ADVANCED FINANCIAL ACCOUNTING

Question One

Glass plc (‘Glass’) is a UK listed company. On 1 November 2003 its issued share capital was
10,000,000 ordinary shares of 60p each and 4,000,000 4% preference shares of £1 each. During
the year ended 31 October 2004 the company made a rights offer to its shareholders of three new
ordinary shares of 60p each for every 10 existing ordinary shares held. The offer was fully taken
up by shareholders, who purchased the new shares for £3 each on 1 May 2004. The fair value of
each ordinary share on 30 April 2004 was £4.15.

At 31 October 2004 the ordinary shareholders of Glass also held options, exercisable between 1
November 2007 and 1 May 2008, to purchase 1,200,000 ordinary shares at £2.80 per share. No
options were issued during the year ended 31 October 2004. The average fair value of the
ordinary shares during the year was £4.20 each.

The company paid an ordinary dividend of £1,040,000 and a preference dividend of £160,000
during the year to 31 October 2004.

Glass’s draft profit and loss account for the year ended 31 October 2004 shows the following:

£000’s
Operating profit 4,525
Interest payable (329)
Profit on ordinary activities before taxation 4,196
Taxation (1,279)
Profit on ordinary activities after taxation 2,917
Minority interests (132)
Profit for the financial year 2,785

Required:

(1) Calculate the basic earnings per share for Glass for the year ended 31 October 2004.

(2) Calculate the diluted earnings per share for the year ended 31 October 2004.

(3) Prepare the earnings per share disclosure note for the year ended 31 October 2004.

Note:
Comparative figures are not required
(20 marks)

ACCT 311: 11th March, 2011

Question Two
Chief Wamalwa died on the 31st December 2003 at Kingumwira Village in Sirari, Mara Region
after a long illness. Fortunately, the late Chief Wamalwa, who had 4 sons, left a will. In his will
he had instructed that his properties be kept under a trust for his four sons who were still minors.
His sons were; -
- Wanahara 14 years
- Allen II years
- Kisinda 8 years
- Michael 5 years
In 1st April 2005, the following accounts were extracted from the books of the trustee.
Sh
Estate Capital A!C 158,770
Beneficiaries Maintenance Expense Accounts: -
Wanahara 980
Allen 1,085
Kisinda 770
Michael 730
Estate Income Account (credit) 12,500
Accumulated Income A!C (credit) 1,000
Estate Capital Investments at cost: 158,770
Accumulated Accounts Investments at cost 17,600
Beneficiaries Accumulated Accounts at the beginning
Of the year 1st April 2004 (all credit): -
Wanahara 1,760
Allen 2,640
Kisinda 3,520
Michael 9,680
Cash at Bank 9,935

ACCT 311: 11th March, 2011

The late Chief Wamalwa had indicated in his will that his sons Wanahara, Allen, Kisinda, and
Michael were to share the estate and the estate trust income in the proportion of 8; 6; 6; and 5
respectively.

Required:
(a) Prepare a statement in columnar form showing the beneficiaries accumulations accounts
for the period Up to 1stApril, 2005.
(b) Prepare a Balance Sheet as on 1st April 2005.
(20 marks)
Question Three

The summarized assets and liabilities position of Hopeful Ltd as on 1.4.1996 was as follows:

Liabilities TZS
Authorized Capital:
30,000 Equity Shares of TZS. 100 each 8,000,000
20,000 9% Preference Shares of TZS. 100 each 2,000,000

Issued and Paid – up Capital:

40,000 Equity Shares of TZS. 10 each (paid TZS. 75 on each share) 3,000,000
20,000 9% Preference Shares of TZS. 100 each fully paid 2,000,000
Unsecured Loans 800,000
Trade creditors 480,000
Bank Overdraft 160,800
6,440,800

Assets
Goodwill 200,000
Land and Buildings 1,600,000
Plant and Machinery 1,200,000
Investments 240,000
Stock 540,000
Debtors 1,180,000
Cash in Hand 60,000
Profit and Loss Account 1,420,800
6,440,800

Notes:
a) Dividend on Preference Shares has not been declared for 2 years.
b) No provision has been made for sales tax liability of TZS. 90,600

Following Schemes of Reconstruction has been approved by the court.

ACCT 311: 11th March, 2011

i) Uncalled capital is to be called – up in full and equity shares are to be reduced to TZS. 50 per
share
ii) Sales Tax liability of TZS. 90,000 is to be paid immediately.
iii) Land and buildings are to be shown in the balance sheet on full market value of TZS
2,200,000 and Goodwill is to be written off.
iv) Trade creditors have consented for 25% of remission of liability on a condition that 25% of
the net liability after remission is paid forthwith and the balance is paid within one year.
v) Investments are to be taken over by Bank in full settlement of the overdraft balance.
vi) Preference shareholders have agreed to give up their right for the two years dividend and
accept 12 fully paid equity shares of TZS 50 each for each fully paid preference share.

Required
i) Pass necessary journal entries recording the above transactions, and
ii) Draw up a fresh balance sheet after giving effect to the Scheme of Reconstruction.

Workings should form part of your answer

(20 marks)

Question Four
In a series of misfortunes George Temu files his petition for bankruptcy and a receiving order
is made on him on 30th June 2010. The following information is available.

a) His business assets on this date are as follows:

Appearing in the books at Expected to Realise

Motor vehicle 39,800 21,500

Furniture and Fit. 27,400 10,000

Stock in trade 49,800 56,500

Trade debtors 39,600 24,800

Cash in Hand and at Bank 7,200

b) A loan secured from the Tanzania Investment Bank, at 6% interest on the security of the
Motor Vehicles, was outstanding on this date at Tsh. 20,600
c) Other business liabilities include;
Tsh. 36,200 due to trade creditors, out of which a claim for Tsh. 2,400 is statute barred.
Tsh. 9,200 due to Mrs. Temu being the amount advanced by her for meeting workers’
salary for May 2010.
Tsh. 9,200 due as salaries to workers, for June 2010.

ACCT 311: 11th March, 2011

 Tsh. 5,400 due to the General Manager as his salary for the three months to 30 th June
2010.
Tsh. 650 due as telephone and electricity bills, Tsh. 350 due as interest on TIB loan.
d) In the event of cessation of business Tsh. 24,500 will become payable to the employee as
compensation.
e) Net trading loss and household expenses of Temu, who had no other source of income, in
respect of the year to 30th June 2010 amounts to Tsh. 13,800 and Tsh. 19,500
respectively.
f) Temu’s personal liabilities on this date consists of:
Tsh.24,800 due in respect of gambling debts
TSh.3,100 due in respect of liquor bills
Tsh. 8,500 due as medical bills
Tsh. 26,300 due as Income Tax made as follows:

Year of Income date of

Assessment Tax interest assessment
2006 11,400 1,900 6.10.2007
2007 8,000 700 14.7.2009
2008 2,500 - 1.2.2010
2009 1,800 - Estimated
g) A national bank of commerce loan guaranteed by Temu for a Friend is outstanding at
Tsh. 27.200
h) Only personal assets owed by Temu on this date consist of a music centre expected to
realise Tsh. 7,500; Furniture expected to realise TSh. 6,000; Life policy having a
surrender value of Tsh. 6,400; Bedding and wearing apparel Tsh. 5,000.

You are required to prepare the statements of affairs and deficiency statement.

(25 marks)

Question Five
a) Explain what you understand by the following terms

i. Estates
ii. Beneficiaries
iii. Will
iv. Dying In testate
v. Dying Testate
b) What are the important features of a valid will?
c) When is a will not valid?

d) Explain the main stages in a Bankruptcy proceeding

ACCT 311: 11th March, 2011

 (15 marks)

ACCT 311: 11th March, 2011