QUESTION TWO (10 MARKS)

Masaba 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 2020 after preparing the statement of profit or loss.

Sh. 000

Provision for depreciation - Fittings 1,500

- Motor vehicles 3,740

Goodwill 1,200

Issued share capital: 600,000 Sh. 20 Ordinary shares 12,000

250,000 Sh. 20 Redeemable preference shares 5,000

Share premium account 400

Trade debtors and prepayments 1,708

Land and buildings at valuation (cost Sh. 4,400,000) 18,400

Capital redemption reserve fund 3,000

Fittings at cost 3,000

Motor vehicles at cost 7,940

10% Debentures 1,600

Trade creditors and accruals 960

Short term investments (Market value Sh. 860,000) 780

Stock 31 December 2020 2,960

Bank overdraft 540

Revaluation reserve 1,000

Net profit for the year 1,440

Retained profit as at 1 January 2020 4,460

General reserve 1,100

Provision for doubtful debts 48

Interim dividends paid - Ordinary 600

- Preference 200

The following resolutions relating to the year ended 31 December 2020 have been passed by the board of directors of the company:

1. Transfer Sh. 500,000 to general reserves.
2. Transfer Sh. 700,000 to capital redemption reserve fund.
3. Provide for 5% final dividend and final preference dividend on shares issued and outstanding on 31 December 2020.
4. Make a bonus issue of 100,000 fully paid ordinary shares from the retained profits account.

Required:

1. The appropriation account of Masaba Company Ltd for the year ended 31 December 2020 (4 marks)

The balance sheet of Masaba Company Ltd as at 31 December 2020. (6 marks)