QUESTION 2 40 marks You are the auditor of Modisane Furniture (Pty) Ltd. During the interim audit, the following matters came to your attention: Matter 1 Modisane Furniture (Pty) Ltds Memorandum of Incorporation (MOI) noted the authorised shares as 80 000 shares. 60 000 of these shares were issued equally to the four founders of the company upon incorporation. The company's directors have agreed to allocate an additional 15 000 shares from the remaining unissued shares to one of the original founders, Mrs Sanah Modisane. However, Mrs Modisane unilaterally decided that the company should lend her R80,000 to purchase these shares.

Matter 2 Donald Modisane, the husband of Sanah Modisane, owns a chain of popular restaurants. His business, Donalds Foods (Pty) Ltd, has been operating for 10 years. In January 2023, Donald and Sanah decided to merge their businesses and have Modisane Furniture acquire 100% shareholding of Donalds Foods, making it a wholly owned subsidiary of Modisane Furniture. As part of the agreement, Modisane Furniture was to issue 15 000 shares to Donalds Foods at a price of R10 per share. However, Modisane Furniture did not hold any directors' or shareholders' meetings to formalize this transaction.

YOU ARE REQUIRED TO:

With reference to the matter 2 and keeping the information in matter 1 in mind:

(d) List the Companies Act requirements that must be met for the issue of shares to Donalds Foods (Pty) Ltd as a subsidiary of Modisane Furniture. (10)

(e) Discuss your concerns regarding the issue of shares to Donalds Foods (Pty) Ltd in light of the Companies Act requirements stated in (d) above. (6)

(f) Assuming the shares issued to Donalds Foods were not retroactively authorised for issue by the shareholders of Modisane Furniture, as they exceeded the authorised share capital, describe the impact of the Companies Act requirements on the shares already issued to Donalds Foods.