On 1 July 2001, 30% of the ordinary share capital of Y. Limited On 1 July 2001, 75% of the ordinary share capital of Z. Limited and also 5,000 of the 10,000, 9% preference shares of Sh.10 each in that company. The draft profit and loss accounts of the four companies for the year ended 30 June 2002 were as shown below Turnover Q. Ltd. 2,100,000 X. Ltd. Y. Ltd. Z. Ltd. 3,900,000 1,900,00 1,200,000 Trading profit 250,000 400,000 210,000 126,000 Dividends receivable: 46,500 296,500 400,000 210,000 Corporation tax: (90,000) (170,000) (85,000) 126,000 Profit after tax: 206,500 230,000 125,000 (51,000) Less: Proposed 75,000 dividends: (6,000) Preference shares (132,000) (100,000) (60,000) (9,000) Ordinary shares 74,500 124,000 65,000 (32,000) Retained profits: 450,000 306,000 235,000 34,000 Balance brought 430,000 300,000 200,000 forward 524,000 234,000 Balance carried down. Additional information: 1. Included in the stock of Z. Ltd. were goods purchased from Q. Ltd. for Sh.24,000 after acquisition. Q. Ltd. realized its usual 25% gross profit margin on this transaction. 2. The dividend due from X. Ltd have not yet been incorporated in the draft profit and loss account of Q. Ltd. 3. There was no goodwill arising on consolidation. Required: The consolidated profit and loss account of Q. Limited and its subsidiary for the year ended 30 June 2002. marks) (15 marks) (Total: 20 (b) Realization account marks) (c) Capital accounts marks) marks) NUMBER TWO (Total: 20 (5 53 Kiave Traders Limited operates two branches one in the head office in Nairobi and the other in Busia. Purchases of stock are made exclusively by the head office branch which does some modification to the stocks before they are sold. Goods are sent to the Busia branch at modified cost plus 10% and all sales by both Busia branch and head office branch are made at a gross profit of 25% on the modified goods. The trial balances as at 30 June 2002 before taking account of the under mentioned adjustments were: Nairobi Branch Sh. '000' Sh. '000' Busia branch Sh. Sh. '000' '000' Capital 1,550 Purchases 9,847.5 Cost of modification 252 Drawings by the owner 275 Sales 6,400 4,100 Goods sent/received by branch 4,620 4,400 Selling and general expenses 945 106 Debtors/Creditors 1,548 3,007 568 54 Branch and head office current 1,949 1,307.5 accounts 760 387.5 Bank balances 15,577 15,577 5,461.5 5,461.5 Additional information: 1. Goods worth Sh.220,000 sent to Busia branch in June 2002 were not received ir recorded by the branch until July 2002 while a remittance of Sh.421,500 from the Busia branch to the head office in June 2002 was not received or recorded at head office until August 2002. Any adjustmenta in respect of these items are to be made in the head office accounts 2. There was a shortage in stocks of selling value of Sh.100,000 at the Busia Branch. There was no shortage of surplus at the head office. Current accounts: 5,000 Elais 3,750 8,750 Banis 33,750 Long term liabilities: 2,500 Loan - Elias 36,250 Additional information: 1. Premium have been paid on life assurance policies for each partner to provide the firm with cash on death. The premiums have been charged to insurance expense and the cash payable on death of any partner is Sh.5,000,000. 2. The assets were duly sold and the monies received as follows: 14 June 2002 Life policy on Elias's life Sh. '000' 5,000 Life policy on the lives of Banis and Kinyua surrendered 2,500 25,000 16 July 2002 Freehold land and buildings 3,750 Debtors (part) 2,500 Stock (part) 20 August 2002 Plant and machinery 6,375 Fixtures and fittings 1,500 Motor vehicles 625 15 October 2002 Stock (Remainders) 4,500 Debtors (Remainders) 5,250 3. Provision was to be made for dissolution expenses of Sh.300,000. 4. As soon as sufficient money was available to pay all outstanding creditors, this was done, discounts being received amounting to Sh.125,000. 5. Dissolution expenses amounted to Sh.250,000 and this was paid on 31 October 2002. Required: (a) Statement showing how the proceeds of the dissolution would be shared between the partners marks) (12 NUMBER ONE Elias, Banis and Kinyua have been partners sharing profits and losses in the ratios 2:2:1. Accounts have been prepared on an annual basis to 31 December of each year Elias the only active partner, died on 31 May 2002 and the remaining partners decided to cease business from that date. The assets are to be realized, outstanding debts paid and the remainder to be shared by the partners (including the executors of Elias's estate) in an equitable manner, distributions of cash being made as soon as possible. A balance sheet prepared as at 31 May 2002 revealed the following position: Elias, Banis and Kinyua Balance Sheet as at 31 May 2002 Accumulated Net Book Cost Depreciation Sh.'00 Sh.'000' Value Sh.'000' 0' Fixed assets: Goodwill 12,500 12,500 Freehold land and buildings 18,750 18,750 Plant and machinery 16,625 6,975 9,650 Fixtures and fittings 3,750 1,625 2,125 Motor vehicles 4,000 3,000 1,000 55,625 11,600 44,025 Current assets: Stock 8,000 Debtors 8,125 Less: provision for doubtful 750 7,375 debts 20 Cash 15,395 Current liabilities: Creditors 7,125 23,170 (7,775) Bank overdraft 16,045 36,250 Financed by: Capital income: Elias Banis Kinyua 12,500 7,500 5,000 25,000 3. Unmodified goods costing Sh.500,000 were at the Nairobi branch as at 30 June 2002. 4. There was no loss or wastage in the process of modification of stocks by the head office. The branch handles only goods received from the head office. Required: Prepare in columnar form for the Nairobi branch, Busia branch and the combined business. (a) The trading and profit and loss account for the year ended 30 June 2002 (12 marks) (b) The balance sheets as at 30 June 2002. marks) marks) NUMBER THREE (8 (Total: 20 (a) TNT Ltd. purchased equity shares in KLM Ltd. for Sh.56 million when the latter's retained profits were Sh.88 million. The retained earnings of KLM Ltd. now are Sh.100 million. TNT Ltd. holds 25% of KLM Ltd.'s equity shares and has amortised Sh.3 million premium on acquisition. KLM Ltd has declared ordinary dividends of Sh.4 million. Required: Determine the value of TNT Ltd.'s investment in KLM Ltd. using the equity method of accounting for associate companies. marks) (5 (b) Q. Limited is a large manufacturing company that manufacture a wide range of products. Due to the fluctuating nature of economic environment, the company's management has sought to diversify its interests by purchasing shares in other companies in order to improve its reported performance. It has been Q. Ltd's policy to appoint a director to the board of any company where its investment comprises more than 20% of the equity share capital, so as to take an active in the management of the said company. The following investment have been made: On January 2001, 15% of the ordinary share capital of X Limited