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$($a$)$ Explain the legal provisions regarding the establishment and subsequent use of the following reserves:

$($i$)$ Share premium account. $(2$marks$)$

$($ii$)$ Capital redemption reserve fund. $(2$marks$)$

XYZ Company Ltd$.$ is a retail provider with an authorized share capital of

$800,000$ Sh$\mathrm{.}20$ ordinary shares and $250,0008\%$ Sh$\mathrm{.}20$ redeemable preference shares.

The following financial information reflects the position of the company as at $31$ December $2001$ after preparing the Trading, profit and loss account:

Sh$.$

$`000\text{'}$

Provision for depreciation Fittings $1,500,$

Motor vehicles $3,740$

Goodwill $1,200$

Issued share capital: $600,000$ Sh$\mathrm{.}20$ Ordinary shares $12,000$

$250,000$ Sh$\mathrm{.}20$ Redeemable preference shares $5,000$

Share premium account $400$

Trade debtors and prepayments $1,708$

Land and buildings at valuation $($Cost Sh$\mathrm{.}4,400,000)18,400$

Capital redemption reserve fund $3,000$

Fittings at cost $3,000$

Motor vehicles at cost $7,940$

$10`\%$ Debentures $1,600$

Trade creditors and accruals $960$

Short$-$term investments $($Market value Sh$\mathrm{.}860,000)780$

Stock at $31$ December $20012,960$

Bank overdraft $540$

Revaluation reserve $1,000$

Net profit for the year $1,440$

Retained profit at $1$ January $20014,460$

General Reserve $1,100$

Provision for doubtful debts $48$

Interim dividend paid $-$ Ordinary $600$

$-$ Preference $200$

The following resolutions relating to year ended $31$ December $2001$ have been passed by the board of directors of the company

$1.$ Transfer Sh$\mathrm{.}600,000$ to General Reserve.

$2.$ Provide for $4\%$ final dividend and final preference dividend on shares issued and

Outstanding on $31$ December $2001.$

$3.$ Make a bonus issue of $200,000$ fully paid ordinary shares from the retained profits

Account.

Required:

The appropriations account of XYZ Company Ltd$.$ for the year ended $31$ December $2001.(6$ marks$)$

$($ii$)$ The balance sheet of XYZ Company Ltd$.$ as at $31$ December $2001.(10$ marks$)$

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