Case study 2: Centrica Cattle feed company S.A.O.G started its operation in 1983 in Ibra region. The main activity has been production and sale of animal feed and fodder. Over a period, the company has grown significantly to be the leading dairy company in sultanate of Oman. The company has two Revenue generating strategic business units namely, Dairy & Feed Mill. During the last 36 years, the company has established a strong market presence under the brand name of A Safwah in dairy segment and A Sanabil in feed segment. It continues to demonstrate its excellence in its business strategies as a leading player in the country by offering a range of products. As far as the company is concerned, it is continuing to evolve into a much larger group, reinforcing its position as a leader in Oman local market. The underlying fundamentals of the company are very strong, which provides a solid base for strengthening its performance in the coming years. For the year 2020 the company had evaluated the following Opportunities and Threats: Opportunities The company is in continuous negotiations with African countries for export orders for its long- life products. The management is taking all possible steps to capture greater Volume and growth in Oman as a leading Omani brand by intensifying distribution channels (both numerical and weighted) and increased service levels (modern and traditional trade channels) as a continual improvement process. Taking active part in festivities, national events, religious events, fairs, exhibitions, associations, clubs and institutional promotions to build strong corporate image. Threats: The notable risk factor has been increasing cost of raw materials with no feed subsidy granted by the government. Till the year 2016, the government intervened by giving feed subsidy which has mitigated the growing risk to some extent. Increase in fuel and power cost has impacted the profitability. Natural calamities. With improvement in Yemen situation and in order to concentrate on exporting the products the company had come across with the need of extra funds. The Board has decided to raise funds through rights issue instead of taking a loan. The details of such issue are below mentioned. The issue period will be: Opening Date: 7th April 2020 Closing Date: 14 April 2020 Rights Entitlement: Every shareholder as on the Record Date is entitled to about 17.6 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 802 per Offer Share, consisting of issue price 800 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 45,600. 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 Ernst & Young LLC The authorized share capital of the Company consists of 150,000,000 shares of RO 0.500 each. The details of equity before the right issue is as follows: RO Share capital 37,500,000 Legal reserve 7823,215 Retained earnings 2,253,256 Capital Reserve 1,050.111 Dividend Equalization reserve 126,800 Revaluation reserve 102,500 65% shareholders accepted the 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 June 2020. The bonus share 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 10,250 can be capitalized out of dividend equalization reserve for issue of bonus shares and set free for distribution amongst the equity shareholders as bonus. Each shareholder will be eligible for 1 share for every 80 shares held. You are required: a. Given scenario specifically deals with various situations. You are required to brief out these situations in your own words and list out its effect on 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 Statement of Financial Position. (3 marks) Case study 2: Centrica Cattle feed company S.A.O.G started its operation in 1983 in Ibra region. The main activity has been production and sale of animal feed and fodder. Over a period, the company has grown significantly to be the leading dairy company in sultanate of Oman. The company has two Revenue generating strategic business units namely, Dairy & Feed Mill. During the last 36 years, the company has established a strong market presence under the brand name of A Safwah in dairy segment and A Sanabil in feed segment. It continues to demonstrate its excellence in its business strategies as a leading player in the country by offering a range of products. As far as the company is concerned, it is continuing to evolve into a much larger group, reinforcing its position as a leader in Oman local market. The underlying fundamentals of the company are very strong, which provides a solid base for strengthening its performance in the coming years. For the year 2020 the company had evaluated the following Opportunities and Threats: Opportunities The company is in continuous negotiations with African countries for export orders for its long- life products. The management is taking all possible steps to capture greater Volume and growth in Oman as a leading Omani brand by intensifying distribution channels (both numerical and weighted) and increased service levels (modern and traditional trade channels) as a continual improvement process. Taking active part in festivities, national events, religious events, fairs, exhibitions, associations, clubs and institutional promotions to build strong corporate image. Threats: The notable risk factor has been increasing cost of raw materials with no feed subsidy granted by the government. Till the year 2016, the government intervened by giving feed subsidy which has mitigated the growing risk to some extent. Increase in fuel and power cost has impacted the profitability. Natural calamities. With improvement in Yemen situation and in order to concentrate on exporting the products the company had come across with the need of extra funds. The Board has decided to raise funds through rights issue instead of taking a loan. The details of such issue are below mentioned. The issue period will be: Opening Date: 7th April 2020 Closing Date: 14 April 2020 Rights Entitlement: Every shareholder as on the Record Date is entitled to about 17.6 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 802 per Offer Share, consisting of issue price 800 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 45,600. 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 Ernst & Young LLC The authorized share capital of the Company consists of 150,000,000 shares of RO 0.500 each. The details of equity before the right issue is as follows: RO Share capital 37,500,000 Legal reserve 7823,215 Retained earnings 2,253,256 Capital Reserve 1,050.111 Dividend Equalization reserve 126,800 Revaluation reserve 102,500 65% shareholders accepted the 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 June 2020. The bonus share 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 10,250 can be capitalized out of dividend equalization reserve for issue of bonus shares and set free for distribution amongst the equity shareholders as bonus. Each shareholder will be eligible for 1 share for every 80 shares held. You are required: a. Given scenario specifically deals with various situations. You are required to brief out these situations in your own words and list out its effect on 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 Statement of Financial Position