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Introduction To Law(Kasneb) Question Paper

Introduction To Law(Kasneb)

Course:

Exam Year:2000

QUESTIONS – PAST PAPERS

PILOT PAPER JULY 2000.
QUESTION ONE
The authorized share capital of Shirika Jipya Limited consists of 75,000 redeemable preference shares of Sh.10 each and 1,500,000 ordinary share of Sh.25 each. The former are to be redeemed during 2005.
The trial balance of Shirika Jipya Limited as at 30 June 2000 was as follows:

Sh. ‘000’ Sh. ‘000’
Ordinary Share capital (shares fully paid)
6% redeemable preference share capital
Share premium account
Profit and loss account (1 July 1999)
10% convertible loan stock
Deferred tax
Inventories (1 July 1999)
Trade receivable
Trade payables
Provision for doubtful debts
Wages and salaries payable
Value added tax payable
Interim dividend paid
Freehold land, at cost
Building at cost
Plant at cost
Provision for depreciation on building
Provision for depreciation on plant
Long-term investment quoted
Interest paid
Purchases
Preferred dividend paid
Profit on sale of plant
Bad debts
Sales
Dividend received from investments (gross)
Installment tax and withholding tax paid
Wages and salaries
Bank

25,073
34,979

430
848
5,100
30,750

3,525
450
141,450
32

23

738
24,450
806 15,375
750
3,150
21,600
8,000
1,080

25,425
90
473
681

398
12,059

173

179,100
300

268,654 268,654

Additional information:
1. The 10% convertible loan stock is secured against the plant.
2. (i.) During the year fixed assets were purchased as follows
Buildings Sh.750,000 and plant Sh.4,050,000.
(ii). Plant with an original cost of Sh.1,500,000.
3. Depreciation is to be charged as to buildings Sh.53,000 and plant Sh.690,000.
4. The quoted investments had a market value at 30 June 2000 of Sh.6,750,000.
5. The wages and salaries figure includes the following:

Directors Salaries
General Manager
Company Secretary 122,00
33,000
23,000

6. The firm had signed a contract for Sh.23,243,000 being the lower of cost and net realisable value.
7. Sh.75,000 needs to be transferred from the deferred tax account.
8. The stock as at 30 June 2000 was Sh.23,243,000 being the lower cost and net realisable value.
9. The following provisions need to be made:
(i). Audit fees of Sh. 53,000
(ii). A final dividend on ordinary shares of Sh.35 per share. This had been proposed
before the year end.
(iii) The provision of doubtful debts is to be adjusted to Sh.120,000.
(iv). Corporate tax of the year’s profit is estimated at Sh. 4,290,000. Last year’s tax was overestimated by Sh.15,000: this figure had been netted off against the installment and with-holding tax paid.

10. After payment of the preference dividend in March 2000, the company decided to redeem these shares and this was done in June 2000. No entries have been made in the books in respect of the same. The shares were redeemed at a premium of 5% and this is to be written –off in the share premium account.

Required:
(a) An Income Statement (using the cost of sales method: do not attempt to classify expenses according to their functions). (8 marks)

(b) A statement of Changes in Equity for the year ended 30 June 2000. (8 marks)

(c) A Balance Sheet as at that date in a form suitable for publication and conforming (as far as the information permits) with the requirements of the Companies Act and International Accounting Standards. (9 marks)
(Total: 25 marks)

QUESTION TWO
The following is a summary of the balances in the records of Kwa Limited and its subsidiary Jomvu Limited as at 31 March 2000.

Kwa Ltd
Sh. ‘000’ Jomvu Ltd.
Sh. ‘000’
Property, plant and equipment at cost
7,500,000 ordinary shares in Jomvu Ltd. at cost.
6,000,000 preference shares in Jomvu Ltd. at cost
Sh.5,000,000 6% debentures of Jomvu Ltd.
Current assets

Authorized and issued capital, fully paid: Ordinary shares of Sh.10 each.
7% non-cumulative preference shares of Sh.10 each.
General reserves
Profit and loss account
Provision for depreciation
6% debentures
Proposed dividends:

On ordinary shares
On preference shares
Debenture interest accrued
Trade payables 250,000
165,000
60,000
5,000
145,500
625,500

300,000

50,000
98,500
60,000

30,000

87,000
625,500 220,000

143,400
363,400

100,000
80,000
40,000
44,400
30,000
20,000

10,000
5,600
1,200
32,200
363,400

You ascertain the following:

1. Kwa Limited acquired the shares of Jomvu Limited, cum dividend on 31 March 1999.
2. The general reserve of Jomvu Limited was the same on 31 March 1999 as on 31 March 2000. The balance on the profit and loss account of Jomvu Limited is made up as follows:

Sh. ‘000’
Balance on 31 March 1999
Net profit for period ended 31 March 2000

Less proposed dividends 28,000
32,000
60,000
15,600
44,400

3. The stock in trade of Jomvu Limited on 31 March 2000 included Sh.6 million in respect of goods purchased from Kwa Limited. These goods had been sold by Kwa Limited to Jomvu Limited at such a price as to give Kwa Limited a profit of 20% on the invoice price.
4. The balance on the profit and loss account of Jomvu Limited on 31 March 1999, is after providing for preference dividend of Sh.5,600,000 and a proposed ordinary dividend of Sh.5,000,000 both of which were subsequently paid and credited to the profit and loss account of Kwa Limited.

5. No entries have been made in the books of Kwa Limited in respect of the debentures interest due from, or the proposed dividends of Jomvu Limited for the year ended 31 March 2000.
6. On 31 March 2000, the authorized and issued ordinary share capital of Jomvu Limited had been increased by Sh.20 million by capitalizing part of the general reserve and issuing 2 million Sh.20 shares to the existing shareholders in proportion to their existing holdings. The transaction has not yet been reflected in the books of Kwa Limited or Jomvu Limited.
7. Group policy to amortize goodwill on consolidation over 5 years using the straight line method.

Required:
A consolidated balance sheet of Kwa and its subsidiary company Jomvu Limited as at 31 March 2000. (Total: 20 marks)

QUESTION THREE
Mwenyeji Limited exported some of its products through an overseas branch whose currency is “Kove”. The trial balances of the Head Office and the Branch as at 30 June 2000 are as follows:

Head Office Branch
Sh. ‘000’ Sh. ‘000’ Kove ‘000’ Kove ‘000’
Freehold buildings at cost
Debtors/Creditors
Sales
Issued share capital
Components sent to Branch
Head Office/Branch Accounts
Branch cost of sales
Provision of depreciation on machinery.
Head Office cost of sales (including goods sent to Branch)
Administrative cost
Stock 30 June 1999
Profit and loss account
Machinery at cost
Remittances
Cash at Bank
Selling and distribution cost
14,000
8,900

60,100

59,000
15,200
28,900

6,000

4,600
23,300
220,000
9,500
104,000
40,000
35,000

1,500

2,000

28,000

______
220,000 63,000
36,000

360,000

18,000
11,520

126,000
272,000
79,200
28,800
994,520
1,560
432,000

504,260

56,700

______
994,520

The following adjustments are to be made:

1. The cost of sales figure includes a depreciation charge of 10% per annum on cost of machinery.
2. A provision of Sh.300,000 for unrealized profits in the branch stock is to be made. The closing stock in the branch was sent close to the balance sheet date.

3. On 26 June 2000, the Branch remitted Kove. 16,000,000. This amount was received by the Head Office on 14 July 2000 and realized Sh.1,900,000.
4. During May 2000, a customer of the branch by mistake paid the Head Office for goods supplied by the Branch. The amount due from him was Kove. 320,000 which realized Sh.36,000. It has correctly been recorded in the Head Office books but has not yet entered in the branch accounts.
5. A commission of 5% of the net profits of the branch after charging such commission is payable to the Branch Manager.
6. The exchange rates are:
• At July 1999
• At 30 June 2000
• Average rate for the year
• On date of purchase of Building and Machinery 10 Kove = Sh.1
8 Kove = Sh 1
9 Kove = Sh.1

7 Kove – Sh.1

Required:
(a) Detailed trading and profit and loss accounts of the Head Office and the Branch for the year ended 30 June 2000.

(b) A Balance Sheet as at 30 June 2000 combining the figures of the Head Office and the Branch. Ignore taxation. (Total: 20 marks)

QUESTION FOUR
Mali Mengi (aged 57) died in a road accident on 31 December 1999. On 1 May 2000 after his executors had paid all debts (except for the mortgage for his freehold house and debt to Mkopeshaji) testamentary and funeral expenses, his estate was ascertained as follows:

Sh. ‘000’
Cash in bank accounts
Freehold house
Toyota corolla
Nissan sunny
Television and music system
Debt due from Pungufu
Furniture and personal effects
10,000 ordinary shares in Cement Ltd.
4,500 ordinary shares in Soko Mjinga Ltd.
Sh.800,000 10% Kenya stock
Income received to date
Interest
Dividend from Soko Mjinga Limited

Less: Mortgage interest paid 31 march 2000 4,250
3,250
360
220
105
40
302
1,200
370
165

230
37
267
120 147
10,409

Extracts from Mali Mengi’s will left bequests as follows:

1. To each of my sons. Kikwajuni, Mnazini, and Mwembeni Sh.1 million.
2. To my wife Darajani, I leave my furniture, household and personal effects and the residue of my estate.
3. To my daughter Nanjale, my freehold house free of all duties. The house was subject to a mortgage of Sh.1 million carrying interest at 24% per annum payable 31 March and 30 September. Duty on the house amounts to Sh.130,000.
4. To my friend Kisitu, one of the motor cars owned by me at the time of my death he may choose.
5. To my friend Mlungu Sh.100,000.
6. To my sisters-in-law Sh.300,000
7. To my cousin, Nipa, my painting of Mausoleum by Kikuvu.
8. To my driver Ndeleva Sh.150,000
9. To my friend Shimba, my holding of Sh.800,000 110% Kenya stock, Mali Mengi owed Shimba Sh.100,000.
10. To my sister Malindi Sh.300,000
11. To my personal assistant, Sijapata half of my holdings in Cement Ltd.
12. To my niece Sinani, 4,000 ordinary shares from my holding of such shares in Cement Ltd.
13. To my nephew Shaibu Sh.200,000 payable out of my shares in Cement Ltd.
14. To my friend Mlungu Sh.50,000.
15. To my neighbour, Jirani Sh.50,000.
16. To my sister Dada, Sh.100,000 to establish a business.

Mali Mengi executors ascertained the following beneficiaries were dead:

• Son Mnazini died in 1997 leaving a wife and two children.
• Son Mwembeni died in 1998 leaving a wife.
• Sister Malindi died in 1996 leaving two daughters.
• Driver, Ndeleva aged 60 died in the same accident as Mali Mengi. It was impossible to determine the order in which Mali Mengi and Ndeleva died.

The executors also advise you that:

(i). Kisitu chose the Toyota corolla
(ii). Mali Mengi sold his painting of the mausoleum using the proceeds to purchase his holding in Soko Mjinga Ltd.
(iii). There is no such investment as 110% Kenya stock. The referees in the will to 110% is thought to be a typing error not previously noticed.
(iv). Jirani replied in writing that he did not want anything from Mali Mengi because Mali Mengi was a bad neighbour.
(v). Mali Mengi paid the Sh.100,000 during his life to his sister Dada to establish a business.

Required:
(a) A statement showing the distribution of Mali Mengi’s estate on 1 May 2000.
(16 marks)
(b) A list of legacies to which the executors should not assent, briefly give reasons for the decision. (4 marks)
(Total: 20 marks)

QUESTION FIVE
(a) As a company reports become larger and more complicated as a result of additional requirements, there is a danger that the essential elements in them become obscure to the unsophisticated user. There may be some merit in examining whether companies should be required to issue, to those who wish it, a simplified form of annual account.

Required:
Explain the arguments that may be advanced against the publication of simplified accounts. (15 marks)

(b) (i). Distinguish between list A and list B contributories in the case of company
liquidation. (2 marks)
(ii). Under what conditions would a list B contributory be required to contribute in the case of company liquidation? (3 marks)
(Total: 20 marks)

DECEMBER 2000
QUESTION ONE
Trendsetters Limited operates two branches, one in Nairobi and one in Mombassa. These two branches are supplies from a warehouse in Athi River town where the Head Office of the Company is situated. All purchases are made at the head office. Goods are charged to both branches all selling price, which is head office cost plus 50%. All cash receipts in the branches are banked daily. The following figures relate to the company’s performance for the year ended 30 September 2000 and financial position as at that date.

Head Office
Sh. ‘000’ Nairobi Branch
Sh. ‘000’ Mombasa Branch
Sh. ‘000’
Cash sales banked
Credit sales
Stock at cost, 1 October 1999
Stock at selling price, 1 October 1999
Purchases
Expenses paid
Goods sent to branches (selling price)
Goods received from debtors
Property, plant and equipment
(Net Book value: 30 September 2000)
Debtors at 1 October 1999
Bank overdraft at 1 October 1999
Trade creditors at 1 October 1999
Trade creditors at 30 September 2000
Ordinary share capital: 3 million Sh.10 shares
Retained earnings at 1 October 1999

11,750

233,175
19,540

25,000

11,800
42,550
41,200
30,000
45,946 110,820
12,300

18,300

9,008
124,155
12,100

28,000
1,200
168,000
8,400

24,150

10,825
180,225
8,525

35,000
1,100

Additional information:

1. Head office expenses are apportioned equally to the branches.
2. A debt for Sh.75,000 became had during the year at Mombasa branch.
3. Goods were transferred at selling price from Nairobi to Mombasa branch at Sh.405,000 and from Mombassa branch to Nairobi at Sh.900,000.
4. On 31 May 2000, the day’s takings of Sh.525,000 were stolen from Mombassa branch. On 26 December 1999, goods at a selling price of Sh.66,000 had been stolen from Nairobi branch
5. Stocktaking on 30 September 2000 revealed a deficiency of Sh.54,000 at Nairobi branch and a surplus of Sh.30,000 at Mombassa branch (both figures being a selling price) Since no information could not be found for the shortfall in Nairobi, management agreed to account for this as a nominal loss. The surplus in Mombassa was due to goods being sold at a price in excess of the authorized selling price. This was to be reported as a separate line item in the profit and loss account.
6. The directors proposed a dividend of 20% on 30 September 2000.
7. Income should be provided for 30% of the net profit for the year (assume the taxable profit and the accounting profit are the same figure) Installment tax of Sh.13,000,000 was paid in the year. All bankings in the branches are transferred electronically to the head office bank account out of which all expenses are paid. Ignore depreciation of property, plant and equipment.

Required:
(a) A stock account and a mark-up account for each branch in column format
(10 marks)

(b) A profit and loss account for each branch and combined total commencing with the gross profit for each branch. (6 marks)

(c) A debtors control account for each branch, the head office bank account and a balance sheet as at 30 September 2000. (9 marks)

NB: Do not produce a statement of changes in equity, show the retained profit brought forward as a line item in the combined profit and loss account. (Total: 25 marks)

QUESTION TWO
The figures that relate to the Profit and Loss Accounts and to the Statement of Charges in Equity for Addis Limited and as subsidiaries Bunyala Limited and Chania Limited for the year ended 30 November 2000 are as follows:

Addis Ltd.
Sh. ‘000’ Bunyala Ltd.
Sh. ‘000’ Chania Ltd.
Sh. ‘000’
Sales revenue
Inventory 1 December 1999
Inventory 30 November 2000
Purchases
Distribution cost
Administrative expenses
Taxation: Current
Deferred
Dividends
Preference: Interim paid 31 May 2000
Final paid 30 November 2000
Ordinary: Interim paid 31 August 2000
Final proposed 30 November 2000
Dividends received
Retained profit: 1 December 1999
Issued and paid-up share capital:
Preference share capital
Ordinary share capital 84,000
(3,824)
4,286
(50,862)
(13,440)
(8,400)
(2,140)
(1,420)

-
-
(3,000)
(4,500)
580
18,300

Nil
15,000 66,000
(3,757)
4,124
(49,862)
(8,050)
(3,950)
(1,050)
(300)

(450)
(450)
(500)
(750)
-
12,600

9,000
10,000 48,000
(2,822)
2,452
(38,430)
(9,600)
(6,400)
-
2,040

-
-
-
(150)
-
9,200

Nil
3,.000

Additional information:
1. Addis Limited acquired 180,000 10% preference shares of Sh.20 each and 800,000 ordinary shares of Sh.10 each on 1 December 1996 when the balance on the profit and loss account of Bunyala Limited was Sh.8,100,000. Goodwill of Sh.2,500,000 had arisen on the purchase of these shares. Addis Limited is amortizing this goodwill over 5 years on the straight line basis.
2. Addis Limited acquired 180,000 ordinary shares of Sh.10 each in Chania Limited on 1 March 2000: the purchase price of these shares was to be fixed once the results for the year ended 30 November 2000 to maintain its trustee status.
3. Bunyala Limited makes sales to Addis Limited at its nominal selling price. In the year ended 30 November 2000, Bunyala Limited’s sales to Addis Limoted amounted to Sh.9,300,000. Stock purchased from Bunyala Limited and held by Addis Limited at cost amounted to Sh.540,000 and Sh.720,000 on 30 November 1999 and 30 November 2000 respectively.
4. Addis Limited sold an item of plant to Bunyala Limited on 1 December 1998 for Sh.2,400,000. Addis Limited had marked up its cost by 20%. Bunyala Limited is depreciating this item of plant to nil residual value on the straight line basis over 10 years with the charge appearing as part of cost of sales.
5. There has been no intra-group trade between Chania Limited and other two companies.
6. Group policy in relation to unrealised profit on intra-group sales is of assets os to remove the whole of the unrealised profit from the asset and from the company which made the profit on the sale of the asset adjusting the minority interest’s share of this profit as appropriate. The amortization of goodwill is classified as an administrative expense and deemed to be a charge against the profit of the holding company.

Required:
The consolidated Income Statement and the portion of the Consolidated Statement of Charges in Equity that relates to accumulated profit, giving the details required by International Accounting Standard and the Kenya Companies Act, including reconciliation of the group retained profit for the year and carried forward.
(Total: 20 marks)

QUESTION THREE
Kahari and Lagaga, two brothers are the life tenants of trust set up by their rich uncle, Maundu. Maundu had never married. He set up the Maundu Trust with the following terms:

I. The trustees were to have unrestricted powers of investment:
II. The trustees were to share any income that arose equally between Kahari and Lagaga
III. Kahari and Lagaga were to receive income until their deaths. On the death of either of the life tenants one of the capital passes absolutely to Nzau, Maundu’s younger brother.

The balance sheet of the trust was as follows on 30 September 1999:
Sh. ‘000’
Capital assets:
House in Milimani, Nairobi
Sh.9 million 12% Kenya Treasury Stock
60,000 Sh.10 ordinary shares in Uchumi Limited
24,000 Sh.10 ordinary shares in Media Group Ltd.
Cash at bank Capital
Income

Trust capital
Trust income 5,400
8,820
3,870
2,040
1,410
120
21,660

21,540
120
21,660

In the year ended 30 September 2000, the following transaction took place:

1. Interest on the 12% Kenya Treasury Stock was received on the due dates, 31 December 2000.
2. The trustees sold Sh.3 million 12% Kenya Treasury Stock on 1 November 1999 to enable them purchase a further 50,000 Sh.10 ordinary shares in Uchumi Limited as Sh.69 per share. The 12% Kenya Treasury Stock was sold at a price of 88. The shares in Uchumi Limited were purchased on 1 December 1999.
3. Kahari died on 31 January 2000. He died had been living in the house in Milimani, Nairobi, owned by the trust, paying rent of Sh.40,000 per month, quarterly in arrears. He had paid 3 month’s rent on 31 October 1999, but had not paid the rent due on 31 January 2000: this was to be offset against claims on the Trust The house remained empty from 1 February 2000 onwards.
4. On 31 January 2000, the market value of the assets in the trust were as follows:

House in Milimani, Nairobi
12% Kenya Treasury Stock
Sh. 10 ordinary shares in Uchumi Limited
Sh. 10 ordinary shares in Media Group Ltd. Sh.9,600,000
90
Sh. 75
Sh. 100

5. Dividends of Sh.7.50 per share on the ordinary share in Media Group Limited in respect of the year ended 31 December 1999 were received on 31 March 2000. Dividends of Sh.6 per share on the ordinary shares in Uchumi Limited in respect of the year ended 31 March 2000 were received on 31 June 2000.
6. The Trustees paid to the executors of Kahari the amount due on 1 September 2000. On the same day they paid the income due to Lagaga and distributed to Nzau the house in Milimani, Nairobi, 39,000 Sh.10 ordinary shares in Uchumi Limited and the remainder in cash. On 1 September 2000, the values of the assets were the same as on 31 January 2000.

Required:
(a) Cash book and the trust capital account for the year ended 30 September 2000.
(7 marks)
(b) Show how all available income will be divided between Kahari, Lagaga and Nzau. Apportionment should be made on the basis of months (3 marks)
(c) The distribution account for Nzau and the Trust Balance Sheet as at 30 September 2000. The trustees incorporated revaluation into the books of the Trust. (7 marks)
(Total: 20 marks)

QUESTION FOUR
The trial balance extracted from the books of Newa, Omae, Pekka and Omar on 30 April 2000 was as follows.
Sh. ‘000’ Sh. ‘000’
Freehold property (Net book value
Plant and Equipment (NBV)
Office equipment (NBV)
Vehicle (NBV)
Stock
Debtors
Creditors
Bank overdraft
Capital accounts Newa
Omae,
Pekka
Omar
Current accounts: Newa
Omae,
Pekka
Omar 6,000
1,395
2,030
1,075
3,405
1,590

250
1,350
300

17,395

785
210
6,750
4,050
2,700
2,700

200
17,395

The business has steadily declining in the past few years. The partners have been trying to sell the business as a going concern but have been unable to do so. They decided to sell the assets on a piece meal basis and cash would be distributed to partners as soon as possible in amounts which would ensure that no partner would be called upon to repay any moneys he had received. In the partnership agreement profits and losses were shared between Newa, Omae, Pekka and Omar in the ratio 4:3:2:1 respectively and the application of the rule in Garner Murray was excluded.
Transactions have taken place as follows.

15 May 2000

31 May 2000

30 June 2000

31 July 2000

31 August 2000

31 October 2000 All the motor vehicles were sold at the Car Bazaar for Sh.975,000 net of selling cost. The money was put into the bank account.

Cash collected from debtors Sh.122,000 and stock sold to realize Sh.1,070,000 after cost. All creditors were paid and the cash distribution made.

Cash collected from debtors Sh.248,000 and stock sold to realize Sh.955,000 net. Second cash distribution was made.

Cash collected from debtors Sh.1,100,000 from sale of stock (net) Sh.1,465,000. Third cash distribution was made.

Office equipment sold for Sh.1,950,000 (net) and plant and equipment sold for Sh.1,610,000. Fourth cash distribution was made.

The freehold property was sold for Sh.6,600,000 various distribution expenses of Sh.200,000 were paid the final distribution of cash took place

Required:
(a) A partnership distribution schedule: (12 marks)
(b) Summary bank realization and partners’ capital accounts. (8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) What meetings of creditors must be held and for what purpose in the course of a creditors’ voluntary winding up? (7 marks)
(b) The following trial balance was extracted from the accounting records of the XYZ Retirement Benefits Scheme for the year ended 30 September 2000.

Sh. ‘000’ Sh. ‘000’
Accumulated fund as at 1 October 1999
Accrued expensed
Administrative expenses
Cash and demand deposits
Change in market value of investments
Commutation and lump sum retirement benefits
Contributions due within 30 days
Employer normal contributions
Individual transfers in from other schemes
Individual transfers out to other schemes
Investment income
Immovable property
Kenya Government securities
Members’ nominal contributions
Members’ additional voluntary contributions
Pensions
Quoted equity investments
Unpaid benefits
Unquoted equity investments

2,840
23,460
22,640
4,820
4,940

1,860

132,320
263,605

7,640
87,835

19,990
571,950 461,560
240

36,480
3,150

47,400

18,240
4,560

320

571,950

Required:
The statement of Changes in Net Assets (the Fund Account) for the year ended 30 September 2000 and a statement of Net Assets as at 30 September 2000, in accordance with International Accounting Standard 26 (Accounting and reporting by Retired Benefit Plans)

Hints:
The XYZ Retirement Benefits Scheme’s accounting policies state that the reconciliation of the accumulated fund for the year is included in Statement of Net Assets and administrative expenses are included as the final item in the Statement of Charges in Net Assets. In all other respects, the format used is in conformity with that laid down in the Retirement Benefits Regulations in Retirement Benefits Act. (11 marks)
(Total: 18 marks)

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