NUMBER FOUR Parez Ltd. acquired a competitor's branch in Kitui on 1 November 2005 for sh.1.5 million. The fair value of the net assets acquired was sh.1,000,000 which comprised property, plant and equipment and inventories at sh.900,000 and sh.100,000 respectively. Kitui branch maintains its own books of account except for fixed assets ledger which is maintained by the head office. 9 To my neighbour Patrick, the sum of Sh. 10,000. 10 The residue of my estate to trustees, to provide an income for my wife and thereafter to my grandchildren in equal shares. You further ascertain the following: Wycklife and Kariuki both predeceased Ben Kika, but their respective children Ronald and John both survived him. Patrick, a life long friend of Ben Kika, had purchased the house neighbouring that of Ben Kika and Gladys shortly before the execution of the will. There is no such investment as101/4%. Treasury stock 2008. The date referred to in Ben Kika's will is believed to be a typing error not previously noticed. Ben Kika's had sold his entire holding of 9% Treasury stock 2007 in November 2005. Ben Kika's car was totally wrecked in the accident of 5 September 2006, the sum of Sh. 114,000 paid by the insurance company represents the agreed value of the motor vehicle at that date. In addition to Kariuki's son, John, there were five other grandchildren living at the date of Ben Kika's death. The Kena Company Ltd. Changed the par value or he shares from Sh. 10 to Sh. 5 Prior to the death of Ben Kika However, this had no significant effect on the market price of the shares. Required: (a) (b) A statement showing the distribution of Ben Kika estate (10 marks) (Ignore all income and interest on legacies). Explain the treatment of the bequests to the following beneficiaries: Patrick Janet (iii) (iv) Ronald Sasha Ken (2 Marks) (2 Marks) (2 Marks) (2 Marks) (2 Marks) (Total: 20 marks) 5 6 Depreciation is provided on property, plant and equipment at the rate of 20% per annum using the reducing balance method. The branch remitted sh.140,000 to the head office on 29 October 2006 which was received by the head office on 3 November 2006. Required: (a) (b) (c) Journal entries to complete recording of the acquisition of the Kitui branch in the books of the head office. (2 marks) Trading, profit and loss accounts for the head office,branch and the combined business, in columnar format, for the year ended 31 October 2006. (12 marks) Combined balance sheet as at 31 October 2006. (6 marks) NUMBER FIVE Ben Kika died as a result of a motor accident on 5 September 2006. His estate at death after payment of debts, funeral and other expenses consisted of the following assets. Freehold house Furniture and other personal effects Ornamental collection Sh. 900,000 120,000 12,000 12,000 ordinary shares in Kena Company Ltd. 210,000 Sh.100,000 nominal 10% Treasury stock 2008 92,000 Amount due from motor insurance company 114,000 Debt due from Caul 50,000 Cash in hand and balance a bank 262,000 Through his will executed several years earlier, Ben Kika forgave his brother-in-law, Caul, all debts at the date of his death and made the following bequests. 1 To my wife Gladys, my freehold house, furniture and other personal effects not other wise bequeathed. 2 To my brother Wycklife the sum of Sh. 100,000 3 To my good friend Patrick, the sum sh.20,000 4 To each of my sons Matata and Kariuki,the sum of Sh. 2,000,000 5 To my daughter Janet, my holding of Sh. 100,000 nominal 101/4% Treasury stock 2008 and Sh. 40,000 to my nephew Ronald payable out of my holding of 9% Treasury stock 2007. 6 To my niece Sasha, my holding of 3,000 shares (ordinary) in Kena Company Ltd. 7 To my cousin Ken, my motor car. 8 To my grandson Jonh, my ornamental collection Extracts of the trial balances as at 31 October 2006 are set out below: Head office sh.'000' sh.'000' Kitui Branch sh.'000' sh.'000' Ordinary share capital 330 Retained earnings (1 November 2005) 3,600 Property, plant and equipment 950 Provision for depreciation Balance at bank Inventories (1 November 2005) 1,420 Accounts payable Investment in branch 1,500 250 220 190 182 165 Purchases Sales 6,380 810 5,406 3,180 2,280 Goods sent to branch Goods received from head office 2,160 Branch/head office current accounts 440 180 Operating expenses 1,138 12,048 12,048 365 3.525 3.525 Additional information: 1 2 3 4 The only entry made in the books of Parez Ltd. in respect of the acquisition of the Kitui branch was the consideration paid. The head office and branch sold goods to customers at a uniform mark-up of 32/,% The branch purchases perishable goods from the local community. The branch sold all perishable goods purchased locally during the year. Goods are sent to the branch from the head office at a mark-up of 20%. Goods which cost the head office sh.1,000,000 were sent to the branch on 28 October 2006. These goods were received by the branch on 5 November 2006.