Number two kariuki mamba and richards have carried on

NUMBER TWO
Kariuki, Mamba and Richards have carried on partnership for several years, sharing profits and
losses equally after allowing for annual salaries as follows:
Kariuki
Sh.
1,500,000
Mamba
Richards
900,000
900,000
They decided to convert the partnership into limited company; Kamari Ltd.as at 30 November 2001,
the following terms:
1. Goodwill to be valued at Sh.13,500,000
2. Other assets to be valued as follows:
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Shs.
Freehold property
Furniture and fittings
Motor Vehicles
27,000,000
2,400,000
6,000,000
3. Each partner is becoming director of the company at the same salary as that previously
allowed in the partnership.
1. Mamba’s loan is to converte d into share capital at par.
5. Shares are to be issued to each partner at parin respect of the amounts of their equity
holdings at 30 November 2001.
6. The financial year of partnership ends on 30 May .No action has been taken to carryout the
terms of conversion of partnership into the limited company in the books of accounts. On 31
May 2002, the trial balance showed the following position:
Sh ‘000’ Sh ‘000’
Capital accounts at 1 June 2001
Kariuki
Mamba
Richards
Stock -31 May 2002
Cost of sales
Sales
Administrative expenses
Selling expenses
Accounting &Audit expense
Incorporation expenses
Drawings:
Kariuki
Mamba
Richards
Freehold property at cost
Furniture and fittings at cost
Accumulated depreciation
Debtors and Creditors
Prepayments and Accruals
Loan from Mamba(10% interest per annum)
Motor Vehicles at cost
Accumulated depreciation
Bank balance
14,400
36,000
6,000
3,000
1,200
600
1,500
900
900
25,800
6,000
9,000
600
12,000
______
117,900
18,000
9,000
6,000
60,000
3,600
7,200
300
9,000
3,600
1,200
117,900
Additional information;
i. The sales during the second half of the year were 60% of the total sales though the gross profit
percentage remained the same throughout the year.
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ii. The selling expenses were proportional to the sales for each period. All the expenses were
incurred evenly throughout the year.
iii. Salary drawings were made evenly. Drawing made after incorporation were to be treated as
director’s salaries.
iv. There were no purchases or sales of fixed assets during the year .Depreciation is to be provided
on cost as follows;
Furniture and fittings 10% per annum
Motor vehicles 20% per annum
v. No dividends are paid or proposed but it is decided to write off the incorporation expenses and
also Sh.3,500,000 of the goodwill.
Required
(a) Trading and profit and loss account for Kamari Ltd. for the six months ended 31 May 2002
(8 marks)
(b) Calculation showing the value of shares to be issued to each partner. (4 marks)
(c) Balance sheet as at 31 May 2002. (8 marks)
(Total: 20 marks)