − 500 + 24,000 = 27,500, Linford 3,000 − 400 + 18,000 = 20,600, Mehra 16,000 + 2,000 − 300 + 18,000 = 35,700, together 83,800 [1]. (b) Credits 16,000 + 2,000 + 18,000 = 36,000 [1]; debits 1,900 + 14,500 + 300 = 16,700 [1]; balance 19,300 credit [1]. (c) Capital accounts show the permanent investment, fixed unless partners agree [1]; current accounts record yearly profit share, salary, interest and drawings, so withdrawals do not disturb capital [1]. Examiner insight: Interest on drawings is added to profit available, not deducted. A running total of 83,800 is a quick check.

7. (a) Equal shares [1], 12,000 each [1]. (b) Any two: no salaries; no interest on capital; no interest on drawings; 5% a year on a partner’s loan [2]. (c) Contents: any one, such as the profit-sharing ratio [1]. Disadvantage: any one, such as changes need everyone’s agreement, or drafting takes time and cost [1]. Examiner insight: State the rule, then apply it to the figures: Ana’s larger capital does not alter the equal division where no agreement exists.

8. (a) Debit bank 84,000 [1]; credit ordinary share capital 60,000 [1]; credit share premium 24,000 [1]; the totals agree (84,000) [1]. (b) Share premium is a capital reserve [1]. Examiner insight: Give the premium its own account rather than combining it with share capital.

9. (a) 300,000 ÷ 6 = 50,000 shares [1]; debit bank 80,000 [1]; credit share capital 50,000 and share premium 30,000 [1]. (b) 350,000 ÷ 10 = 35,000 shares: debit retained earnings 35,000 [1], credit share capital 35,000 [1]. (c) No change [1]. Examiner insight: A bonus issue involves no bank entry, and an answer that includes one has misunderstood the issue.

10. (a) Share capital 350,000 + 50,000 = 400,000 [1]; share premium 30,000 + 17,500 = 47,500 [1]; general reserve 20,000 + 8,000 = 28,000 [1]; retained earnings 62,000 + 54,000 − 21,000 − 8,000 = 87,000 [2]; total 562,500 [1]. (b) General reserve [1] and retained earnings [1]. (c) Net assets 600,000 + 150,000 − 70,000 − 117,500 = 562,500 [1], equal to total equity [1]. Examiner insight: The transfer is a credit to general reserve and a debit to retained earnings; recording only one side leaves total equity wrong.

11. (a) 7% × 400,000 = 28,000 [1]; charged as a finance cost against profit [1]. (b) Advantages, any two: control kept; no dilution of dividends [2]. Disadvantages, any two: interest is compulsory even in a poor year; capital must be repaid [2]. (c) A justified recommendation, such as debentures if profits comfortably cover 28,000 [1], or shares if the company wants to avoid fixed commitments [1]. (d) An overdraft (or trade credit) [1]. Examiner insight: Evaluation questions reward a recommendation that refers to the figures given, not a general list.

Where marks are usually lost

• Charging the whole allowance instead of its change.
• Treating loan interest as an appropriation.
• Deducting interest on drawings instead of adding it.
• Using cash in a bonus issue.
• Putting dividends in the statement of profit or loss.
• Not writing down inventory to net realisable value.
• Forgetting the accrual or prepayment on the statement of financial position.

Frequently asked questions

Are these Cambridge 9706 AS financial statements questions from past papers? No. They are eleven original questions with worked answers on section 1.5 of Cambridge 9706, written for revision. Use them alongside the official past papers.

What are the most common mistakes in AS financial statements questions? Common errors include charging the whole allowance for irrecoverable debts instead of its change, treating loan interest as an appropriation, deducting interest on drawings instead of adding it, and putting dividends in the statement of profit or loss.

Why should I write the formula before substituting in an incomplete records question? Writing the formula first guards against reversing items such as capital introduced, which is subtracted, and drawings, which are added.

How are share issues recorded in the ledger? Give the share premium its own account rather than combining it with share capital, and remember that a bonus issue involves no bank entry.

Next steps

• Revision notes
• Study guide
• Course hub and checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

Cambridge International AS & A Level Accounting 9706, syllabus for exams in 2026, 2027 and 2028, Cambridge Assessment International Education, section 1.5.