Identify four shortcomings of traditional accounting

Identify four shortcomings of traditional accounting methods in the context of accounting for human resources. (4 marks)(b) (i) Baraza Ltd., which supplies office equipment, has been trading for several years. Its issued share capital as at 1 January 2001 was 300,000,000 ordinary shares of Sh.100 per value. However, only 250,000,000 ordinary shares were fully paid and the balance were paid up to the amount of Sh.75. The shares issued at per. The following information relates to the period 1 January 2001 to 31 December 2003:On 1 April 2001, the outstanding amounts on the partly paid shares were received.2. During the year ended 31 December 2002, Baraza Ltd. decided to raise further capital by making a rights issue. The rights issue took place on 31 August 2002 on a 1 new share for every 2 existing shares basis at Sh.120 per share. The actual cum-rights price on the last day of quotation was Sh.180.3. Baraza Ltd. suffered from adverse publicity in the year 2003 and in order to prevent a significant loss of profits, a new company, Kikundi Ltd., was formed on 1 July 2003 to take over the business of Baraza Ltd. In order to gain acceptance by existing shareholders, Kikundi Ltd. issued 2 shares for every 1 held in Baraza Ltd. Uniting of interests principles have been adopted in Kikundi Ltd. accounts in order to maintain the comparability of reported earnings.The following are the income statements of Baraza Ltd. and Kikundi Ltd. for the years ended 31 December 2001, 2002 and 2003:Baraza Ltd.Income statement forYear ended 31 DecemberKikundi Ltd.Income statement forYear ended 31 December2001Sh.“million”2001Sh.“million”2001Sh.“million”Sales revenue8001,1001,800Cost of salesGross Profit(300)500(500)600(800)1000Administrative expenses(120)(130)(200)Distribution costs(60)(50)(100)Profit before tax320420700Taxation (140) (170)(250)Profit after tax180250450Extra ordinary item 20 – -Profit for the year200250450Dividends paid(50)(70)(200)Retained profit for the year 150 180 250Required:Calculate the earnings per share (EPS) figures which would appear in the financial statements of Baraza Ltd. and Kikundi Ltd. for the years ended 31 December 2001, 2002 and 2003 with comparative figures for 2002 and 2003. (12 marks)(ii) Explain the reasons underlying the method of calculation of earnings per share (EPS) in a financial year when there has been a rights issue. (4 marks) (Total: 20 marks)

 

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