Case study 5: Scenario 1: ABC S.A.O.G was incorporated with an authorized capital of 300 million shares ordinary shares of 500 bazia each. The company has in issue 100 million shares. On 15 January 2017, the company has repurchased 8 million shares at the rate of RO 3.250 each after the completion of all the requirements posed by Capital Market Authority - CMA. The company re issued such shares in the March 2018 @of RO 4.000 per share. The general rules set by CMA is that the company cannot repurchase more than 10% of its share capital at one time and there should be a minimum gap of 2 years between any repurchase. On 13 February 2020, the company has again repurchased 10 million shares at the rate of RO 4.550 each. Analyze the above situation and answer the following questions: a. Explain in your own words the impact of such repurchase on company's share capital? Justify it with proper calculations? (1.5 marks - Min 75 words) b. Has the company carried out the procedure of repurchase within the guidelines of CMA or not? Justify your answer with necessary data? (1.5 marks - Min 75 words) c. What is the impact on a corporation's financial statements if all of such repurchased stock is reissued in the year 2020 @ RO 4.000 each? (2 marks - Min 100 words) Scenario 2: LLL S.A.O.G is a well-established company. The company had in issue 20 million ordinary shares of OMR 0.300 each. Apart from equity shares the company also had in issue 100,000 10% irredeemable Preference Shares with a par value of OMR 3.5 per share fully paid. But in the recent years it has been experiencing financial losses continuously which were OMR 100.000, 140.000 and 200.000 during the years 2015, 2016 and 2017 respectively due to low demand for its products. Asset values of the company also fell substantially resulting in impairment of the Assets resulting in exhaustion of its entire retained earnings. The balance of retained earnings at the beginning of year 2015 was OMR 20.000 In the years 2018 and 2019, the company made a comeback and started to earn profits. The profits in the year 2018 was OMR 1,050,000 and 2019 was OMR 1,880,000 respectively. The board of directors however decided not to pay the dividends on ordinary shares for the year 2018 instead of making profits. This means no ordinary shareholder received any dividend consistently for 4 years. The company however declared and paid final dividend of 15% on ordinary shares in the year 2019 The shareholders are not satisfied with the decision of the board of directors. Shareholders are of the opinion that they have the right to receive dividend when the company is earning profits. Investing their hard-earned money to reap benefits from the company has become a disappointment for them. The Omani Commercial Law states that dividend will not be paid if the company sustains a loss which has not been fully extinguished. Considering the situation given above for the company you are required to answer the following a. Do you think the shareholders can take any legal action against the board of directors for not paying the dividends out of profits in the year 2018? Is board of directors' decision justifiable? Also explain under what circumstances the board of directors may refuse to pay dividends. (2 marks - Min 100 words) b. Is there any impact on the irredeemable Preference share dividend due to the losses of the company? Justify your answer with suitable explanation. (I mark - Min 50 words) c. Prepare statement of retained earnings for the year 2018 & 2019. (2 marks)
