AUE1601 - Legal Aspects In Accountancy (Semesters 1 and 2.)

AUE1601 - Legal Aspects In Accountancy (Semesters 1 and 2). QUESTION 1 30 marks REQUIRED Select for each question only ONE alternative that you consider to be the most correct and then mark on myUnisa or on the mark-reading sheet the digit that corresponds to the digit of the alternative which you have selected as your answer. Answer the sub-sections of this question in numerical sequence, for example, as follows: 1. 1 2. 3 (1½ marks per question) 1. Which one of the following statements is false regarding pre-incorporation contracts? (Topic 1) 1 If the company in whose name the pre-incorporation contract has been entered is not subsequently incorporated, the company will remain liable for any liabilities as a result of the pre-incorporation contract. 2 If within three months the board has neither ratified nor rejected the contract, the contract will be deemed ratified. 3 Pre-incorporation contracts must be in writing. 4 If the pre-incorporation contract is ratified, it will be enforceable against the company as if the company was a party to the contract. 2. Which one of the following duties listed below is not the duty of the Company Secretary? (Topic 5) 1 Make directors aware of any relevant law. 2 Ensure that minutes of all meetings (shareholders, directors, board committees and audit committee) are recorded properly 3 Provide directors with guidance with regard to their duties, responsibilities and powers. AUE1601/101/3/2021 17 4 Makes submissions to the board on any matter concerning accounting policies, financial control, records, and reporting of the company. 3. Which one of the following statements regarding voting at shareholders’ meetings is false in terms of the Companies Act? (Topic 3) 1 If there is only one class of shares, those shares must have voting rights in respect of all voting matters. 2 Every share has associated with it one general voting right, subject to the provisions of the Companies Act or the memorandum of incorporation. 3 If there is more than one class of shares, the memorandum of incorporation must provide that all classes must have voting rights in respect of all voting matters. 4 Subject to any other law, the memorandum of incorporation may establish any particular class of shares, that is, rights that confer special, conditional or limited voting rights. 4. Albert Einstein entered into a written rental agreement to rent a building in Johannesburg in the name of Science Limited. The company Science Limited does not exist yet; however, it is envisaged that it will be incorporated in terms of the Companies Act 71 of 2008. Which one of the following statements is false? (Topic 1) 1 Albert Einstein is not liable for the rental agreement if Science Limited is never incorporated. 2 Albert Einstein is liable for the rental agreement if Science Limited is incorporated and the board of directors of Science Limited rejects the rental agreement. 3 Albert Einstein is not liable for the rental agreement if Science Limited, after its incorporation, enters into a rental agreement on the same terms as the rental agreement that Albert Einstein has entered into. 4 If within three months after the date on which Science Limited was incorporated, the board has not rejected the rental agreement, Science Limited will be regarded to have ratified the rental agreement and the liability of Albert Einstein regarding the rental agreement will be discharged. 5. Indicate which one of the following lists of factors that contribute to the calculation of the public interest score of a company, is correct: (Topic 2) 1 Assets; turnover; beneficial interest holders (e.g. shareholders); liabilities. 2 Assets; turnover; beneficial interest holders (e.g. shareholders); average number of employees; number of audit committee members. 3 Turnover; beneficial interest holders (e.g. shareholders); average number of employees; third-party liabilities. 4 Assets held in fiduciary capacity; turnover; beneficial interest holders (e.g. shareholders); average number of employees; third-party liabilities. 18 6. Mr Challa is of the opinion that Mr Parker has been derelict in his duties as a director and has therefore initiated to have him removed at the next shareholders’ meeting. Which one of the following statements is false in terms of the Companies Act 71 of 2008? (Topic 4) 1 Mr Parker should receive a notice of the shareholders’ meeting where he will be removed as a director. 2 Mr Parker should receive a copy of the resolution to remove him as a director. 3 Mr Parker should be allocated time on the agenda to allow him a reasonable opportunity to make a presentation (in person or through a representative) to the meeting before the voting will take place. 4 Mr Parker can be part of the meeting and can take part in the vote on his removal as a director. 7. Which one of the following situations might constitute reckless trading in terms of section 22 of the Companies Act? (Topic 1) 1 Aviation Ltd is factually insolvent. The company, however, entered into a lease agreement for a very expensive fleet of company vehicles for its directors. 2 Aviation Ltd is factually insolvent. Three of its four directors subsequently embarked on an extensive overseas trip as part of their annual bonuses. 3 Aviation Ltd is factually insolvent. The directors of the company subsequently decided to take out a rather large loan from FBN Bank, in order to try and salvage Aviation Ltd financial position. 4 All of the above situations might constitute reckless trading. 8. The following extract is from Cooking Limited’s annual financial statements on 28 February 2021: 2021 R ASSETS Total non-current assets 3 000 000 Total current assets 4 500 000 7 500 000 LIABILITIES Total non-current liabilities 6 000 000 Total current liabilities 5 000 000 Which one of the following statements is true in terms of the Companies Act 71 of 2008, as amended? (Topic 1) 1 It appears that Cooking Limited will be able to pay its debts as they become due in the ordinary course of business for a period of 12 months. 2 The assets of Cooking Limited fairly valued equal or exceed the liabilities of Cooking Limited fairly valued. AUE1601/101/3/2021 19 3 Cooking Limited satisfies the solvency and liquidity test. 4 None of these statements is true 9. Indicate the number of directors that will form a quorum for a meeting of directors before a vote may be called, where the company has eleven directors? (Topic 4) 1 Three directors. 2 Six directors. 3 Five directors. 4 Four directors. 10. Iron-Man Ltd has a subsidiary, Y-Men (Pty) Ltd. Y-Men (Pty) Ltd may not hold more than 10% of any class of shares of Iron-Man Ltd and may not exercise any voting rights attached to those shares. (Topic 3) 1 True 2 False 11. Which one of the following situations is in compliance with the requirements of the Companies Act 71 of 2008, as amended? (Topics 1 & 3) 1 Harvey and Spector are going to register a new company, namely Suits Ltd. They are going to be the only directors of the company. 2 Black-list Ltd will have a shareholders’ meeting on 30 January 2021. The notice of the shareholders’ meeting was delivered to each shareholder on 20 January 2021. 3 The shareholders’ meeting of Mentalist Ltd, held on 30 June 2020, was conducted successfully. As per the minutes of the meeting, a voting quorum of persons holding 30% of all the voting rights entitled to be exercised in respect of at least one matter, was present. 4 NCIS Ltd was newly incorporated on 30 June 2019. The date of the first financial year-end as set out in the company’s notice of incorporation is 31 August 2020. The first annual general meeting will be held on 15 January 2021. 12. From which of the following examples may a company not indemnify a director of liability that arise? (Topic 4) a) Wilful misconduct or breach of trust by the director. b) The director acting without the necessary authority. c) Reckless trading. d) Fraudulent acts of the director. Choose the correct option: 20 1 Examples a, b, c and d. 2 None of the examples. 3 Only example d. 4 Examples a, c and d. 13. Which one of the following persons will be allowed to be appointed as a director of Disney Ltd? (Topic 4) 1 Ms Snow White: She is an unemancipated minor and meets all the criteria of the memorandum of incorporation. 2 Ms Elsa: She is a rehabilitated insolvent, who has recently turned 18 years of age. She has previously been found guilty of not paying her parking tickets on time and was fined R500. 3 Ms Aurora: She has previously been removed as a director due to misconduct involving untruthfulness. She has never been found guilty of anything involving theft or fraud. 4 None of the above persons will be allowed to be appointed as a director of Disney Ltd. 14. Which one of the following situations is in compliance with the requirements of the Companies Act 71 of 2008, as amended? (Topic 5) 1 Mr Frodo was the designated auditor of Ola Ltd for the financial years ended 31 March 2015 and March 2016. He left the audit firm in August 2016 but returned in 2020 to be re-appointed as the designated auditor of Ola Ltd for the 2020 financial year-end. 2 XOP Ltd appointed GMPK Inc., the only incumbent at the time, as the new auditors on 31 August 2020. The resignation of the previous audit firm was filed on 31 March 2020. 3. Public and state-owned companies should each year, appoint an individual or firm as an auditor at the first board meeting. 4. ZIP Ltd recently appointed Mr Slazenger as the new auditor. Mr Slazenger is a registered auditor and the brother of the financial director. 15. Which one of the following statements regarding voting and shareholders meetings is false in terms of the Companies Act 71 of 2008, as amended? (Topic 3) 1 On a show of hands, a person will only have one vote, irrespective of the number of shares he or she holds or represents. 2 Voting on any matter at a shareholder meeting may be conducted by polling the persons present who are entitled to exercise voting rights on that matter. AUE1601/101/3/2021 21 3 A shareholder of a company may only appoint an individual that is a shareholder of that company as a proxy to participate in and speak and vote at a shareholders meeting on behalf of the shareholder. 4 On a poll, any member (including his proxy) is entitled to exercise all the voting rights attached to the shares held or represented by that person. 16. Based on the information presented in the table for Armstrong (Pty) Ltd and Sunnyside (Pty) Ltd and your own calculations: (Topic 2) The following details pertain to two unrelated companies. Armstrong (Pty) Ltd Sunnyside (Pty) Ltd (a) Expenses R 55 million R 23 million (b) Turnover R 97.4 million R 26.8 million (c) Employees at the start of the year 132 32 (d) Employees at the end of the year 116 48 (e) Average number of employees for the year 124 40 (f) Amounts owed to third party liabilities R 55 million R23 million (g) Individuals (all shareholders) with a direct or indirect interest in the company’s shares 15 4 (h) Assets held in a fiduciary capacity R 4 million R4.8 million (i) Annual Financial Statements compiled independently No Yes Which one of the following options is correct? 1 The annual financial statements of Sunnyside (Pty) Ltd should be audited. 2 The annual financial statements of Armstrong (Pty) Ltd and Sunnyside (Pty) Ltd can both be reviewed. 3 The annual financial statements of Armstrong (Pty) Ltd should be audited. 4 The annual financial statements of Armstrong (Pty) Ltd should be reviewed. 17. Indicate which one of the following statements in terms of the Companies Act regarding the duties of the audit committee is incorrect: (Topic 5) 1 To pre-approve any proposed agreement with the external auditor for the provision of non-audit services to the company. 22 2 To determine the fees to be paid to the external auditor and the auditor’s terms of engagement. 3 To appoint an independent registered external auditor. 4 To make submissions to the board on any matter concerning the company’s accounting policies, financial control, records and reporting. 18. Indicate which one of the following statements in terms of the Companies Act regarding the Memorandum of Incorporation (MOI) is correct: (Topic 1) 1 The Companies Act permits a company’s MOI to include matters that are not dealt with in the Act. 2 The Companies Act permits a company’s MOI to alter the effect of any “alterable” provision. 3 The Companies Act permits a company’s MOI to impose a greater restriction than would otherwise apply to the company in terms of an unalterable provision of the Act. 4 All of these statements are correct.