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A-Level Accounting Past Papers & Drilling (Paper 2): Financial Statements with Answers
TUTORZONE ORIGINAL DRILLING MOCK · CAMBRIDGE A-LEVEL ACCOUNTING (9706) PAPER 2
Written to the 9706 syllabus (2026-2028): Paper 2 Fundamentals of Accounting, 90 marks, 1 h 45 min, 72% of AS / 36% of A Level, with four structured questions (30/15/15/30). This paper covers a full sole trader’s financial statements, a bank reconciliation, ratio analysis and absorption versus marginal costing, with step-by-step answers.
What is in Cambridge A-Level Accounting (9706) Paper 2?
Direct answer: Paper 2 Fundamentals of Accounting is four structured questions worth 90 marks in 1 h 45 min, 72% of the AS Level and 36% of the A Level: question 1 is 30 marks, questions 2 and 3 are 15 marks each and question 4 is 30 marks.
Assessment at a glance (2027)
| Component | Content | Weighting | Duration |
|---|---|---|---|
| Paper 1 (Multiple Choice) | 30 multiple-choice questions, 30 marks (22 financial accounting + 8 cost and management) | 30 · 28% AS / 14% A Level | 1 hour |
| Paper 2 (Fundamentals of Accounting) | four structured questions, 90 marks (Q1 30, Q2-Q3 15 each, Q4 30) | 90 · 72% AS / 36% A Level | 1 h 45 min |
| Paper 3 (Financial Accounting, A Level) | three structured questions of 25 marks, 75 marks; source material is on a separate insert | 75 · 30% A Level | 1 h 30 min |
| Paper 4 (Cost and Management Accounting, A Level) | two structured questions of 25 marks, 50 marks; source material is on a separate insert | 50 · 20% A Level | 1 hour |
Paper 2 technique: 90 marks in 1 h 45 min across four questions is about 1 minute 10 seconds per mark. Take question 1 (the 30-mark statements question) first and finish it in 35 minutes, allow about 18 minutes each for questions 2 and 3, and 35 minutes for question 4. Tick off each adjustment as you do it so no accrual, prepayment or depreciation charge is missed.
How this paper was built
This is a TutorZone original drilling mock: the questions follow the Cambridge 9706 structure (Paper 2 Fundamentals of Accounting: 90 marks, 1 h 45 min, four structured questions) and the answers are our own, not Cambridge past papers or marking references.
Every figure was recomputed programmatically, including the trial balance and the net assets check.
Pacing
| Section | Marks | Suggested time | What to do first |
|---|---|---|---|
| Paper 1 (Multiple Choice) | 30 · 28% AS / 14% A Level | about 2 min per question | concept items first, then ratio and cost calculations |
| Paper 2 (Fundamentals of Accounting) | 90 · 72% AS / 36% A Level | about 35 min on question 1 | statements first, decisions last |
| Paper 3 (Financial Accounting, A Level) | 75 · 30% A Level | about 30 min per question | notes and statements first, evaluation last |
| Paper 4 (Cost and Management Accounting, A Level) | 50 · 20% A Level | about 30 min per question | calculations before recommendations |
How is the year-end rent adjustment treated?
Direct answer: 22,000 covers 11 months, so a full year is 22,000 / 11 x 12 = 24,000: charge 24,000 in profit or loss and record an accrual of 2,000 as a current liability.
Paper 2: structured questions (4 questions, 90 marks)
Question 1 sole trader statements (30 marks), question 2 bank reconciliation (15 marks), question 3 ratio analysis (15 marks) and question 4 cost and management accounting (30 marks); allow the full 1 h 45 min.
Question 1 (30 marks)
The following figures are taken from Chan Kee’s books before the year end of 31 December 2026 (all in $):
Revenue 320,000; purchases 210,000; opening inventory 25,000; wages 42,000; rent 22,000 (paid for 11 months); insurance 4,800 (paid on 1 April 2026 for 12 months); trade receivables 48,000; allowance for irrecoverable debts 600; equipment at cost 90,000; accumulated depreciation on equipment 30,000; bank 12,000; trade payables 15,000; drawings 18,000; opening capital 106,200.
Adjustments: closing inventory 28,000; one month’s rent is owing; three months’ insurance is prepaid; the allowance for irrecoverable debts is to be 2% of trade receivables; equipment is depreciated at 20% per year on cost.
(a) Calculate cost of sales and gross profit (12 marks).
(b) Prepare the statement of profit or loss for the year ended 31 December 2026 (12 marks).
(c) Calculate the capital balance at 31 December 2026 and check it against net assets (6 marks).
Question 2 (15 marks)
(a) The cash book (bank column) shows a debit balance of $8,400. The following are not yet entered: bank charges $150, a standing order for insurance $500, a direct credit from a customer $1,200 and a dishonoured customer cheque $400; a cheque for $2,000 was entered in the cash book as $200. Calculate the updated cash book balance (5 marks).
(b) The bank statement shows a credit balance of $8,050, and there are deposits not yet credited of $2,600 and unpresented cheques of $3,900. Prepare a bank reconciliation statement that agrees with the updated cash book balance (8 marks).
(c) Give two reasons why the bank statement balance differs from the cash book balance (2 marks).
Question 3 (15 marks)
A limited company reports the following for 2026 (all in $): revenue 600,000 (of which credit sales 540,000); cost of sales 420,000; operating expenses 120,000; interest payable 10,000; ordinary share capital 200,000; retained earnings 100,000; a 10% loan (non-current liability) 100,000; average inventory 65,000; trade receivables 90,000; trade payables 45,000; bank 10,000; closing inventory 70,000; credit purchases 400,000; current liabilities 85,000.
(a) Calculate the gross profit margin, the profit margin, the mark-up, ROCE, interest cover, the current ratio and the acid test ratio (8 marks).
(b) Calculate inventory turnover days, trade receivables turnover days, trade payables turnover days and the working capital cycle (5 marks).
(c) Using these ratios, recommend ONE measure to improve liquidity (2 marks).
Question 4 (30 marks)
Mei Kee manufactures 12,000 units in 2026 and sells 10,000 units at $40 each. Unit costs are: direct materials $8, direct labour $6, variable production overhead $3, and variable selling costs of $2 per unit sold. Budgeted fixed production overhead is $96,000 (absorbed on 12,000 units) and actual fixed production overhead is $102,000; fixed administration costs are $30,000. There is no opening inventory.
(a) Prepare a statement of profit or loss using absorption costing and value the closing inventory (12 marks).
(b) Prepare a statement of profit or loss using marginal costing and explain the difference between the two profits (8 marks).
(c) Spare capacity exists and a customer offers to buy 1,500 extra units at $22 each, with no extra selling costs. Calculate the effect on profit and advise (10 marks).
Why does closing inventory affect both statements?
Direct answer: closing inventory is deducted in cost of sales and is also a current asset; here 28,000 reduces cost of sales to 207,000 and raises gross profit to 113,000 while adding 28,000 to current assets.
Paper 2 model answers
Question 1
(a) Cost of sales = opening inventory 25,000 + purchases 210,000 – closing inventory 28,000 = $207,000; gross profit = revenue 320,000 – cost of sales 207,000 = $113,000. (12)
(b) Statement of profit or loss: gross profit 113,000; less wages 42,000, rent 22,000 + accrual 2,000 = 24,000, insurance 4,800 – prepayment 1,200 = 3,600, increase in the allowance for irrecoverable debts 960 – 600 = 360, depreciation 90,000 x 20% = 18,000, total expenses $87,960; profit for the year = 113,000 – 87,960 = $25,040. (12)
(c) Capital = opening capital 106,200 + profit 25,040 – drawings 18,000 = $113,240.
Check against net assets: non-current assets 90,000 – (30,000 + 18,000) = 42,000; current assets 28,000 + (48,000 – 960) + 1,200 + 12,000 = 88,240; current liabilities 15,000 + 2,000 = 17,000; net assets = 42,000 + 88,240 – 17,000 = $113,240, which agrees. (6)
Question 2
(a) Updated cash book = 8,400 – 150 – 500 + 1,200 – 400 – (2,000 – 200) = $6,750. The cheque understated by $1,800 overstated the cash book, so it is deducted. (5)
(b) Bank reconciliation: statement balance 8,050 + deposits not credited 2,600 – unpresented cheques 3,900 = $6,750, which agrees with the updated cash book. (8)
(c) Timing differences, such as deposits and cheques not yet processed by the bank; and items only the bank knows about, such as charges, standing orders and dishonoured cheques. (2)
Question 3
(a) Gross profit = 600,000 – 420,000 = 180,000; gross profit margin = 180,000 / 600,000 x 100 = 30.0%; profit from operations = 180,000 – 120,000 = 60,000, so the profit margin = 60,000 / 600,000 x 100 = 10.0%; mark-up = 180,000 / 420,000 x 100 = 42.9%; capital employed = 200,000 + 100,000 + 100,000 = 400,000, ROCE = 60,000 / 400,000 x 100 = 15.0%; interest cover = 60,000 / 10,000 = 6.0 times; current assets = 70,000 + 90,000 + 10,000 = 170,000, so the current ratio = 170,000 / 85,000 = 2:1 and the acid test = (170,000 – 70,000) / 85,000 = 1.18:1. (8)
(b) Inventory turnover = 65,000 / 420,000 x 365 = 56.5 days; trade receivables turnover = 90,000 / 540,000 x 365 = 60.8 days; trade payables turnover = 45,000 / 400,000 x 365 = 41.1 days; working capital cycle = 60.8 + 56.5 – 41.1 = 76.2 days. (5)
(c) Recommendation: tighten credit control and chase overdue accounts (60.8 days is long), and reduce excess inventory, in order to shorten the 76.2-day working capital cycle while keeping the liquidity shown by a 2:1 current ratio and a 1.18:1 acid test. (2)
Question 4
(a) Fixed production overhead absorption rate = 96,000 / 12,000 = $8 per unit; unit cost = 8 + 6 + 3 + 8 = $25; closing inventory = 2,000 x 25 = $50,000; variable production cost is $17 per unit and the under-absorption is 102,000 – 96,000 = $6,000.
Absorption costing: revenue 400,000 – cost of sales 10,000 x 25 = 250,000 gives a gross profit of 150,000; less variable selling 20,000, fixed administration 30,000 and under-absorption 6,000, profit = $94,000. (12)
(b) Marginal costing: contribution = (40 – 17) x 10,000 = 230,000; less variable selling 20,000, budgeted fixed production overhead 96,000 and fixed administration 30,000, profit = $84,000.
The difference of $10,000 equals the fixed overhead carried in closing inventory, 2,000 units x $8 = $16,000, less the $6,000 under-absorption: absorption costing leaves part of the fixed overhead in inventory while marginal costing charges it all to this period. (8)
(c) Contribution from the special order = (22 – 17) x 1,500 = $7,500, so profit rises and the order should be accepted while spare capacity exists – provided it does not undermine the normal selling price, invite future price pressure from the customer, or use capacity that better orders need (the opportunity cost). (10)
How should the time be allocated across the four questions?
Direct answer: 90 marks in 1 h 45 min: 35 minutes on question 1, 18 minutes each on questions 2 and 3, 35 minutes on question 4, leaving 5 to 10 minutes to check the adjustments.
Where these marks are usually lost
| Mistake | What it looks like | What it costs | Instead |
|---|---|---|---|
| Adjustments left out of the income statement | Charging rent of 22,000 as it stands | Eleven months must be restored to a full year of 24,000 | accrual 2,000 |
| Prepayment miscalculated | Charging all 4,800 as an expense | Nine months are used from 1 April | expense 3,600, prepaid 1,200 |
| Full allowance charged | Charging the whole 1,600 | Only the increase, 960 – 600, is charged | expense 360 |
| Reconciliation direction reversed | Adding unpresented cheques | They are deducted from the statement balance | 6,750 |
| Difference between the two costing systems misunderstood | Treating the whole fixed cost as the difference | 2,000 units x $8 = 16,000 in inventory less the 6,000 under-absorption | 10,000 |
How to use this paper
First drill: all four questions in 1 h 45 min, presenting the statements in proper format with ruled lines.
Mark it: check each adjustment and prove the capital balance against net assets.
Second drill: redo three to seven days later, aiming to finish inside 90 minutes.
What should I do after drilling this paper?
Direct answer: log every missed adjustment and formatting error, redo the paper in three to seven days, then move on to Paper 3 financial accounting and Paper 4 cost and management accounting if you are taking the full A Level.
FAQ
Is this a Cambridge past paper?
No. This is not a Cambridge past paper: the questions and answers are TutorZone originals, not marking references.
What is in Cambridge A-Level Accounting 9706 Paper 2?
Four structured questions, 90 marks and 1 h 45 min, worth 72% of the AS Level and 36% of the A Level; questions 1-3 are financial accounting and question 4 is cost and management accounting.
Can the AS Level be taken as one paper?
No. The AS Level requires Papers 1 and 2 in the same series; Papers 3 and 4 are taken in the second year for the full A Level.
Which statement format is expected?
International terminology and format: a statement of profit or loss analysed by expense, a statement of financial position, and the check that net assets equal capital.
Official references
| Resource | What to check |
|---|---|
| Cambridge A-Level Accounting 9706 syllabus (2026-2028) | Confirm the question count, marks, time and assessment objective weightings of Paper 2 |
| https://www.tutorzone.com.hk/en-alevel-accounting-9706-paper-1-mock-2027/ | A-Level Accounting 9706 Paper 1 drilling mock (multiple choice) |
Related: practice area · · A-Level Accounting 9706 drilling guideA-Level Accounting Paper 1 drilling mock · A-Level Accounting Paper 4 drilling mock · IGCSE Accounting 0452 Paper 2 drilling mock
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