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QUESTIONS NUMBER ONE Below are the summarized Balance Sheets of Prep Led. Its subsidiary Gesta Led and its associate Karip Led at 30" November 2002. Prep Led Gesta Lid Karip Lid Assets Freehold Land - cost or valuation 600,000 200,000 400,000 Freehold Buildings NBV) 1,000,000 400,000 640,000 Machinery NBV) 1.200,000 360 060 640 000 2,800,000 960,000 1,680,000 Inv. in subsidiary (cost) 720,000 Inv. in associated company (cost) 480,000 Inventories 1,200,000 440,000 8:80,000 Accounts Receivable 600,000 200,000 480,000 Amounts owed by Subsidiary 20,000 Bank and cash balances 100 00 160,000 5.920 00.D LGELOLI 3.200 010 Equity and liabilities Share Capital 15% cumulative preference [ 20 400,000 share 2,400,000 600.000 800,000 Ordinary ( 20 share) 320,000 200,000 Share Premium Account 400,000 Fixed assets revaluation reserve 400.000 244.000 340,000 Retained earnings 3,520,000 844,000 1,740,000 1,200,000 400,000 800,000 12% Debenture 240,000 94,000 160,000 Deferred taxation 160,000 48,000 100,000 Corporation tax 560,000 136,000 320,000 Accounts payable 240,000 30,000 80,000 Proposed dividend 40,000 Bank overdraft Amount due to holding company 5.920 010 1. GOLOLL 3.200.000 You are given the following additional information: i) Prep Lid acquired 24,000 ordinary shares in Gesta Led by issuance of 20,000 of its own ordinary shares at a price of (30 per share. At the time Gesta Led had reserves totalling (120,000. Prep Led purchased 16,000 ordinary shares in Karip Led for cash at a time when the latter had retained earnings totalling (80,000 and no outstanding dividends. Karip Led has not issued any shares then, but has subsequently revalued its fixed assets. ili) (100,000 of Prep Lid's inventory had been purchased from Gesta Led cost to latter (80,000.iv) Cash remitted by Gesta Lid [12,000 was not received by Prep until December 2002 and had not been recorded in Prep Lid's books prior to the year end. v) Rate of corporation tax 50% Required: a) Prepare a consolidated Balance Sheet in vertical form as at 30* November 2002 and (Total: 22 marks) NUMBER TWO Cow and mice were in partnership as retail traders sharing profits and losses: cat three-quarters, mouse one-quarter. The partners were credited annually with interest at the rate of 6% per annum on their fixed capitals; no interest was charged on their drawings. Mice was responsible for the buying department of the business. Cow managed the head office shop and kat was employed as the branch manager. Cow and Kat were each entitled to a commission of 10% of the net profits after charging such commission) of the shop managed by him. All goods were purchased by head office and goods sent to the branch were invoiced at cost. The following was the trial balance as on 31" December 2001. Dr Cr Dr Drawings Accounts and Fixed Capital Accounts: Cat 2,500 14,000 Mouse 1,200 4,000 Furniture and Fittings, at cost 1,500 1,100 Furniture and Fittings, provision for depreciation as on 31" December 500 350 1999 13,000 4,400 Stock on 31" December 1999 37,000 Purchases 18,000 17,200 Goods sent to branches 39,000 26,000 Sales 200 Provision for doubtful debts 6,800 3,600 Branch and Head Office Current 4,500 3,200 A/cs 240 Salaries and wages 2.200 960 Kat, on account of commission 2,400 Carriage and travelling expenses 3,200 1,800 Administrative expenses 7,000 3,000 "Trade and general expenses 5,800 400 Sundry debtors 1,350 Sundry creditors Bank balances 81,900 81,900 31,900 31,900You are given the following additional information:- 1) Stocks on 31" December 2001 amounted to: head office (14,440, branch (6,570. 2) Administrative expenses are to be apportioned between head office and the branch in proportion to sales. 3) Depreciation is to be provided on furniture and fittings at 10% of cost. 4) The provision for doubtful debts is to be increased by (50 in respect of head office debtors and decreased by (20 in the case of those of the branch. 5) On 31" December 2001 cash amounting to 12,400, in transit from the branch to head office, had been recorded in the branch books but not in those of head office, and on that date goods invoiced at (800, in transit from head office to the branch, had been recorded in the head office books but not in the branch books. You are required to: a) Prepare Trading and Profit and Loss Accounts and the Appropriation Account for the year ended 31" December, 2001 showing the net profit of the head office and branch respectively. b) Prepare the Balance Sheet as on that date, and c) Show the closing entries in the Branch Current Account giving the make-up of the closing balance. (Total: 20 marks) NUMBER THREE Taitus has had a bankruptcy petition filed against him in the High Court. A receiving order was made on 31 October 1995. He has not kept accounts for 10 months to 31 October 1995. His financial position as at 31 December 1993 (the Official Receiver has accepted that the Deficiency Account cover the period from this date) was as follows:- Business Balance Sheet Net Personal Assets As at 31 Deemher 1994 As at 31 December 1994 Fixed assets (Net Book Value) Sh.'000' Sh. '000' Assets at cost: Sh.'000" Plant and Machinery 4,000 House 4,000 Motor vehicles 5.000 Furniture and contents 300 9,000 Motor car 700 5.000 Current Assets: Stock 3,000 Mortgage on house 3,000 Debtors 7,000 Car loan (secured on car) 500 10.000 1,500 Value of net estate Current Liabilities Bank overdraft 3,000 (secured on plant) Creditors 5.000 8.0100 2.00011.000 Capital 7,500 Finance lease on vehicles 3.500 11.000 You establish the following facts. Between 1 January 1995 and 31 October 1995, he had made 10 monthly payments of Sh.60, 000 each in respect of his mortgage: mortgage interests for the period was Sh.500, 000. He had made 3 quarterly repayments on his car loan Sh.75, 000 each and on the finance lease on his vehicles of Sh.850, 000 each; interest for the 10 months on the car loan and finance lease were Sh.100,000 and Sh.600,000 respectively. These payments were made out of his business bank account for the 10- month period to 31 October 1995; sales (both for cash and on credit) totalled Sh.30) million. He collected and banked directly Sh.28 million from debtors and sales; he used Sh.1 million collections for drawings. All creditors at 3 December 1994 were in respect of trade purchases. In the 10 months he had paid Sh 22 million to trade creditors and Sh.5million in respect of expenses. He had neither purchased nor sold any fixed assets, either for his business or his personal use. He had obtained a short-term loan from his uncle on 29 October 1995 for Sh.5 million which he had banked in his business bank account on the same day. Overdraft interest for the period had been charged in the amount of Sh.750, 000. On 31 October 1995, stock at cost was Sh.2 million. Liabilities of Sh.6 million for purchases and Sh.1 million for expenses (including Sh.300, 000 to his 25 employees for months of September and October - all earn in excess of Sh.3, 000 per month, and Sh.260, 000 PAYE deductions not yet paid across to the Income Tax Department) need to be accounted for: The realisable value of assets are: Plant Sh.1.8 million, Motor vehicles Sh.25 million, Stock Sh.1.6 million, Debtors Sh.5.5 million, House Sh.4.2 million, Furniture and contents Sh.0.1 million, Motor Car Sh.0.4 million. He had drawn Sh.500, 000 from his business bank account in respect of personal expenses. Required: Statement of Affairs and a Deficiency Account in accordance with the format contained in the Bankruptcy Act. Show all your workings. (Total: 20 marks)

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