I have had this issue and have managed to fix it myself.
First, make sure there is nothing on the counter or table that you are trying to set the cake down on as this prevents the candle option from showing up, if counters aren't working then try a table.
Second, go into buy mode and grab the cake, if the square outlining the cake is yellow then your Sims won't be able to interact with it (I had this happen with other objects on counters such as ice cream makers, etc), so rotate it until the square outline is green then exit buy mode.
Now you should be able to place candles on your cake.