A Level Accounting: Regulatory and ethical considerations (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 follow the Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, section 3.2 Regulatory and ethical considerations (A Level content). All businesses and figures are invented and amounts are in dollars. Start with the study guide or the revision notes. See the course hub and printable checklist.

Questions

1. (a) State three of the components of a complete set of financial statements under IAS 1. [3] (b) State what a business must disclose if it does not prepare its statements on a going concern basis. [2]

2. Holmbrook Electrical has three lines in inventories at the year end. Line P cost 12,800 and will sell for 15,000, with selling costs of 900. Line Q cost 9,500 and will sell for 10,000 after further work costing 1,200 and selling costs of 600. Line R cost 6,300 and has a net realisable value of 8,300. Calculate the value of inventories under IAS 2 and the effect of any write-down on profit. [5]

3. Classify each cash flow of Dunsford Haulage as operating, investing or financing under IAS 7. (i) Cash received from customers. (ii) Purchase of a new lorry. (iii) Repayment of a bank loan. (iv) Proceeds from selling old equipment. (v) Cash paid to suppliers. [5]

4. Sandgate Marine bought a vessel for 240,000 with residual value 20,000 and a life of 11 years. After 4 years, management expects the vessel to last 5 more years with a residual value of 30,000. (a) Calculate the annual depreciation from the start of year 5. [3] (b) State how IAS 8 requires this change to be treated in the earlier years’ figures. [1] (c) State one reason for which a business may change an accounting policy. [1]

5. Corbury Timber has a year end of 31 March 2027 and profit of 276,000 before the following. (i) A customer owing 14,200 at the year end was declared insolvent three weeks later. (ii) In April a fire destroyed inventory carrying 40,000, which was uninsured. (iii) In May the directors proposed a dividend. Classify each event under IAS 10, state its treatment, and calculate revised profit. [5]

6. Lowthorpe Printers buys a press. The list price is 150,000 less a 10% trade discount. Delivery is 3,200, installation is 4,800, staff training is 1,500, and an initial estimate of removal costs at the end of its life is 6,000. (a) Calculate the cost of the press under IAS 16. [3] (b) Calculate annual depreciation, with residual value 9,000 and a 7-year life. [1] (c) After 3 years, fair value less costs of disposal is 62,000 and value in use is 70,500. Calculate any impairment loss under IAS 36. [3]

7. Ravensmoor Textiles faces three situations. For each, state whether IAS 37 requires a provision, disclosure only, or nothing, with a reason. (i) A customer is suing, the company’s solicitors think it probable that it will lose, and the cost is estimated reliably at 45,000. (ii) Another claim is thought possible but not probable. (iii) A supplier dispute may produce compensation, which is probable but not virtually certain. [6]

8. Fernleigh Software spent 64,000 on research and 156,000 on development after it could meet every IAS 38 criterion. It also spent 40,000 building its own brand. The product became available for use on 1 October and has a 6-year life. The year end is 31 December. Explain the treatment of each cost and calculate amortisation for the year. [5]

9. The managing director of Thornbeck Pumps tells the financial controller to leave 85,000 of supplier invoices unrecorded until after the year end so that profit reaches a target. Reported profit is 318,000. (a) Calculate the correct profit and state the effect of the instruction on reported profit. [2] (b) Explain two fundamental ethical principles at risk if the controller agrees. [4] (c) Explain how this could affect two stakeholders. [2] (d) Thornbeck also considers closing its local plant. State two social implications. [2]

10. (a) Explain two differences between an external audit and an internal audit. [4] (b) Distinguish between a qualified and an unqualified audit report. [2] (c) A shareholder claims: “The auditor’s unqualified report proves that the directors have carried out their stewardship duties and the figures are exact.” Evaluate this claim. [4]

Answers

1. (a) Any three of: statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; notes. [3] (b) It must disclose the basis on which the statements are prepared [1] and the reason it is not a going concern basis. [1] [5] Examiner insight: Naming the items exactly as the standard does, rather than loosely, is the safer way to gain credit on recall questions.

2. P: NRV 15,000 − 900 = 14,100, lower value is cost 12,800. [1] Q: NRV 10,000 − 1,200 − 600 = 8,200, lower value is NRV 8,200. [1] R: cost 6,300 is below NRV 8,300, so 6,300. [1] Total inventories 12,800 + 8,200 + 6,300 = 27,300. [1] Cost total 28,600, so the write-down of 1,300 reduces profit by 1,300. [1] [5] Examiner insight: Forgetting the further costs of completion in line Q is a common slip, so show each NRV calculation before choosing.

3. (i) Operating. [1] (ii) Investing. [1] (iii) Financing. [1] (iv) Investing. [1] (v) Operating. [1] [5] Examiner insight: One-word classifications gain credit only when each item is placed in a single group, so avoid hedging between two.

4. (a) Annual depreciation so far (240,000 − 20,000) ÷ 11 = 20,000. [1] Carrying amount after 4 years 240,000 − 80,000 = 160,000. [1] New charge (160,000 − 30,000) ÷ 5 = 26,000. [1] (b) It is a change in estimate, so it applies from now and earlier years are not restated. [1] (c) A standard requires it, or the change gives more reliable and relevant information. [1] [5] Examiner insight: Using the carrying amount, not original cost, as the starting point is the step that separates a correct re-estimate from the usual error.

5. (i) Adjusting, because it gives evidence that the debt was doubtful at the year end. [1] (ii) Non-adjusting, so disclose it in a note if material. [1] (iii) Non-adjusting, because a dividend proposed after the date is not a liability at the date. [1] Revised profit 276,000 − 14,200 [1] = 261,800. [1] [5] Examiner insight: A classification supported by the reason (a condition at the reporting date or not) is stronger than a bare label.

6. (a) Price after discount 150,000 × 0.9 = 135,000. [1] Add delivery 3,200, installation 4,800 and removal estimate 6,000, and leave out training. [1] Cost 149,000. [1] (b) (149,000 − 9,000) ÷ 7 = 20,000. [1] (c) Carrying amount 149,000 − 3 × 20,000 = 89,000. [1] Recoverable amount is the higher of 62,000 and 70,500, which is 70,500. [1] Impairment loss 89,000 − 70,500 = 18,500. [1] [7] Examiner insight: Show which of the two recoverable measures is higher, because choosing the lower is the common error.

7. (i) Provision of 45,000, because there is a present obligation, an outflow is probable and the amount is reliable. [2] (ii) Disclosure only as a contingent liability, because the outflow is possible, not probable. [2] (iii) Disclosure only as a contingent asset, because the inflow is not virtually certain. [2] [6] Examiner insight: Each part gains credit for the treatment and for the probability reason, so give both.

8. Research of 64,000 is expensed. [1] The 156,000 development cost meets the criteria and is capitalised. [1] The internally generated brand of 40,000 is not recognised and is expensed. [1] Annual amortisation 156,000 ÷ 6 = 26,000. [1] For 3 months, 26,000 × 3/12 = 6,500. [1] [5] Examiner insight: A time-apportioned charge needs the number of months from the date available for use.

9. (a) Correct profit 318,000 − 85,000 = 233,000. [1] The instruction overstates profit by 85,000. [1] (b) Integrity: the controller would be party to information known to be misleading. [2] Objectivity: the controller would let the director’s pressure override professional judgement. [2] Professional behaviour or professional competence and due care also earn credit if applied. (c) The bank may lend or keep lending on false information. [1] Shareholders may receive a dividend or bonus that profit does not support. [1] (d) Any two: job losses for employees, loss of income for the local community, loss of local suppliers’ sales, environmental effects of transport. [2] [10] Examiner insight: A principle gains credit only when it is linked to the facts, so refer to the invoices or the instruction in each explanation.

10. (a) Appointment: external auditors are appointed by shareholders but internal auditors are appointed by directors or management. [2] Purpose: external audit gives an opinion on the financial statements, whereas internal audit reviews controls and efficiency. [2] (b) An unqualified report says the statements give a true and fair view. [1] A qualified report says they do so except for a stated matter. [1] (c) The auditor gives an opinion, with reasonable assurance, not a guarantee of exact figures. [1] The directors, not the auditor, prepare the statements and are responsible for them. [1] Stewardship covers wider duties, such as safeguarding assets and acting in shareholders’ interests, which the report does not prove. [1] Judgement: the report is useful independent evidence but the claim overstates it. [1] [10] Examiner insight: Evaluation gains credit when the answer weighs the claim and reaches a stated conclusion, instead of only defining terms.

Where marks are usually lost

• Choosing cost or selling price instead of the lower of cost and NRV.
• Omitting costs to complete in the NRV calculation.
• Restating earlier years for a change in estimate.
• Labelling an event adjusting or non-adjusting without a reason.
• Including staff training in the cost of property, plant and equipment.
• Using the lower of the two measures as recoverable amount.
• Naming ethical principles without applying them to the facts.
• Treating the audit report as a guarantee of accuracy.

Frequently asked questions

Are these Cambridge 9706 regulatory and ethics questions from past papers? No. They are ten original questions with worked answers on section 3.2 of Cambridge 9706, written for revision. Use them alongside the official past papers.

What are the most common mistakes in IAS questions? Common errors include choosing cost or selling price instead of the lower of cost and NRV, omitting costs to complete in NRV, restating earlier years for a change in estimate, and using the lower of the two measures as recoverable amount.

Why should I give a reason when classifying an event under IAS 10? A classification supported by the reason, whether or not the event relates to a condition at the reporting date, is stronger than a bare label. Labelling an event without a reason is a common way to lose marks.

How do I earn marks on an ethics scenario question? Link each principle to the facts of the scenario, such as the instruction given or the documents involved. Naming ethical principles without applying them earns little credit.

Next steps

• Revision notes and study guide
• Course hub and checklist
• Take all free 10-minute diagnostics
• Book a free trial class at /trial/

Official syllabus

Cambridge International, AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, section 3.2.