(a) Explain the legal provisions regarding the establishment and subsequent use of the following reserves: (i) Share premium account. (2marks) (ii) Capital redemption reserve fund. (2marks) XYZ Company Ltd. is a retail provider with an authorized share capital of 800,000 Sh.20 ordinary shares and 250,000 8% Sh.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: Provision for depreciation Fittings Motor vehicles Goodwill Issued share capital: 600,000 Sh.20 Ordinary shares 250,000 Sh.20 Redeemable preference shares Share premium account Trade debtors and prepayments Sh. '000' 1,500 3,740 1,200 12,000 5,000 400 1,708 L Land and buildings at valuation (Cost Sh.4,400,000) Capital redemption reserve fund Fittings at cost Motor vehicles at cost 10% Debentures Trade creditors and accruals Short-term investments (Market value Sh.860,000) Stock at 31 December 2001 Bank overdraft Revaluation reserve Net profit for the year Retained profit at 1 January 2001 General Reserve Provision for doubtful debts Interim dividend paid - Ordinary - Preference 18,400 3,000 3,000 7,940 1,600 960 780 2,960 540 1,000 1,440 4,460 1,100 48 600 200 The following resolutions relating to year ended 31 December 2001 have been passed by the board of directors of the company 1. Transfer Sh.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: (i) 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. marks) (10