On 1st April 2018, C. Munene commenced business with a capital of sh. 630,500. His profits for the years 2018/19 and 2019/20 amounted to sh. 550,540. He suffered a loss of sh. 250,000 in the year 2020/21. His total drawings up to 31st March 2021 were sh. 900,000. He has also provided the following balances as at 31st March

 

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On 1st April 2018, C. Munene commenced business with a capital of sh. 630,500. His profits for the years 2018/19 and 2019/20 amounted to sh. 550,540. He suffered a loss of sh. 250,000 in the year 2020/21. His total drawings up to 31st March 2021 were sh. 900,000. He has also provided the following balances as at 31st March 2021: Sh Cash Stock Debtors good Debtors - doubtful Debtors- had Fixtures and fittings Investment in shares Unsecured creditors (including wife) Secured creditors Securities held by secured creditors Preferential claims-tax etc 20,300 100,000 700,000 180,000 150,000 50,640 50,000 1,300,000 250,000 350,000 10,900 Assume that the following amounts will be realized; Sh. Stock in trade Fixtures and fittings Investment in shares Bad and doubtful debts 60,000 C. Munene intends to apply for insolvency due to continued harassment from his creditors. Required; Prepare the following items to allow for the insolvency process to begin. 60,660 20,820 the book value Statement of Affairs as at 31st March 2021 (3 Marks) ()Deficiency Account of Mohan as at 31st March 2021 (2 Marks) (b) Discuss the accounting treatment of each of the following situations: X Limited issued a one year guarantee for on equipment that it sells to its customer. At the company's year end, the company is being sued by one of its customers for refusing to repair equipment within the guarantee period. X Limited is of the view that the fault is not covered by the guarantee as it believes that it has arisen because the customer incorrectly followed the instructions on using the equipment, X Limited's company lawyer has advised that it is more likely than not that they will be found liable. This would result in the company being forced to repair the equipment plus pay legal expenses amounting to approximately Sh. 2,000,000. (2 Marks) (i) A company is facing litigation. Their lawyers inform them that there is a 70% chance that the company will not have to pay damages, and a 30% possibility of damages arising. Marks) (2 (i) A court orders that XYZ Co. must pay ABC Co. 25,000/- in damages. ABC Co. has not yet received the money. (1 Marks)

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The detailed answer for the above question is provided below: 1. Statement of Affairs as of 31st March 2021: Liabilities Assets Capital 630,500 Cash 2 View the full answer