45N67 85%9:0;1% <N;=5>1;%6

ADVANCED FINANCIAL ACCOUNTING [ACCF 433] [2007/08 DLM ASSIGNMENT ]

Questi ! " Wiper Ltd 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 1 ! and all sales by both Busia and head office are made at a "ross profit of #$! on the modified cost. %he trial balance as at & 'une # ad*ustments were N#i$ %i %$#!&' +apital Purchases +ost of modification 0rawin"s by the owner 1ales Goods sent3 received by branch 1ellin" and "eneral expenses 0ebtors3 creditors Branch and head office current accounts 1,& (.$ Bank balances (2 1$,$(( A,,iti !#- i!. $/#ti !0 1. Goods worth 1h. ## , branch until 'uly # sent to the branch in 'une # ( were not received by the from the Busia branch to the 1 (while a remittance of sh. /#1,$ 1$,$(( &.(.$ $,/21.$ $,/21.$ -/$ 1,$/. 1,-/&, ( -,./(.$ #$#.$ #($ 2,/ /,2# /,/ 1 2 $2. $/ /,1 1,$$ (usi# %$#!&' ( before takin" account of the under)mentioned

S') *000+ *S')+000+ S')*000+ S')+000+

head office in 'une #

( was not received or recorded at head office until 7u"ust # ,

(.

7ny ad*ustments in respect of these items are to be made in the head office accounts. #. %here was a shorta"e in stocks of a sellin" value of sh. 1 %here were no shorta"es or surplus at the head office. &. <nmodified "oods costin" sh. $ , were at the Nairobi branch as at & 'une # (. /. %here was no loss or wasta"e in the process of modification of stocks by the head office. %he branch handles only "oods received from the head office. Required: Prepare in columnar form for the Nairobi branch, Busia branch and the combined business? a@ %he tradin" and profit and loss accounts for the year ended & 'une # ( 1"2 /#$2s3 b@ %he balance sheet as at & 'une # (. 18 /#$2s3 [TOTAL0 20 MA45S] Questi ! 2 8o"aka rolled with his car and died instantaneously after learnin" that he had won 4shs 1 million in the recently concluded kuachua ushinde promotion. :n November 1 # debt to 9++4@ testamentary and funeral expense, his estate was ascertained as follows? 1hs. B +ash in bank accounts Dreehold house %oyota corolla Nissan sunny %elevision and music system 0ebt due from 8oraa Durniture and personal effects 1 , /,$ 1h. . ordinary shares in 4uku Ltd. ordinary shares in 1un"ura 8*an*a Ltd. , 1 ! <"anda 1tock #& &( # 1,# &( 12$ /,&$ &,#$ &2 ## 1 $ / & # C ( after his executors had paid all debts, Aexcept for the mort"a"e on his freehold house and at the Busia branch.

;ncome received to date ;nterest 0ividend from 1un"ura 8*an*a

#2( Less? 8ort"a"e interest paid 1 'uly # ( 1# 1/( 1 ,/ 5xtracts from 8o"akaEs will left beFuests as follows? i. %o each of my sons, Papi 'unior, 4arubandika and :chien" 0an"er 1h. 1 million. ii. %o my wife, 7ban*uka, ; leave my furniture, household and personal effects and the residue of my estate. iii. %o my dau"hter ;nvestment, my freehold house free of all duties. %he house was sub*ect to a mort"a"e of sh. 1 million earnin" interest at #/! per annum payable &1 8arch and &1 'uly. 0uty on the house amounts to sh. 1& , may choose. v. %o my friend, :lolo 1h. 1 , . , vi. %o some of my sisters)in)law 1h. & viii. %o my driver 4amata 1h. 1$ , 1imba sh. 1 , . , . , 11 ! <"anda stock. 8o"aka owed . iv. %o my friend :"opa, one of the motor cars owned by me at the time of my death he

vii. %o my cousin, Naliaka, my paintin" of 8ona Lisa. ix. %o my friend 1imba, my holdin" of sh. . x. %o my sister 7pple Wonder sh. & Ltd. xii. %o my niece 1upuu, /, Ltd. xiii. %o my nephew 4aman"u sh. # xiv. %o my friend 1hupavu sh. $ , xvi. %o my sister =ista, sh. 1 , , . to establish a computer business. payable out of my shares in 4uku Ltd. ordinary shares from my holdin" of such shares in 4uku

xi. %o my personal assistant, 0isaster 'nr., half of my holdin"s of such shares in 4uku

xv. %o my nei"hbour 8akelele, sh. $ ,

8o"akaEs executors ascertained that the followin" beneficiaries were dead? 1on 4urubandika died in # 1on :chien" 0an"er died # / leavin" a wife and two children. $ leavin" a wife & leavin" two dau"hters &

1ister 7pple Wonder died in #

 0river 4amata a"ed $( died in the same accident as 8o"aka. ;t was impossible to determine the order in which 8o"aka and 4amata died %he executors also advice you that? i. :"opa chose the %oyota corolla. ii. 8o"aka sold his paintin"s of the 8ona Lisa, usin" the proceeds to purchase his holdin"s in 1un"ura 8*an*a Ltd. iii. %here is no such investment as 11 ! <"anda stock. %he reference in the will to 11 ! is thou"ht to be typin" error not previously noticed. iv. 8akelele replied in writin" that he did not want anythin" from 8o"aka because 8o"aka was a bad nei"hbour. v. 8o"aka paid the sh. 1 business. Required: a@ 7 statement showin" the distribution of 8o"akaEs estate on 1 November # ( A1$ 8arks@ b@ 7 list of le"acies to which the executors should not assent, briefly "ive reasons for the decision. A$ 8arks@ [TOTAL0 20 MA45S] Questi ! 3 0istin"uish between the followin" terms? i. Life tenant and trustee
as long as they (or some other person) live

durin" his life to his sister =ista to establish her

A $ 8arks@

life tenant - a tenant whose legal right to retain possession of buildings or lands lasts

Li.e est#te? 7n estate lastin" for the natural life of the "rantee, called a Clife tenant.C ;f a life estate can be sold, a sale does not chan"e its duration, which is limited by the natural life of the ori"inal "rantee. o 7 life estate pur autre vie is held by one person for the natural life of another person. 1uch an estate may arise if the ori"inal life tenant sells her life estate to another, or if the life estate is ori"inally "ranted pur autre vie.

A person who, as a result of a grant of a life estate to his or her benefit, has exclusive possession, use and enjoyment of the trust property (such as a residence) - or subject to such other terms as the trust constitution may set out - until that beneficiary dies. Also known as a tenant for life .

!ne who is entitled to land for the term of his own life" a life interest.... A tenant for life is entitled to the rents and profits of the land during his life but is not entitled to commit voluntary waste unless made unimpeachable for waste.

life tenant
A person entitled to the use of or the income from an asset during his or her lifetime. As an example, a person may stipulate in a will that all of his or her assets are to go to a charity but that the surviving spouse, designated as life tenant, is to have the use of the income from the deceased#s estate for his or her lifetime, following which the remainder of the assets in the estate are to pass to the charity. Trustee is a legal term that refers to a holder of property on behalf of a beneficiary. A trust can be set up either to benefit particular persons, or for any charitable purposes (but not generally for non-charitable purposes): typical examples are a will trust for the testator's children and family, a pension trust (to confer benefits on employees and their families), and a charitable trust. In all cases, the trustee may be a person or company, whether or not they are a prospecti e beneficiary.
An indi idual or organi!ation which holds or manages and in ests assets for the benefit of another. "he trustee is legally obliged to ma#e all trust-related decisions with the trustee's interests in mind, and may be liable for damages in the e ent of not doing so. "rustees may be entitled to a payment for their ser ices, if specified in the trust deed. In the specific case of the bond mar#et, a trustee administers a bond issue for a borrower, and ensures that the issuer meets all the terms and conditions associated with the borrowing.

%he person who mana"es assets owned by a trust under the terms of the trust document. 7 trusteeGs purpose is to safe"uard the trust and distribute trust income or principal as directed in the trust document. With a simple probate)avoidance livin" trust, the person who creates the trust is also the trustee.

ii. Bankruptcy and liFuidation

A $ 8arks@

+hapter( bankrupcy, which is total dismissal of all your debts Aas opposed to +hapter1& which is devisin" a reduced amount payment plan@ has "otten more difficult to file, but it is not "one (#!2$u6t&7 is a le"ally declared inability or impairment of ability of an individual or or"aniHation to pay their creditors.

$an#ruptcy li%uidation also #nown as &hapter ' $an#ruptcy is a legal process where most if not all of your debt can be eliminated. It may ta#e up to six months.

In law, liquidation refers to the process by which a company (or part of a company) is brought to an end, and the assets and property of the company redistributed. (i%uidation can also be referred to as winding-up or dissolution, although dissolution technically refers to the last stage of li%uidation. (i%uidation may either be compulsory (sometimes referred to as a creditors' liquidation) or oluntary (sometimes referred to as a shareholders' liquidation, although some oluntary li%uidations are controlled by the creditors, see below). In finance, liquidation is also sometimes used as con enient shorthand for con erting an asset to cash.

Liquidation
$. %hen a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders. &. Any transaction that offsets or closes out a long or short position. 'reditors li(uidate assets to try and get as much of the money owed to them as possible. )hey have first priority to whatever is sold off. After creditors are paid, the shareholders get whatever is left with preferred shareholders having preference over common shareholders.

iii. 0emonstrative le"acy and General le"acy

A $ 8arks@

7 specific legacy is Csomethin" which a testator, identifyin" it by a sufficient description and manifestin" an intention that it should be en*oyed in the state and condition indicated by that description, separates in favour of a particular le"atee from the "eneral mass of his personal estate,C e.g. a "ift of Cmy portrait by I,C namin" the artist. 7 general legacy is a "ift not so distin"uishable from the "eneral mass of the personal estate, e.g. a "ift of Jioo or of a "old rin". 7 demonstrative legacy partakes of the nature of both the precedin" kinds of le"acies, e.g. a "ift ) ofK1 payable out of a named fund is a specific le"acy so far as the fund named is available to pay the le"acyK after the fund is exhausted the balance of the le"acy is a "eneral le"acy and recourse must be had to the "eneral estate to satisfy such balance 7 demonstrative le"acy differs from aspecific le"acy, a "ift of particular personal property by will. 7 demonstrative le"acy is payable from the "eneral assets of the estate 2

that have not been specifically devised or beFueathed if its desi"nated source has been adeemed or no lon"er exists or if it is inadeFuate to satisfy the "ift.
$. A legacy is general, when it is so given as not to amount to a be(uest of a specific part of a testator#s personal estate" as of a sum of money generally, or out of the testator#s personal estate, or the like. $ *op. +eg. &,-" +own. +eg. $.. A general legacy is relative to the testator#s death" it is a be(uest of such a sum or such a thing at that time, or a direction to the executors, if such a thing be not in the testator#s possession at that time, to procure it for the legatee. 'as. )emp. )alb. &&/" Amb. ,/" 0 1es. jr. -/," / 1es. jr. 233. 0.-&. A specific legacy is a be(uest of a particular thing, or money specified and distinguished from all other things of the same kind" as of a particular horse, a particular piece of plate, a particular term of years, and the like, which would vest immediately, with the assent of the executor. $ *op. +eg. $03" +ownd. +eg. $., $$" $ Atk. 0$,. A specific legacy has relation to the time of making the will" it is a be(uest of some particular thing in the testator#s possession at that time, if such a thing should be in the testator#s possession at the time of his death. 4f it should not be in the testator#s possession, the legatee has no claim. )here are legacies of (uantity in the nature of specific legacies, as of so much money with reference to a particular fund for their payment. )ouchs. 022" Amb. 2$." 0 1es. ,-," 2 1es. 5 6ea. ,. ,. )his kind of legacy is so far general, and differs so much in effect from a specific one, that if the funds be called in or fail, the legatees will not be deprived of their legacies, but be permitted to receive them out of the general assets" yet the legacies are go far specific, that they will not be liable to abate with general legacies upon a deficiency of assets. & 1es. jr. -0." , 1es. jr. &.-" $ 7er. effectually disposed of by *. his will. +own. +eg, $/8. $." 6ac. Abr. +egacies, 4. -.-2. A residuary legacy is a be(uest of all the testator#s personal estate, not otherwise /. As to the interest given, legacies may be considered, as absolute, for life, or in remainder. $. A legacy is absolute, when it is given without condition, and is to vest immediately. 9ee & 1ern. $8$" Ambl. /,." $3 1es. 8-" +ownd. $,$" & 1ern. 02." $ 1ern. &,0" , 1es. 0-$" 'om. :ig. Appendix, 'hancery 4;. 8.-&. A legacy for life is sometimes given, with an executory limitation after the death of the tenant for life to another person" in this case, the tenant for life is entitled to the possession of the legacy, but when it is of specific article#s, the first legatee must sign and deliver to the second, an inventory of the chattels expressing that they are in his custody for life only, and that afterwards they are to be delivered and remain to the use and benefit of the second legatee. 2 <. %ms. 22-" $ Atk. 0/$" & Atk. 8&" $ 6ro. '. '. &/3" & 1ern. &03. 9ee $ *op. +eg. 0.0, ,, ,8.. 4t seems that a be(uest for life, if specific of things (uo ipso usu consumuntur, is a gift of the property, and that there cannot be a limitation over, after a life interest in such articles. 2 7eriv. $30. +=>A'?, :=7!@9)*A)41=. A demonstrative legacy is a be(uest of a certain sum of money" intended for the legatee at all events, with a fund particularly referred to for its payment" so that if

the estate be not the testator#s property at his death, the legacy will not failA but be payable out of general assets. $ *op. +eg. $,2" +ownd. +eg 8," 9winb. 08," %ard on +eg. 2/..

iv. Provable and non)provable debts

meetings in the

A $ 8arks@
bankruptcy.

A provable debt is a claim which entitles a creditor to share in any dividends and to vote at

>enerally a creditor with a provable debt is prevented from continuing any recovery proceeding against a debtor upon their bankruptcy. )here are very limited exceptions.

Which
Secured

debts

are

and

arent

provable

debts?
Debt

A secured debt is where a creditor has a hold over an asset until the debt is paid for. 9hould the debtor default on payments, the creditor has the right to sell the asset to reduce the debt. >enerally, nothing in the 6ankruptcy Act prevents a secured creditor to realise or otherwise deal with their security. >enerally, any deficiency from the sale of the asset is considered to be a provable debt.

Unsecured

Debts

7ost

unsecured

debts

are

provable

in

bankruptcy.

'ommon B B 'redit card )rade

examples debts and creditors

of personal

provable loans incurred before incurred

debts before

areAbankruptcy" bankruptcy"

)here are some debts which are not provable and therefore are not CcoveredD by bankruptcy eg. 'ourt imposed fines, some portions of student loans.

)here are also debts which are provable but where the bankrupt is not released from the liability upon discharge from bankruptcy eg. debts incurred by fraud, maintenance, child support .

)here are debts which are provable (and the creditor can vote at meetings and share in any dividends) where the creditor can also continue or commence recovery action against the

debtorDs non-divisible property andEor income after the date of bankruptcy eg. maintenance, child support.

)here are debts which are provable but which if not paid will cause a service to be terminated for non-payment eg. supply of electricity, gas, telephone etc or the cancellation of a drivers licence andEor motor vehicle registration eg. parking and driving infringement notices.

9ome debts have not sufficiently CcrystalisedD for them to be covered by bankruptcy. =g. A claim for unli(uidated damages against a debtor will not be covered unless the dispute as to whether they are liable and how much they are liable for has been settled prior to bankruptcy (ie a settlement has been agreed between the parties or judgement has been entered). A common example of an unli(uidated claim for damages is an action for personal injury or property damage for negligence.

)herefore the (uestion of what debts a bankrupt will be released from upon the making of a se(uestration order or the acceptance of a debtorDs petition, will depend upon the nature of the debt.

!nly CprovableD debts entitle a creditor to share in any dividend from the administration and to vote at any meeting. A debt is not covered by bankruptcy unless it is provable.

[TOTAL0 20 MA45S]