TO BE USED BY VARSITYCOLLEGE STUDENTS IN CONJUNCTION WITH OUR LECTURE PROGRAMME

INTERNAL EXAM

AUE1601

LEGAL ASPECTS IN ACCOUNTANCY

DATE:AUGUST 2012

DURATION:2 HOURS

MARKS:100 MARKS

INSTRUCTIONS:

Students are required to answer all questions.

Section A:

Question 1:

MNOP Ltd, a leading producer and distributor of fine wines, spirits and ciders.

The following extract is from MNOP Ltd’s annual financial statements at 30 June 2012:

ASSETS

Total Non-Current Assets4 000 000

Total Current Assets2 000 000

6 000 000

EQUITY AND LIABILITIES

Total Non-Current Assets Liabilities6 000 000

Total Current Liabilities5 000 000

11 000000

Mr X, the chief executive director, approached you for advice regarding the following transactions:

MNOP Ltd wants to sell certain fixed assets with a book value of R3,5 million at a profit of R1 million to an independent third party.

Discuss the requirements of the Companies Act 71 of 2008, as amended, in respect of the above transaction, assuming that no shareholders opposed this particular transaction. Do not discuss any requirements regarding quorums or voting. (20marks)

the chief executive director, approached you for advice regarding the

Question 2:

SAME INFORMATION AS PREVIOUS QUESTION

MNOP Ltd is experiencing severe cash flow problems. The company decided to attempt a strategy to attract investors and to increase the satisfaction of current shareholders and to discourage any disinvesting. Mr X proposed to declare a dividend at the end of the financial year to successfully accomplish the company’s goal.The board of directors approved the decision with no director opposing the decision.

Evaluate the requirements of the Companies Act 71 of 2008, as amended, in respect of the above transaction. Answer the question in the format of Theory and secondly the Application thereof. (20 marks)

Section B:

Question 3:

3.1. The Companies Act identifies two categories of company. Name these categories. (2)

3.2. Into which category do the following fall:

3.2.1 Public companies (1)

3.2.2 Personal liability companies (1)

3.3. What is the founding document for a company and how many persons may incorporate a non-profit company? (2)

3.4. How are amendments to this founding document authorised other than where the

amendment is in terms of a court order? (3)

3.5. Companies may no longer issue par value shares. True or false? (2)

3.6. The rights and limitations attached to shares which are stated in the company’s founding statement can be altered by a resolution of the Board of Directors. True or false? Justify. (3)

3.7. Can a natural person and a juristic person be “related” in terms of the Companies Act. Justify. (2)

3.8. For the purposes of the application of the Companies Act are the following considered to be related? Give reasons for your answers.

3.8.1 A mother and her grandson (2)

3.8.2 A father and his son-in-law. (2)

ABC Ltd wants to sell certain fixed (20marks)h a book value of

Question 4:

Pendex Ltd is a public company which manufactures office furniture and equipment. The following statutory matters have arisen.

Due to the resignation of the previous incumbent, the directors need to appoint a company secretary. The following have been put forward at a meeting of the directors, for consideration for appointment as company secretary.

  • Smiley & Grouch, company’s auditing firm.
  • The Management House (Pty) Ltd - a financial services consulting company located in Gauteng.
  • Monty Els, the production director who is retiring but wishes to maintain his links with the company.
  • Sevi Garcia, a former director of Pendex Ltd, who currently works in the finance department at Pendex Ltd. Sevi Garcia who is a member of the Chartered Institute of Secretaries, resigned his directorship last year because he is an unrehabilitated insolvent. His insolvency came about due to losses made from gambling.
  • Ajay Singh, who currently holds the position of company secretary of a dairy company in KwaZulu Natal. In his application for the position at Pendex Ltd, Ajay Singh revealed that he and his family held 5% of PendexLtd’s ordinary share capital.

During the course of the year, Pendex Ltd sold a piece of vacant land adjoining its factory. This property had been bought some years ago when the company was considering opening a factory to manufacture domestic furniture. However, this did not materialize and the directors decided to sell the land and to distribute the cash raised from the sale as a dividend to shareholders. Due to the slightly depressed property market in the area a small loss was made on the sale.

Scrutiny of the minutes of directors meetings revealed that the directors had resolved to make a loan of R8.2 million to Deco (Pty) Ltd, a company which supplies Pendex Ltd with upholstery fabric, to fund an expansion program. 65% of the shares in Deco (Pty) Ltd are owned by Abdul Paruk. He formed the company some years ago, but subsequently resigned from employment at Deco (Pty) Ltd (but retained his shareholding) to take up the position of production director at Pendex Ltd.

4.1. Indicate, giving brief reasons whether each of the parties listed in 1 above

would be eligible for appointment as company secretary of Pendex Ltd.(10)

4.2. Discuss the permissibility of the distribution to the shareholders of the

proceeds of the sale of the vacant land by way of dividend. (10)

4.3. Identify and discuss the statutory implications of the loan made by Pendex Ltdto Deco (Pty) Ltd. (20)

(40 marks)