CASE STUDY 3

OMAN FLOOR MILLS, one of Omans most Dynamic and successful food Company. The companyestablished with a capital base of OMR 90 million as a leading Oman conglomerate as joint stock sweets company. The factory is strategically located in Muscat, and is involved in manufacturing and distribution ofvarious varieties of Food Products and the rate of return on investment for the industry it belongs to stood at 20%. To cover whole of Oman as well as growing market, with strong supply and distribution chain, the company has strong presence of Oman market flanked by fleet over 100 distribution vehicles covering all corners of Sultanate of Oman and earned a profit of OMR 9.3 million. At every stage of operations, all employees work seriously and tirelessly to ensure that system keeps its promise of quality products and services, to ensure the uncompromising safety of the products company produce and distribute.

The company is in process of expanding and diversifying its activities, creating value by providing safe & refreshing experience. Many new planned projects are on execution that will open new vistas for company which also contribute towards industrial and economic growth of Oman. The company is in the process ofrecruiting a new COO and expecting that the profits will increase by OMR 1.5 million over and above the target profit, when his services are acquired by the company.

Required:

Q1. You are required to determine the amount of maximum bid price for the COO to be recruited forthe company. What qualitative aspects need to be considered while valuing human assets? (7 Marks)

Q2. What is the maximum salary that can be offered to COO as per the above calculations (Q1)? Due to financial crisis, if the company can offer only a maximum salary of OMR 10 million, what will you suggest to the company to do? (3 Marks)

CASE STUDY 4

SWEETS OF OMAN audited financial statements for the year ending 31st December 2019, based on Historical Cost Accounting, are extracted from Muscat Securities Market. It is observed from its income statement that the company earns a sales revenue for the current by selling 90,000 units @ OMR 13.25 per unit. It is observed from the notes in the financial statements that 40,000 units are sold to customers on credit allowing a credit period of 30 days. Value of inventory lay down in factory on 1st January 2019 stoodat OMR 175,000. Purchases made for the current year are 75,000 units @ 8.75 each and it includes purchase of 25,000 units from a supplier, who is allowed a credit period of 20 days, located abroad. During the year an amount is borrowed from the market by issuing 5000 10% debentures @ OMR 10 each. It is found that interest is paid only for a period of 6 months.

The company block of assets consists of plant & machinery with a book value of OMR 500,000 @ 10% depreciation and Tools & equipment with a book value of OMR 300,000 @ 6% depreciation assuming that additions are made in the middle of the year. Direct expenses of the company for the year are OMR 25,000. Consolidated value of operating, office & administrative and selling & distribution expenses including depreciation on plant & machinery and tools & equipment is OMR 550,000. At the end of 31st December 2019 value of stock available in the factory is OMR 125,000. The company is in the tax bracket of 10%. It is also found from the notes that company have return inwards and outwards worth of OMR 10,000 and 20,000. The company is in the process of estimating real gain or loss as per the inflation accounting.

Required:

Q1. You are required to prepare income statement as per Historical Cost Accounting method and adjusted income statement as per Current Purchasing power method by considering consumer price index vales of 105 (opening), 125 (closing). (8 Marks).

Q2. What is the impact on profitability position of the company as per inflation accounting application? (2 Marks)

CASE STUDY 5

Annual reports of PACKAGING CO. LTD. for the year ending 31st December 2019 are taken from company official website. Income statement and balance sheet along with related notes are analyzed and observed that net borrowings for the current year are OMR 180,000 and it is 20% increase from the previous year. Shareholders funds including equity share capital, 9% preference share capital and reserves & surplus etc. is OMR 575,000 and it is 30% more than the previous year. Value of depreciation adjusted based on the current cost accounting method of inflation accounting is OMR 23,500. Sum ofopening and closing inventory

for the year is OMR 40,000 and it is detected that closing stock is OMR 5,000 more than opening stock. Firms current assets include accounts receivable, short term investments and stock. Accounts receivable for the current year stood at OMR 45,000 and it is 10% less than the previous year. There is no change in the amount of short term investments which is OMR 12,000. Whereas accounts payables for the previous year is OMR 30,000 and there is 15% enhancement for the current year. As per the recommendations of the expert committee, the company management is planning to adopt current cost accounting method to correct the deficiencies of the historical cost accounting system. The CCA method seeks to ensure that adequate, provision/ adjustments are made for the maintenance and replacement of the operating assets of the company, at least at the minimum physical level at which the enterprise can operate efficiently and not only for the year under the review but also for the future.

Required:

Q1. In order to achieve the objectives stated above, you are required to make the adjustments of cost of sales, monetary working capital and gearing adjustments by using above information with an index value of 105 (opening) and 125 (closing). (8 Marks)

Q2. How much amount is transferred to current cost reserve account from the above (Q1) calculations? What are the other values transferred to current cost reserve account as per CCA method of inflation accounting? (2 Marks)