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Trust And Executorship Question Paper

Trust And Executorship

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
INSTITUTE OF OPEN LEARNING
SPECIAL/SUPPLEMENTARY EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE
BAC 411: TRUST AND EXECUTORSHIP ACCOUNTS
DATE: Monday, 6th October, 2008 TIME: 10.00 a.m. – 12.00 noon

INSTRUCTIONS:

• Answer question ONE and any other TWO questions.
• Be neat and show all your workings.

QUESTION ONE (30 MARKS)

Patrick Ochieng died on 31st October 2003 and left his estate as follows:
KShs
Household furniture
45,000
Cash in House
1,000
Cash in Bank
125,000
10,000 ordinary shares of Shs.10 each in BAT Kenya Ltd. Valued at Shs.15
150,000 per share.
Investments at 5% on freehold property shares (interest thereon paid on 30th
200,000 June 31st December 2003)
Share in Business of Patrick Ochieng & Company valued at date of death 613,200
Sundry debtors 10,000
His liabilities amounted to 2,500
Funeral expenses amounted to 5,000
A legacy of Shs10,000 was bequeathed to his Executor and was paid on 28th January 2004. The
residue of the estate was left in trust to his infant son.
The household furniture was sold on 15th December 2003 for Shs.48,000. The shares were sold
on the same date at Shs.14.50 Ex Div. A dividend being received on 25th January 2004 at 10%
for the year ending 31st December 2003. Interest on investment in freehold property shares was received on 31st December 2003, on which date the share in the business of Patrick Ochieng and Company was received with interest at 5% PA. The liabilities and funeral expenses were discharged on 20th December 2003 on which date Shs.5000 of the debtors due were received, the balance being unpaid at the date of preparation of the accounts:
Required:
(a)
Journal entries to record the above transaction. (10 marks)
(b)
The Estate’s Cash Book (8 marks)
(c)
The Estate’s Capital Account (10 marks)
(d)
The Estate’s Income Account (2 marks)

QUESTION TWO (20 MARKS)
(a)
Mr. Kware died intestate leaving his two wives Luky and Chity whom he married under a system of law which permits polygamy. A third wife Betty had predeceased him. Luky has three children Peter, Lowe and Ricci, Betty had two children Short and Tall, and Chity has no children. All the children are alive at the time of Mr. Kware death. The value of his
personal and household effect was Shs350,000 and the value of the net intestate estate was Shs3,150,000.
Required:
A clear statement to show how Mr. Kware’s property would devolve.

QUESTION THREE (20 MARKS)

Tatu died on 31st October 2004 and was survived only by Mwanda his grandson, the son of his
son Maga.
By his will which barred equitable apportionment and was silent on the date of payment of
legacies, he left his estate as follows:
• To my cousin Mwamba my beach plot
• To my friend Nyambaya my car
• To my nephew Pamba my boat
• To each of my two sons Shs10,000
• To my brother in-law Shs2,000
• To my housekeeper Awa if still in my employment Shs.20,000.
• To my Pastor of my Church Charles Shs.5,000.
• To my local Church Shs.5,000 to buy a piano in memory of my deceased mother.
• To my Shamba-boy Akida, if still in my employment Shs2,000
• To each of my neighbours Nyawawa Were and Langa Kshs1,000
• To the water game club, my outboard engine and to my grandson Mwanda the residue
absolutely.

On 30th April 2005, the executors having paid all liabilities of the estate and the expenses
of administration were ready to assent to the legacies. The property in their possession and its
value at that date was:

KShs.
Car Fiat
9,000
Car Toyota
5,000
Boat
2,500
Furniture
9,500
Farm
4,000
Beach Plot
1,200
Shs150,000 6% government bond
120,000
Balance at bank
68,800

You further obtain the following additional information:
(i)
Pamba died on 30th April 2004
(ii)
Tatu had two brother-in-law surviving at 31st October 2004
(iii)
Awa was still employed at 31st October 2004
(iv)
During his life time, Tatu had provided his local Church with a piano in memory of his
late mother.
(v)
Akida retired on 31st October 2002
(vi)
Nyawawa and Langa both predeceased Tatu
(vii) The farm had been purchased by Tatu with proceeds of the sale of the outboard engine.

Required:

Prepare a schedule showing the distribution of the estate and give your reasons
should you decide that the executors should not assent to any of the legacies
(ignore
taxation)
(20
marks)

QUESTION FOUR (20 MARKS)

(a)
State two main ways of constitution a trust. Give appropriate examples. (5 marks)
(b)
Discuss powers and duties of a trustee.
(15 marks)

QUESTION FIVE (20 MARKS)

The Trust deed relevant to Mr. Matata’s trust restricted the trustee to invest in authorized
securities but permitted them to retain a piece of land until the tenant died, when it was to
be sold and proceeds invested.

At March 31 2004, the summarized balance sheet of the trust was as under:

Investments
KShs ‘000’
Shs.10,000 8% Kenya Government stock (market value 9,700,000)
10,000
Shs.10,000,000 7% savings stock (market value Shs10,100,000)
10,000
Freehold land
8,000
Balance at Bank
400
Represented by capital fund
28,400
28,400

On April 2004, the trustee decided to avail themselves of the powers and to reinvest half
of the shares in wider range securities.
The transactions on capital account of the trustees upto the year ended 31st March 2005
were:
(i) 1st April 2004, sold Shs10,000,000 8% Government stock for Shs9,700,000 and
reinvested the whole amount in 4,000,000 shs1 ordinary shares of Firestone (EA) Ltd.
(ii) 30th June 2004 received Shs20,000,000 on the sale of Freehold land.
(iii) 15th July 2004, paid Shs.8,000,000 for 6,000,000 Shs.1 ordinary shares of Portland
Cement Ltd.
(iv) 30th July 2004 paid Shs11,000,000 for Shs.11,990,000 7% Housing
Development Bond stock
(v) 30th September 2004, paid Shs1,400,000 to take up the whole of the Trustees
entitlement to 1:8 rights issue by Firestone (EA) Ltd.
(vi) 31st December 2004, received a bonus issue of 1 to 3 ordinary shares in
Portland Cement Ltd.
Required:
(a)
Trust capital account for the year ended 31st March 2005.
(10 marks)
(b)
Trust balance sheet as at 31ast March 2005. (10 marks)

Trust And Executorship Question Paper

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