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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 #( before takin" account of the under)mentioned

ad*ustments were

N#i$%i %$#!&' (usi# %$#!&'

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

+apital 1,$$

Purchases -,/(.$

+ost of modification #$#.$

0rawin"s by the owner #($

ales 2,/ /,1

Goods sent3 received by branch /,2# /,/

ellin" and "eneral expenses -/$ 12

0ebtors3 creditors 1,$/ &,( $2 $/

Branch and head office current accounts 1,-/-

1,&(.$

Bank balances (2 &(.$

1$,$(( 1$,$(( $,/21.$ $,/21.$

A,,iti!#- i!.$#ti!

1. Goods worth h. ##, sent to the branch in 'une #( were not received by the

branch until 'uly #(while a remittance of sh. /#1,$ from the Busia branch to the

1

45N67 85%9:0;% ;%6

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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, at the Busia branch.

%here were no shorta"es or surplus at the head office.

&.

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#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 h. 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&,.

iv. %o my friend :"opa, one of the motor cars owned by me at the time of my death he

may choose.v. %o my friend, :lolo h. 1,.

vi. %o some of my sisters)in)law h. &,

vii. %o my cousin, Naliaka, my paintin" of 8ona Lisa.

viii. %o my driver 4amata h. 1$,.

ix. %o my friend imba, my holdin" of sh. , 11!

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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 un"ura 8*an*a Ltd.

iii. %here is no such investment as 11!

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!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 tocommit voluntary waste unless made unimpeachable for waste.

life tenantA 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 charitybut that the surviving spouse, designated as life tenant, is to have the use of the incomefrom the deceased#s estate for his or her lifetime, following which the remainder of theassets in the estate are to pass to the charity.

Trusteeis a legal termthat refers to a holder of property on behalf of a beneficiary.A trustcan be set up either to benefit particular persons, or for any charitable

purposes(but not generally for non-charitable purposes): typical examples are a willtrustfor the testator's children and family, a pensiontrust (to confer benefits on

employees and their families), and a charitable trust. In all cases, the trustee may bea person or company, whether or not they are a prospectie beneficiary.

An indiidualor organi!ationwhich holdsor manages and inestsassetsfor the benefit of

another. "he trustee is legally obliged to ma#e all trust-related decisionswith the trustee's

interestsin mind, and may be liablefor damagesin the eentof not doing so. "rustees may

be entitled to a paymentfor their serices, if specified in the trustdeed. In the specific case of

the bond mar#et, a trustee administers a bondissuefor a borrower, and ensuresthat the

issuermeets all the termsand conditionsassociated with the borrowing.

%he person who mana"es assets owned by a trust under the terms of the trust

document. 7 trustees purpose is to safe"uard the trust and distribute trust income orprincipal as directed in the trust document. With a simpleprobate)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

(#!$u6t& 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 processwhere most if not all of your debt can be eliminated. It may ta#e up to six

months.

$

http://en.wikipedia.org/wiki/Legal_termhttp://en.wikipedia.org/wiki/Beneficiary_(trust)http://en.wikipedia.org/wiki/Trust_lawhttp://en.wikipedia.org/wiki/Charitable_trusthttp://en.wikipedia.org/wiki/Charitable_trusthttp://en.wikipedia.org/wiki/Purpose_trusthttp://en.wikipedia.org/wiki/Testamentary_trusthttp://en.wikipedia.org/wiki/Testamentary_trusthttp://en.wikipedia.org/wiki/Testatorhttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Companyhttp://www.businessdictionary.com/definition/individual.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/2322/hold.htmlhttp://www.investorwords.com/2598/invest.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/6817/for_the_benefit_of.htmlhttp://www.investorwords.com/6817/for_the_benefit_of.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/2795/liable.htmlhttp://www.investorwords.com/1278/damages.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/6664/service.htmlhttp://www.investorwords.com/5084/trust.htmlhttp://www.investorwords.com/5084/trust.htmlhttp://www.investorwords.com/1341/deed.htmlhttp://www.investorwords.com/530/bond_market.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/1709/ensure.htmlhttp://www.investorwords.com/1709/ensure.htmlhttp://www.investorwords.com/2654/issuer.htmlhttp://www.investorwords.com/4950/terms.htmlhttp://www.investorwords.com/4950/terms.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.businessdictionary.com/definition/borrowing.htmlhttp://www.nolo.com/definition.cfm/term/6E163A78-9FCA-4ABB-9D21412B2C62F097http://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Legal_termhttp://en.wikipedia.org/wiki/Beneficiary_(trust)http://en.wikipedia.org/wiki/Trust_lawhttp://en.wikipedia.org/wiki/Charitable_trusthttp://en.wikipedia.org/wiki/Charitable_trusthttp://en.wikipedia.org/wiki/Purpose_trusthttp://en.wikipedia.org/wiki/Testamentary_trusthttp://en.wikipedia.org/wiki/Testamentary_trusthttp://en.wikipedia.org/wiki/Testatorhttp://en.wikipedia.org/wiki/Pensionhttp://en.wikipedia.org/wiki/Companyhttp://www.businessdictionary.com/definition/individual.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/2322/hold.htmlhttp://www.investorwords.com/2598/invest.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/6817/for_the_benefit_of.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/2795/liable.htmlhttp://www.investorwords.com/1278/damages.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/6664/service.htmlhttp://www.investorwords.com/5084/trust.htmlhttp://www.investorwords.com/1341/deed.htmlhttp://www.investorwords.com/530/bond_market.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/1709/ensure.htmlhttp://www.investorwords.com/2654/issuer.htmlhttp://www.investorwords.com/4950/terms.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.businessdictionary.com/definition/borrowing.htmlhttp://www.nolo.com/definition.cfm/term/6E163A78-9FCA-4ABB-9D21412B2C62F097http://en.wikipedia.org/wiki/Creditor

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In law, liquidationrefers 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-upor dissolution, althoughdissolution 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, liquidationis also sometimes used as conenient shorthand for conerting

an assetto cash.

Liquidation

$. %hen a business or firm is terminated or bankrupt, its assets are sold and theproceeds pay creditors. Any leftovers are distributed to shareholders.

&. Any transaction that offsets or closes out a long or short position.

'reditors liuidate assets to try and get as much of the money owed to them aspossible. hey have first priority to whatever is sold off. After creditors are paid, theshareholders get whatever is left with preferred shareholders having preference overcommon shareholders.

iii. 0emonstrative le"acy and General le"acy A $ 8arks@

7specific legacyis 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 exhaustedthe 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

propertyby will. 7 demonstrative le"acy is payable from the "eneral assets of the estate

2

http://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Dissolution_(law)http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Cashhttp://www.1911encyclopedia.org/Goldhttp://www.1911encyclopedia.org/Goldhttp://www.answers.com/topic/personal-propertyhttp://www.answers.com/topic/personal-propertyhttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Dissolution_(law)http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Cashhttp://www.1911encyclopedia.org/Goldhttp://www.answers.com/topic/personal-propertyhttp://www.answers.com/topic/personal-property

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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 beuest 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" itis a beuest 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 beuest 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 beuest 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 notbe 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. *. $/8.

.-2. A residuary legacy is a beuest of all the testator#s personal estate, not otherwise

effectually disposed of by his will. +own. +eg, $" 6ac. Abr. +egacies, 4.

/. 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 A'?, :=7!@9*A41=. A demonstrative legacy is a beuest 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

(

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

iv. Provable and non)provable debts A $ 8arks@

A provable debt is a claim which entitles a creditor to share in any dividends and to vote atmeetings in the bankruptcy.

>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 debts are and arent provable debts?

Secured 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 examples of provable debts are-

B 'redit card debts and personal loans incurred before bankruptcy"

B rade creditors incurred before 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

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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 unliuidated 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 unliuidated 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 aseuestration 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.

[TOTAL 20 MA5S]

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