QUESTION ONE P Limited, a public limited company, has held a controlling interest in S Limited,

another public limited company, for one decade. P Limited also has a significant influence over
A Limited, a public limited company. All the companies operate in the manufacturing sector. The
draft statements of financial position of P Limited and S Limited as at 30 June 2022 were as
shown below: P Limited S Limited Sh.“million” Sh.“million” Assets: Non-current assets: Property,
plant and equipment 16,875 10,230 Investments - S Limited 13,000 - A Limited 3,650 Financial
assets at fair value 6,190 _____ 39,715 10,230 Current assets: Inventory 9,980 6,930 Trade
receivables 9,480 6,580 Cash and cash equivalents 5,490 3,815 24,950 17,325 Total assets
64,665 27,555 Equity and liabilities: Equity: Ordinary share capital (Sh.10 par value) 20,000
10,000 Share premium 4,000 2,400 Retained earnings 16,670 5,950 Total equity 40,670 18,350
Non-current liabilities: 10% loan notes 10,500 3,500 Deferred tax 6,150 1,870 16,650 5,370
Current liabilities: Trade payables 5,700 3,100 Current tax 1,645 735 7,345 3,835 Total equity
and liabilities 64,665 27,555 Additional information: 1. On 1 July 2012, P Limited acquired 60%
of the ordinary shares of S Limited for a cash consideration of Sh.10,000 million. At acquisition,
the fair value of the non-controlling interest in S Limited was Sh.6,500 million. P Limited wishes
to use the fair value method of accounting for goodwill. On 1 July 2012, the fair value of the
identifiable net assets in S Limited was Sh.14,000 million and the retained earnings of S Limited
were Sh.1,200 million. The excess in fair value was due to non-depreciable land.
Kasnebnotes.co.ke CA32 Page 2 Out of 6 2. On 1 January 2022, P Limited acquired a further 20%
interest in S Limited for a cash consideration of Sh.3,000 million. S Limited reported a profit for
the year ended 30 June 2022 of Sh.500 million which accrued evenly throughout the year. 3.
During the year ended 30 June 2022, P Limited sold goods worth Sh.2,000 million to S Limited. P
Limited reports a gross profit margin of 25% on all its sales. Half of these goods were still in the
inventory of S Limited as at 30 June 2022. 4. Goodwill was tested for impairment immediately
after the additional acquisition of interest in S Limited and was considered impaired by 10%. No
impairment had been reported in the previous years. 5. On 1 July 2015, P Limited acquired 30%
of 1,000 million ordinary shares of Sh.10 each in A Limited when the retained earnings of A
Limited stood at Sh.1,000 million. A Limited had no other reserves as at 1 July 2015. As at 30
June 2022, the retained earnings of A Limited were Sh.3,500 million. No impairment was
deemed necessary in respect of the investment in A Limited. 6. None of the group companies
declared or paid dividend during the year. 7. None of the group companies issued additional
shares. Required: (a) Determine the non-controlling interest in S Limited as at 30 June 2022. (6
marks) (b) Consolidated statement of financial position as at 30 June 2022. (14 marks)

a) Determine the non-controlling interest (NCI) in S Limited as at 30 June 2022

(6 marks)
Step 1: Determine the percentage held by non-controlling shareholders

 P Limited's total holding in S Limited:

o Initially 60% (on 1 July 2012)
o Acquired an additional 20% (on 1 January 2022)
o Total holding as at 30 June 2022 = 80%
 NCI holding = 20%

Step 2: Use the fair value method of NCI at acquisition

Fair value of NCI at acquisition (1 July 2012) = Sh.6,500 million

Step 3: Calculate NCI share of post-acquisition profits

We need to compute NCI’s share in the post-acquisition profits, from 1 July 2012 to 30 June
2022, and then adjust for:

 NCI share of profits (before 1 Jan 2022) → 40% (100% – 60%)

 NCI share of profits (after 1 Jan 2022) → 20% (100% – 80%)

S Limited retained earnings as at 1 July 2012 = Sh.1,200 million

 As at 30 June 2022, retained earnings = Sh.5,950 million

 Post-acquisition increase = 5,950 – 1,200 = 4,750 million
 Profit between 1 July 2012 and 1 Jan 2022 (9.5 years) = 4,750 – (500 ÷ 2) = 4,500
million
o NCI share (40%) = 40% × 4,500 = 1,800 million
 Profit for 6 months after Jan 1, 2022 = 500 ÷ 2 = 250 million
o NCI share (20%) = 20% × 250 = 50 million
 Total NCI share of post-acquisition profits = 1,800 + 50 = 1,850 million

Step 4: Deduct share of goodwill impairment (if using fair value NCI)

 Total goodwill impairment = Calculated in consolidated working (we’ll estimate that in

part b)
 For now, assume NCI’s share of goodwill impairment = 10% × NCI share in goodwill
Let’s calculate total goodwill first.

Step 5: Calculate Goodwill at Acquisition

Goodwill at acquisition (1 July 2012):

Goodwill=Consideration by parent+NCI (fair value)−Net assets at acquisition\text{Goodwill}

= \text{Consideration by parent} + \text{NCI (fair value)} - \text{Net assets at
acquisition}Goodwill=Consideration by parent+NCI (fair value)−Net assets at acquisition
=10,000+6,500−14,000=2,500 million= 10,000 + 6,500 - 14,000 = 2,500 \
text{ million}=10,000+6,500−14,000=2,500 million

 Impairment = 10% of 2,500 = 250 million

 NCI share = 6,500 / (10,000 + 6,500) = 39.39%
o So, NCI share of impairment = 250 × 39.39% ≈ 98.5 million

Non-Controlling Interest as at 30 June 2022 =

=Fairvalueatacquisition+shareofpost−acquisitionprofits–shareofgoodwillimpairment= Fair value

at acquisition + share of post-acquisition profits – share of goodwill
impairment=Fairvalueatacquisition+shareofpost−acquisitionprofits–shareofgoodwillimpairment
=6,500+1,850–98.5=8,251.5 million≈Sh.8,252 million= 6,500 + 1,850 – 98.5 = \boxed{8,251.5 \
text{ million}} \approx \textbf{Sh.8,252 million}=6,500+1,850–98.5=8,251.5 million
≈Sh.8,252 million

(b) Consolidated Statement of Financial Position as at 30 June 2022 (14 marks)

Let’s consolidate the balances.

Step 1: Consolidated Assets

Non-Current Assets

 Property, plant & equipment (PPE):

o Combine both companies: 16,875 + 10,230 = 27,105 million
 Goodwill on acquisition:

Initial goodwill:
=10,000+6,500–14,000=2,500= 10,000 + 6,500 – 14,000 = 2,500=10,000+6,500–14,000=2,500

Impairment = 10% → 2,500 × 10% = 250

Net goodwill = 2,250 million

 Investment in S Limited: Eliminate during consolidation

 Investment in A Limited: Equity accounted

Share of A Limited's post-acquisition retained earnings:

Increase=3,500–1,000=2,500Increase = 3,500 – 1,000 = 2,500Increase=3,500–

1,000=2,500

P Limited owns 30%, so:

Share=30Share = 30% × 2,500 = 750Share=30

Investment in associate = 3,650 + 750 = 4,400 million

 Financial assets (P Limited): 6,190 million

Total Non-Current Assets:

=PPE+Goodwill+Investmentinassociate+Financialassets=27,105+2,250+4,400+6,190=39,945mi
llion= PPE + Goodwill + Investment in associate + Financial assets = 27,105 + 2,250 + 4,400 +
6,190 = \boxed{39,945
million}=PPE+Goodwill+Investmentinassociate+Financialassets=27,105+2,250+4,400+6,190=3
9,945million

Current Assets

 Inventory = 9,980 + 6,930 = 16,910

o Less unrealised profit on intra-group sale:
 Half of 2,000 = 1,000 still in inventory
 Unrealised profit = 25% of 1,000 = 250
 Adjusted inventory = 16,910 – 250 = 16,660 million
 Trade receivables = 9,480 + 6,580 = 16,060
o Less intra-group balance (eliminated). Assume all intra-group sales were on
credit.
 Eliminate intra-group receivables = 2,000
 Adjusted = 16,060 – 2,000 = 14,060 million
 Cash and cash equivalents = 5,490 + 3,815 = 9,305 million
Total Current Assets:

=Inventory+Tradereceivables+Cash=16,660+14,060+9,305=40,025million= Inventory + Trade

receivables + Cash = 16,660 + 14,060 + 9,305 = \boxed{40,025
million}=Inventory+Tradereceivables+Cash=16,660+14,060+9,305=40,025million

Total Consolidated Assets:

=Non−current+Current=39,945+40,025=79,970million= Non-current + Current = 39,945 +

40,025 = \boxed{79,970 million}=Non−current+Current=39,945+40,025=79,970million

Step 2: Equity and Liabilities

Equity

 Share capital (P only) = 20,000

 Share premium (P only) = 4,000
 Group retained earnings:
o Parent retained earnings = 16,670
o Add: Share of post-acquisition retained earnings from S:
 60% × 4,500 = 2,700 (pre-Jan 2022)
 80% × 250 = 200 (post-Jan 2022)
 Total = 2,700 + 200 = 2,900
o Add: Share of associate (A Limited) = 750
o Less: Unrealised profit in inventory = 250
o Less: Goodwill impairment (P share only) = 250 – 98.5 = 151.5

Group retained earnings:

=16,670+2,900+750–250–151.5=19,918.5≈Sh.19,919 million= 16,670 + 2,900 + 750 –

250 – 151.5 = \boxed{19,918.5} \approx \textbf{Sh.19,919
million}=16,670+2,900+750–250–151.5=19,918.5≈Sh.19,919 million

 Non-controlling interest = Sh.8,252 million (from part a)

Non-Current Liabilities:

10% Loan notes = 10,500 (P) + 3,500 (S) = 14,000

Deferred tax = 6,150 + 1,870 = 8,020

Current Liabilities:

 Trade payables = 5,700 + 3,100 = 8,800

o Less intra-group (2,000) = 6,800 million
 Current tax = 1,
 645 + 735 = 2,380 million

QUESTION TWO (a) B Limited operates a factory as its sole cash generating unit (CGU). During
the year ended 30 April 2022, there was an explosion in the factory which necessitated an
impairment review. The carrying amounts of the factory assets were as follows: Sh.“000”
Goodwill 2,000 Patents 3,600 Machinery 4,000 Computer equipment 8,000 Premises 30,000
47,600 Additional information: 1. An impairment review revealed a net selling price of
Sh.19,200,000 and a value in use of Sh.31,200,000 for the factory. 2. Half of the machinery have
been destroyed and have no resale value. 3. The patents have been superseded and are now
considered worthless. 4. The company follows the cost model as permitted by International
Accounting Standards (IAS) 16 “Property, Plant and Equipment”. Required: Discuss, with suitable
calculations, how any impairment loss in the cash generating unit (CGU) would be accounted for
in accordance with the International Accounting Standard (IAS) 36 “Impairment of Assets”. (10
marks) (b) T Limited, a public limited entity, is a holding company in a group of companies. The
following transactions relating to deferred tax were extracted for the purpose of finalising the
group financial statements for the year ended 30 April 2022: 1. T Limited owns property, plant
and equipment that cost Sh.625 million when purchased. Depreciation of Sh.250 million has
been charged up to the reporting date of 30 April 2022. The entity has claimed a total capital
allowance on property, plant and equipment of Sh.300 million. On 30 April 2022, the property,
plant and equipment was revalued to Sh.575 million. 2. On 31 October 2021, the company
completed a development project and incurred a cost of Sh.200 million which it capitalised in
accordance with International Accounting Standard (IAS) 38 “Intangible Assets”. The estimated
economic useful life of the intangible asset was five (5) years at 31 October 2021. The company
obtains full tax relief for research and development expenditure on cash paid basis. 3. During
the year to 30 April 2022, T Limited transferred goods worth Sh.1,500 million to one of its
subsidiaries. T Limited made a gross profit margin of 20% on its sales. One third (1⁄3) of the goods
remained unsold by the subsidiary at the reporting date of 30 April 2022. Kasnebnotes.co.ke
CA32 Page 3 Out of 6 4. The trade receivables were carried in the consolidated statement of
financial position at Sh.480 million. This was after an allowance for doubtful debts of Sh.60
million and an unrealised foreign exchange gain of Sh.80 million. The allowance for doubtful
debts and foreign exchange gains/losses are only allowed for tax purposes when realised. 5. The
balance on the deferred tax liability account of T Group as at 1 May 2021 was Sh.25 million. 6.
The income tax rate applicable to T Limited for the year ended 30 April 2022 was 30%. Required:
(i) Compute the relevant temporary differences as at 30 April 2022. (6 marks) (ii) Deferred tax
account as at 30 April 2022.
(4 marks) (Total: 20 marks)

(a) Impairment of Assets – IAS 36 (10 marks)

Step 1: Determine the recoverable amount of the CGU

Per IAS 36, the recoverable amount is the higher of:

 Value in Use (VIU) = Sh. 31,200,000

 Net Selling Price (NSP) = Sh. 19,200,000

✅ So, recoverable amount = Sh.31,200,000

Step 2: Compare with carrying amount

 Carrying amount of CGU = Sh.47,600,000

 Recoverable amount = Sh.31,200,000

🟡 Impairment loss = 47,600,000 – 31,200,000 = Sh.16,400,000

Step 3: Allocate impairment loss in the following order:

As per IAS 36, impairment loss is allocated in the following sequence:

1. First to Goodwill
2. Then to other assets on a pro-rata basis of their carrying amounts
(Excluding fully impaired or non-depreciable assets)

Step 4: Adjust for assets already fully impaired

 Patents = Sh.3,600,000 → Now worthless → Fully impaired

 Half of Machinery = 4,000,000 × ½ = Sh.2,000,000 → No resale value → Fully
impaired
 Total already impaired = 3,600,000 + 2,000,000 = 5,600,000

✅ So, adjusted carrying amount = 47,600,000 – 5,600,000 = 42,000,000

But impairment needs to be spread across remaining assets after allocating to Goodwill first.

Step 5: Allocate the impairment

(i) Start with Goodwill

 Goodwill = 2,000,000 → Fully written off

 Remaining impairment = 16,400,000 – 2,000,000 = 14,400,000

(ii) Remaining assets (excluding patents and half machinery):

QUESTION THREE (a) IFRS for small and medium-sized entities (the SMEs Standard) has been
issued for use by entities that have no public accountability. One of the notable differences
between the SMEs Standard and the full IFRS and IAS Standard is that there are a number of
accounting policy choices allowed under full IFRS and IAS Standard, that are not available to
companies that apply the SMEs Standard. Required: In view of the above statement, briefly
describe the accounting policy choices that are disallowed under the SMEs Standard. (6 marks)
(b) International Public Sector Accounting Standard (IPSAS) 35 “Consolidated Financial
Statements”, is drawn primarily from International Financial Reporting Standard (IFRS) 10
“Consolidated Financial Statements”. IPSAS 35 states that an entity that controls one or more
entities (the controlling entity) shall present consolidated financial statements. Required: With
reference to International Public Sector Accounting Standard (IPSAS) 35 “Consolidated Financial
Statements”, briefly describe the factors that determine “control”. (4 marks) (c) The
International Accounting Standards Board (IASB), has launched a project to improve
communication in financial statements, with a particular emphasis on financial performance. Its
proposals were outlined in the Exposure Draft “General Presentation and Disclosure”. Required:
With reference to the Exposure Draft “General Presentation and Disclosure”, evaluate the
Board’s proposals regarding disaggregating financial information in more useful ways. (6 marks)
(d) The Conceptual Framework for Financial Reporting is a set of theoretical principles and
concepts that underlie the preparation and presentation of financial statements. If no
conceptual framework existed, then accounting standards would be produced in a haphazard
basis as particular issues and circumstances arose. Required: In view of the above statement,
discuss the purpose of the Conceptual Framework for Financial Reporting in underpinning the
development of accounting standards. (4 marks) (Total: 20 marks)

(a) Accounting Policy Choices Disallowed under the SMEs

Standard (6 marks)
The IFRS for SMEs Standard simplifies financial reporting by removing complex accounting
policy choices available under full IFRS. Below are key accounting options disallowed under
the SMEs Standard:

1. Revaluation of Property, Plant and Equipment (PPE)

 Full IFRS: Allows both cost model and revaluation model under IAS 16.
 SMEs Standard: Only the cost model is permitted. Revaluation model is not allowed.

2. Capitalisation of Development Costs

 Full IFRS (IAS 38): Permits capitalising development costs if recognition criteria are
met.
 SMEs Standard: All research and development costs are expensed as incurred.

3. Fair Value Option for Investment Property

 Full IFRS (IAS 40): Allows either cost or fair value model.
 SMEs Standard: Investment property is measured at fair value only if reliably
measurable; otherwise, cost model is used.

4. Borrowing Costs Capitalisation

 Full IFRS (IAS 23): Requires capitalisation of borrowing costs on qualifying assets.
 SMEs Standard: All borrowing costs are expensed.

5. Defined Benefit Pension Schemes – Corridor Method

 Full IFRS (IAS 19): Allows detailed actuarial calculations with options for recognising
actuarial gains/losses.
 SMEs Standard: Simplified approach using current actuarial valuation, no corridor
method.
6. Financial Instruments Measurement Options

 Full IFRS (IFRS 9): Allows multiple classification and measurement models based on
business model and cash flow characteristics.
 SMEs Standard: Simpler classification – typically only amortised cost or fair value
through profit or loss.

✅ (b) IPSAS 35 – Factors that Determine Control (4 marks)

Under IPSAS 35, an entity controls another entity when it has all of the following elements:

1. Power over the Other Entity

 The investor has existing rights that give it the ability to direct the relevant activities
of the other entity.

2. Exposure or Rights to Variable Returns

 The investor is exposed to or has rights to variable returns (financial or non-financial)

from its involvement with the investee.

3. Ability to Affect Returns through Power

 The investor must be able to use its power to influence the amount of returns it gets.

✅ Control is present when all three elements coexist.

For example, a government body may control a state corporation if it appoints its board, receives
service outcomes, and can influence its decisions.

✅ (c) Exposure Draft “General Presentation and Disclosure”

– Disaggregation Proposals (6 marks)
The IASB Exposure Draft aims to improve how financial information is communicated. Key
proposals on disaggregation include:

1. Clearer Subtotals in Statement of Profit or Loss

 Introduction of defined subtotals such as:

o Operating profit
o Profit before financing and income tax

🔹 Purpose: Improve comparability between companies.

2. Disaggregation of Line Items

 Entities must disaggregate material items in primary statements and notes.

 Items should not be aggregated if doing so obscures useful information.

3. Use of Labelled Categories

 Standardised categories for income and expenses:

o Operating
o Investing
o Financing
o Income tax

🔹 Increases transparency and reduces subjectivity in classification.

4. Use of MPMs (Management Performance Measures)

 Companies must disclose reconciliations for any non-GAAP measures used.

 Encourages transparency and limits misleading presentation.

5. Better Structure in Notes

 Notes should follow a systematic order and grouping to make it easier for users to
follow key disclosures.
✅ Overall, the proposals aim to enhance clarity, comparability, and user-relevance of financial
reporting.

✅ (d) Purpose of the Conceptual Framework for Financial

Reporting (4 marks)
The Conceptual Framework serves as a foundation for developing and interpreting accounting
standards. Its main purposes include:

1. Provide a Coherent Set of Principles

 Offers consistent principles that guide the development of new standards, ensuring they
are not arbitrary or inconsistent.

2. Assist Standard Setters (e.g., IASB)

 Helps bodies like the IASB to create standards based on clear objectives like relevance,
faithful representation, and comparability.

3. Guide Preparers and Auditors

 Where no specific standard exists, the framework offers guidance to ensure consistent
accounting treatment.

4. Enhance Understanding by Users

 Helps users understand the reasoning behind standards and how financial statements
provide useful information for decision-making.
 Tanga Limited is a private limited liability company operating in the telecommunications
industry. The company has suffered successive trading losses for a number of years, largely
due to stiff competition and a sharp decline in revenues. The directors of the company, who
are also the main shareholders, agreed to reconstruct the company by transferring it to a
new company to be named Elewa Limited. Kasnebnotes.co.ke CA32 Page 4 Out of 6 The
statement of financial position of Tanga Limited as at 30 June 2022 was as set out below:
Assets: Sh.“000” Non-current assets: Property, plant and equipment 59,500 Goodwill 9,000
68,500 Current assets: Inventory 18,500 Trade receivables 14,500 33,000 Total assets
101,500 Equity and liabilities: Equity: Ordinary share capital (Sh.10 par value) 60,000 9%
cumulative preference share capital (Sh.10 par value) 30,000 Share premium 3,000
Accumulated losses (27,400) Total equity 65,600 Non-current liabilities: Bank loan 22,500
Current liabilities: Trade payables 5,900 Tax payable 3,000 Bank overdraft 4,500 13,400 Total
equity and liabilities 101,500 Additional information: 1. The uthorized share capital of Elewa
Limited was Sh.100 million comprising 10 million ordinary shares of Sh.10 each. 2. Three
new ordinary shares of Sh.10 each in Elewa Limited credited at Sh.6 each were issued for
the benefit of the ordinary shareholders in Tanga Limited for every four (4) ordinary shares
held. However, the ordinary shareholders in Tanga Limited were required to pay the balance
to make their shares in Elewa Limited fully paid. 3. Four new ordinary shares of Sh.10 each
in Elewa Limited credited at Sh.8 each were issued for the benefit of the preference
shareholders in Tanga Limited for every five (5) preference shares held. However, the
preference shareholders in Tanga Limited were required to pay the balance to make their
ordinary shares in Elewa Limited fully paid. 4. The preference dividends in Tanga Limited
were three years in arrears and the preference shareholders forfeited half of the preference
dividend arrears. The balance was fully settled by the new company issuing ordinary shares
of Sh.10 each. 5. Liquidation expenses of Tanga Limited amounted to Sh.8 million and were
settled by Elewa Limited. 6. The tangible assets were transferred to the new company at the
following fair values: Sh.“000” Property, plant and equipment 55,000 Inventory 20,200 Trade
receivables 14,500 Goodwill was considered valueless and therefore written off. 7. The
liabilities were taken over by the new company at their book values. 8. Elewa Limited issued
for cash and at par value all the remaining ordinary shares not issued as part of the
purchase consideration. The proceeds from the issue were used to settle the bank loan. 9.
Assume that all the above transactions were completed by the close of business on 30 June
2022. Required: (a) The following ledger accounts to close off the books of Tanga Limited: (i)
Realisation account. (4 marks) (ii) Ordinary shareholders sundry members account. (4
marks) (iii) Preference shareholders sundry members account. (2 marks) (b) Journal entries
in the books of Elewa Limited to record the acquisition of Tanga Limited. (6 marks) (c)
Opening statement of financial position of Elewa Limited as at 1 July 2022. (4 marks)

(a) Ledger Accounts in the Books of Tanga Limited

(i) Realisation Account (4 marks)

🔹 Dr: Book values of assets transferred

🔹 Cr: Liabilities taken over and consideration received

Realisation Account Sh.‘000 Sh.‘000

Property, plant & equipment 59,500 Bank overdraft (liability taken over) 4,500
Inventory 18,500 Trade payables 5,900
Trade receivables 14,500 Tax payable 3,000
Goodwill 9,000 Bank loan 22,500
Elewa Ltd (purchase consideration) 76,200
Loss on realisation transferred to:
– Ordinary shareholders 4,400
– Preference shareholders 5,500
Total 101,500 101,500

Note:

 Assets were taken over at fair value:

o PPE = 55,000
o Inventory = 20,200
o Trade receivables = 14,500
Total = 89,700
 Liabilities taken over = 35,900
 Therefore, purchase consideration = 89,700 – 35,900 = Sh.53,800

But also, Elewa settled:

 Liquidation expenses: 8,000

 Arrears on pref. dividend (half of 8,100) = 4,050

🧮 Total consideration = 53,800 + 8,000 + 4,050 = 65,850

So, value received = 65,850, but book value of assets = 101,500 → Loss = 101,500 – 65,850 =
35,650, split as:

 Ordinary shareholders: (27,400 accumulated loss + 4,400 from realisation) = 31,800

 Preference shareholders: Preference dividends written off: 4,500

✅ We will reflect only the realisation loss on equity in this account:

 Ordinary: 4,400
 Preference: 5,500 (Half of 3 years' dividend arrears: 3 yrs × 9% × 30m = 8,100; half
forfeited = 4,050; other half = settled via shares)
iii) Preference Shareholders’ Sundry Members Account (2 marks)

r: Preference Shareholders’ Account Sh.‘000 Sh.‘000

To Realisation A/c (loss – pref. dividend
5,500 By Preference share capital 30,000
forfeited)
By Dividend arrears settled via
To Elewa Ltd – Shares received 24,500 4,050
shares
Total 30,000 30,000

Share entitlement:

 30m / 10 = 3m shares
 4 new shares for every 5 → (3m × 4)/5 = 2.4m shares
 Issued at Sh.8 = 2.4m × 8 = 19.2m
 Balance payable = 2.4m × 2 = 4.8m (cash contributed by shareholders)

Preference dividend arrears settled = 4,050 (with new shares at par)