Investment income	20	30	40	40	60
Finance costs	180	180	240	300	300
Tax	302	330	400	530	650
Ordinary share capital
(Sh.10 par value)	8,000	8,000	10,000	10,000	10,000
Dividend rate	5%	6%	6%	8%	8%

Balance Sheet as at 30 June 2005

Sh. 000

Sh. 000

Assets

Non-current assets:

Freehold property (at valuation)

12,000

Plant and machinery (at cost less depreciation)

6,000

Motor vehicles (at cost less depreciation)

4,800

Furniture (at cost less depreciation)

1,500

24,300

Current assets:

Stock (at lower of cost and net realisable value)

2,800

Debtors (net of provision for doubtful debts)

1,600

Quoted investments (at market price)

650

Bank balance and cash in hand

150

Delta Ltd., a private limited company, decides to raise funds for the expansion of its operations by floating its ordinary shares to public. Mhasibu and Associates, a firm of Certified Public Accountants, was contracted to prepare the accountants report to appear in the prospectus.

The following information has been provided with respect to Delta Ltd.,

Extracts from the accounts of Delta Ltd. For the last five financial years ended 30 June 2005:

	2001	2002	2003	2004	2005
	Sh. 000	Sh. 000	Sh. 000	Sh. 000	Sh. 000
Turnover	9,650	10,700	12,700	15,300	17,500
Cost of sales	7,720	8,560	10,160	12,240	14,000
Administration costs	480	520	550	580	620
Selling and distribution costs	298	390	410	470	510

5,200

Total assets

29,500

Equity and liabilities

Capital and reserves:

Ordinary share capital

10,000

Share premium

4,000

Revaluation reserve

2,000

Investment price fluctuation reserve

190

Profit and loss account balance

3,850

20,040

Non-current liabilities

6% Debentures

5,000

Bank loan

850

Deferred tax

1,950

7,800

Current liabilities:

710

Trade creditors

550

Current tax

400

Proposed dividends

1,660

Total equity and liabilities

29,500

On June 2003, the company received a sales order of Sh.300,000 and immediately invoiced the customer for the value of the goods. The amount of the sales order was recorded as sales for the month of June 2003.

The goods were excluded from the closing stock on 30 June 2003 and delivered to he customer on 2 July 2003. The policy of the company is to recognise a sale when goods are delivered to a customer. The company charges a profit margin of 25% on cost.

Due to a technical problem in June 2005, a sale of Sh.253,000 was incorrectly recorded in both sales account and sales ledger as Sh.235,000. The error is yet to be corrected.

Stock taking errors resulted in the overstatement of closing stock by Sh.150,000 on 30 June 2004 and the understatement of closing stock by 180,000 on 30 June 2005.

A vehicle which had cost Sh.500,000 and had an accumulated depreciation of Sh.150,000 on 30 June 2003 was withdrawn from use on 1 July 2003 pending re-conditioning and subsequent sale.

The vehicle has, however, not been sold. Despite not being used, the vehicle has been subjected to depreciation at the rate of 10% per annum based on cost.

Depreciation of the vehicle is included in the selling and distribution costs.

On 2 January 2003, the company issued 200,000 ordinary shares ofSh.10 each to a private investor at fair value. The shares issued ranked for dividend in the year ended 30 June 2003 at 50% of the normal dividend rate.

Quoted investments were sold in August 2005 and the proceeds used to repay the bank loan.

All the investment income reported in the five years had been generated form these investments.