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QUESTION 3 (THREE)

a) LKC Limited enters into an agreement with the shareholders of UKC Limited on 1 April 2022 to acquire a controlling interest in UKC. The agreement provides that the effective date of transfer is 1 July 2022 and is subject to approval by the shareholders of LKC at a meeting scheduled for 1 August 2022

Required

What is the date of acquisition? Explain. (5 marks)

b) In June 2020 Mzima and Springs started Nova, a joint venture in manufacturing. Nova was formed as a limited liability company and the contract between Mzima and Springs provided that Mzima should contribute Machineries to the joint venture, with Springs providing all the operating, marketing, selling and distribution services. In order to protect its interests after making such a substantial investment, Nova (supported by Springs) guarantees Mzima a minimum return on its investment of 12% per year over 15 years.

Required

Should this be accounted for as a joint venture? Explain clearly. (7 marks)

c) Financial Statements provide all the information that users may need to make economic decisions. Discuss (8 marks)

QUESTION 3 (THREE)

a) LKC Limited enters into an agreement with the shareholders of UKC Limited on 1 April 2022 to acquire a controlling interest in UKC. The agreement provides that the effective date of transfer is 1 July 2022 and is subject to approval by the shareholders of LKC at a meeting scheduled for 1 August 2022

Required

What is the date of acquisition? Explain. (5 marks)

b) In June 2020 Mzima and Springs started Nova, a joint venture in manufacturing. Nova was formed as a limited liability company and the contract between Mzima and Springs provided that Mzima should contribute Machineries to the joint venture, with Springs providing all the operating, marketing, selling and distribution services. In order to protect its interests after making such a substantial investment, Nova (supported by Springs) guarantees Mzima a minimum return on its investment of 12% per year over 15 years.

Required

Should this be accounted for as a joint venture? Explain clearly. (7 marks)

c) Financial Statements provide all the information that users may need to make economic decisions. Discuss (8 marks)

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