Case Study 1: Victory Materials industries SAOG is a Joint Stock Company founded in 1977 in Sultanate of Oman. Since then, the company is catering to the demand for lime and limestone products in the local as well as International markets. The company has attained steady progress and development by increasing the production of these products both in terms of quality and quantity. These products are strictly meeting the quality of Omani Standards. The factory is situated in Barka Industrial Estate produces Quick Lime and Hydrated Lime and major part of it is exported to neighboring countries. Lime Products consist of manufacturing Calcium silicate Bricks and blocks, Manufacturing aerated concrete blocks, Chemical and Petrochemical process, Metallurgical processing, sugar industries, construction, sewage treatment, paint industry, steel industry etc. For the year 2020 the company had evaluated the following Opportunities and Threats: Opportunities The company's management seeks to solve the important problems faced by the company through obtaining the raw material, lime stone, to produce Quick Lime and Hydrated Lime at the lowest cost possible through obtaining a new quarry for the company, which directly affects the results of the company and reduces the cost of production. While the company is currently importing most of the lime stones raw materials from UAE, in addition to the frequent increase in custom duties and road charges which consequently led to an increase in the cost of raw materials. Threats: Commencing production of limestone from the Dank Quarry still faces obstacles even though the quarry was awarded by the authorities in the year 2017. Licenses for operations are still underway with concerned authorities and construction of road to the limestone quarry is now in progress Company faces tough competition in the local and neighboring GCC markets. Other export markets are also giving a tough time to our products. Well planned pricing policies are adopted to attract larger segments of customers. With an objective to reduce its production the cost the company had decided to obtain a new quarry for the company through continuous follow-up with the concerned government authorities in Nizwa region. Environmental permit has been obtained from the Ministry of Environment and permission from the Royal Oman Police to build a road to the quarry in the Dank area. Also a certificate of inspection license was obtained from the General Authority for Mining for the exploration of limestone in Al-Dahra Governorate in the Wilayat of Dank, and work is underway with the concerned authorities to carry out the inspection program to be submitted to the General Authority for Mining to obtain mining license. Once operational, the limestone raw material production from this quarry will reduce the cost of production in the long term along with the new quarry in Ibri region the company will be able to achieve economies of scale. To aid such process of obtaining new quarry the directors have decided to go for rights issue to raise the additional funds required. The details of such right issue are as follows: The issue period will be; Opening Date: 15 March 2020 Closing Date: 12 March 2020 Rights Entitlement: Every shareholder as on the record Date is entitled to about 18.4 Offer Shares for every 100 shares held as on the Record Date Eligibility for Subscription: Subscription for the Rights Issue is open to the Shareholders whose names appear in the Bank's shareholder register as on the Record Date. Persons who purchase the rights on the MSM within the trading period of the Rights Issue are also eligible to subscribe for the Offer Shares before the Rights Issue closes. The eligibility to subscribe for Offer Shares shall lapse in case the Shareholder neither exercises his/her right of subscription to the Rights Issue nor sells its rights on the MSM during the prescribed period. Issue Price Baiza 252 per Offer Share, consisting of issue price 250 plus Baiza 2 towards issue expenses, payable in full on submission of Application Form Allotment and refunds would be within 3 days of the closure of the Rights Issue. Estimated issue expenses: The issue expenses of the Rights Issue are estimated at RO 54,000. The issue expenses of the Rights Issue will be met from the amounts collected from Applicants at 2 Baiza per Offer Share and the remainder will be borne by the Bank. Any surplus of the collection towards Issue Expenses over the actual expenses incurred will be retained by the Bank and credited to company's legal reserve or a special reserve to be established pursuant to Article 126 of the CCL The Financial Advisor & Issue Manager are Muscat Capital Markets SAOC, Legal Advisor to the Issue A&D Law Firm and Statutory Auditor Emst & Young LLC. The authorized share capital of the Company consists of 450,000,000 shares of RO 0.100 each. The details of the equity before the right issue is as below: OMR Share capital 18.621,512 Legal reserve 4,225,528 Retained earnings 4,250,158 Capital Reserve 629.289 General Reserve 1.095.800 Dividend equalization reserve 98,600 40% shareholders rejected the right offer. Post right issue in pursuant with the provisions of Oman commercial law the company board also decided to come up with a bonus issue for its equity shareholders in the month of May 2020. The bonus shares of the company can be issued when the articles of the association is authorized to issue the bonus shares. It is essential to know that if the articles of association do not permit to issue bonus shares, the company should pass a special resolution at the general meeting of the company. As part of the procedure, the company has checked the articles of association which allowed issue of bonus shares and the company confirmed enough authorized capital is available. It was accorded that a sum of RO 34,800 can be capitalized out of general reserve and RO 43,000 can be capitalized out of capital reserve for the bonus issue and set free for distribution amongst the equity shareholders. Each shareholder will be eligible for 1 share for every 75 shares held You are required: a. In your own words highlight upon the various situations presented in the case and how it will affect the company? (3 marks - Min 150 words) b. Pass necessary journal entries for the rights and bonus taking place in the given scenario. Ignore the entry for share issue expenses. (4 marks) c. Prepare necessary abstract to represent such transactions in SOFP. (3 marks) Case Study 1: Victory Materials industries SAOG is a Joint Stock Company founded in 1977 in Sultanate of Oman. Since then, the company is catering to the demand for lime and limestone products in the local as well as International markets. The company has attained steady progress and development by increasing the production of these products both in terms of quality and quantity. These products are strictly meeting the quality of Omani Standards. The factory is situated in Barka Industrial Estate produces Quick Lime and Hydrated Lime and major part of it is exported to neighboring countries. Lime Products consist of manufacturing Calcium silicate Bricks and blocks, Manufacturing aerated concrete blocks, Chemical and Petrochemical process, Metallurgical processing, sugar industries, construction, sewage treatment, paint industry, steel industry etc. For the year 2020 the company had evaluated the following Opportunities and Threats: Opportunities The company's management seeks to solve the important problems faced by the company through obtaining the raw material, lime stone, to produce Quick Lime and Hydrated Lime at the lowest cost possible through obtaining a new quarry for the company, which directly affects the results of the company and reduces the cost of production. While the company is currently importing most of the lime stones raw materials from UAE, in addition to the frequent increase in custom duties and road charges which consequently led to an increase in the cost of raw materials. Threats: Commencing production of limestone from the Dank Quarry still faces obstacles even though the quarry was awarded by the authorities in the year 2017. Licenses for operations are still underway with concerned authorities and construction of road to the limestone quarry is now in progress Company faces tough competition in the local and neighboring GCC markets. Other export markets are also giving a tough time to our products. Well planned pricing policies are adopted to attract larger segments of customers. With an objective to reduce its production the cost the company had decided to obtain a new quarry for the company through continuous follow-up with the concerned government authorities in Nizwa region. Environmental permit has been obtained from the Ministry of Environment and permission from the Royal Oman Police to build a road to the quarry in the Dank area. Also a certificate of inspection license was obtained from the General Authority for Mining for the exploration of limestone in Al-Dahra Governorate in the Wilayat of Dank, and work is underway with the concerned authorities to carry out the inspection program to be submitted to the General Authority for Mining to obtain mining license. Once operational, the limestone raw material production from this quarry will reduce the cost of production in the long term along with the new quarry in Ibri region the company will be able to achieve economies of scale. To aid such process of obtaining new quarry the directors have decided to go for rights issue to raise the additional funds required. The details of such right issue are as follows: The issue period will be; Opening Date: 15 March 2020 Closing Date: 12 March 2020 Rights Entitlement: Every shareholder as on the record Date is entitled to about 18.4 Offer Shares for every 100 shares held as on the Record Date Eligibility for Subscription: Subscription for the Rights Issue is open to the Shareholders whose names appear in the Bank's shareholder register as on the Record Date. Persons who purchase the rights on the MSM within the trading period of the Rights Issue are also eligible to subscribe for the Offer Shares before the Rights Issue closes. The eligibility to subscribe for Offer Shares shall lapse in case the Shareholder neither exercises his/her right of subscription to the Rights Issue nor sells its rights on the MSM during the prescribed period. Issue Price Baiza 252 per Offer Share, consisting of issue price 250 plus Baiza 2 towards issue expenses, payable in full on submission of Application Form Allotment and refunds would be within 3 days of the closure of the Rights Issue. Estimated issue expenses: The issue expenses of the Rights Issue are estimated at RO 54,000. The issue expenses of the Rights Issue will be met from the amounts collected from Applicants at 2 Baiza per Offer Share and the remainder will be borne by the Bank. Any surplus of the collection towards Issue Expenses over the actual expenses incurred will be retained by the Bank and credited to company's legal reserve or a special reserve to be established pursuant to Article 126 of the CCL The Financial Advisor & Issue Manager are Muscat Capital Markets SAOC, Legal Advisor to the Issue A&D Law Firm and Statutory Auditor Emst & Young LLC. The authorized share capital of the Company consists of 450,000,000 shares of RO 0.100 each. The details of the equity before the right issue is as below: OMR Share capital 18.621,512 Legal reserve 4,225,528 Retained earnings 4,250,158 Capital Reserve 629.289 General Reserve 1.095.800 Dividend equalization reserve 98,600 40% shareholders rejected the right offer. Post right issue in pursuant with the provisions of Oman commercial law the company board also decided to come up with a bonus issue for its equity shareholders in the month of May 2020. The bonus shares of the company can be issued when the articles of the association is authorized to issue the bonus shares. It is essential to know that if the articles of association do not permit to issue bonus shares, the company should pass a special resolution at the general meeting of the company. As part of the procedure, the company has checked the articles of association which allowed issue of bonus shares and the company confirmed enough authorized capital is available. It was accorded that a sum of RO 34,800 can be capitalized out of general reserve and RO 43,000 can be capitalized out of capital reserve for the bonus issue and set free for distribution amongst the equity shareholders. Each shareholder will be eligible for 1 share for every 75 shares held You are required: a. In your own words highlight upon the various situations presented in the case and how it will affect the company? (3 marks - Min 150 words) b. Pass necessary journal entries for the rights and bonus taking place in the given scenario. Ignore the entry for share issue expenses. (4 marks) c. Prepare necessary abstract to represent such transactions in SOFP