SCHOOL OF BUSINESS AND PUBLIC MANAGEMENT

NAME: NOORDIN DAHIR MOHAMED

ADM.NO. BBM/2017/75742

UNIT NAME: FINANCIAL MANAGEMENT II

UNIT CODE BAF 1201

Question one

Solution
Required;
i) Profit and loss appropriation account (4mks)

Net profit
244,000
Add interest on drawings

Mary 4/100 𝑥 60000 = 2400

Ann 4/100 𝑥 25000 = 1000 3400

247,400
Less interest on capital

Mary 5/100 𝑥 640,000 = 32000

Ann 5/100 𝑥 25000 = 1250 (33250)

214,150
Less Salaries
Mary 30,000
Ann _ (30,000)
184,150

Balance of profit to be shared on profit ratio.

Mary 3/5 𝒙184150 = 110,490

Ann 2/5 𝒙 184150 = 73660

 ii) Capital account of the partners (6mks)

Mary and Ann Capita account as at 31st December 2014

Mary Ann Bank 375000

Drawings 60,000 25000 Interest on capital 33250

Interest on drawings 2400 1000 Salary 30,000

Balance c/d 110,490 73660 Share of profit 184,150

272550 272550
 iii) Balance sheet after completion of above matters (4mks)

Mary and Ann Balance sheet as at 31st December 2014

Net Assets
Building 1020,000

Plant 840,000
Capital
Mary 1120,000

Ann 640,000

Current Account
Debtors 263,000
Stock 346,000
Creditors 480,000
(777,600)
Non- current liability 2842,400
Loan 360,000
Bank 375000 735,000
3577400
Question two
a) Briefly explain the meaning of each of the following as used in the accounting for
investments

1) Allotment of shares

When a company receives an application for shares issued by means of prospectus, it proceeds to
allot shares on predetermined basis (which is set out in the prospectus). Where applications
exceed the shares available, allotment is made proportionally, though often applications for
shares up to a stated number are accepted in full. The allotment of shares is made by means of a
letter of allotment. This entitles the recipient to a certificate for the number of shares stated in the
letter. His title may however depend on his paying the sum previously stated as due on allotment.

2) Redemption of shares

A redemption is the return of an investor's principal in a fixed-income security, such as a

preferred stock or bond, or the sale of units in a mutual fund. Fixed-income securities are
redeemed at par value on the maturity date, and called bonds are redeemed at a premium price
above par. On the other hand, mutual fund investors redeem mutual funds shares, and the some
mutual funds have minimum holding periods and back-end sales charges.

3) Forfeiture of share

When shares are allotted to an applicant, he and the company enter into a contract automatically.
Then such an applicant is bound to pay the allotment money and all the various call monies till the
shares are fully paid up. But if the shareholder fails to pay any of the calls (one or more) on the
authorization of the board of Directors, the said shares can be forfeited. Forfeiture essentially means
cancellation.

4) Bonus of shares

These shares are known as ‘Bonus Shares’. Such bonus shares are to be offered to the existing
shareholders in proportion to the shareholdings and dividend rights. Generally, the company
issues bonus shares out of profits and/or reserve to the existing shareholders. Since the
profit/reserve is being capitalized, it is also called capitalization of profit/reserve. As the
company cannot receive cash from the shareholders for the purpose of issuing bonus shares

5) Right issue (10marks)

This is new stock (share) issue offered to existing stockholders (shareholders) in proportion to
their current stock/shareholding, for a specified period and at a specified (usually discounted)
price. Its objective is to afford them the opportunity to maintain their percentage of ownership of
the firm. See also scrip issue. Also called rights offering.

Required

b). Prepare the statement of affairs to find his capital as at 1st January 2002
(6 marks)

Solution

Z-Mariam Statement of Affaires as at 1st Jan 2002

Assets

Motor vehicle 3500

Debtors 2880

Balance at Bank 550

Prepayment 90

7020

Liabilities

Creditors 1970

Accrued expense 150 (2120)

4900
References.

Pandey, I. M. Financial Management 9th Edition, Vikas publishing house, 2009.

Manas‟seh, P. N. A Text Book of Business Finance, Kijabe Printing Press, 2007.