Question

Case No.1

Oman Oil Limited issued 80,000 shares of OMR 10 each, at par payable as follows; on application OMR 3; on allotment OMR 2 and on first call OMR 2 and final call OMR 2. All the shares were subscribed for and the company received all the money due, with the exception of the allotment and call money on 2,500 shares. These shares were forfeited and re-issued at OMR 8 per share.

Question No. 1

i) You are required to prepare all the necessary journal entries. (8 Marks)

ii) Discuss the concept of ‘share forfeiture and re-issue’.

[Answer in 40-60 words] (2 Marks)

Case No.2

Oman Flour Mills SAOG made its beginning in the year 1977 with a capacity to mill 150 metric tons per day of wheat flour and applied products. In the year 1999, the company has got approval to issue 5,500, 10% preference shares at OMR 10 each. In the same year, the management decided to issue 2,000 redeemable preference shares at 10% premium. These shares are redeemable at par value in February, 2020. All these preference shares were fully subscribed and paid.

In 2011, the company wants to expand its capacity by modernizing its production units. Therefore, the management decided to issue another 3,500 redeemable preference shares at par value. These shares will be redeemed in April, 2020 at a premium of 6.5%. All these preference shares were fully subscribed and paid.

Question No. 2

i) In February, 2020 the company has redeemed its 2,000 redeemable preference shares at par. For this purpose, the company issued 1,200 equity shares of OMR 100 each at a premium of 10% which was fully paid up. The remaining money has been paid out of its profit. Pass necessary journal entries for this redemption. (5 Marks)

ii) In April, 2020 the company has redeemed its 3,500 redeemable preference shares at a premium of 6.5%. For this purpose, the company issued 675 equity shares of OMR 100 each at a discount of 10% which was fully paid up. The remaining money has been paid out of its profit. Pass necessary journal entries for this redemption. (5 Marks)

Case No. 3

WJ Towell Company proposes to purchase the business of National detergent Company. The financial record of National detergent shows that the capital employed is OMR 600,000. The trading results of National detergent are: 2015 - Profit OMR 58,000, 2016 - Profit OMR 90,000, 2017 - Profit OMR 80,000, 2018 - Loss OMR 75,000; and 2019 - Profit OMR 120,000. In the year 2016, National detergent earned an income from investments outside the business OMR 33,000.

Question No. 3

i) Differentiate between ‘capitalization of average profit’ and ‘super profit’ methods of goodwill valuation. [Answer in 100 – 150 words] (4 Marks)

ii) Assume the market rate of interest on investment is 12% and the WJ Towell Company wants to value the goodwill at four years’ purchase of super profit. You are required to calculate the value of goodwill of National Detergent Company.

Question No. 5

i) Using the same information in Case No. 4, prepare the balance sheet as of December 31, 2019. (8 Marks)

ii) Discuss the purpose of profit and loss appropriation account.

[Answer in 75-100 words] (2 Marks)

Case No.4 Seven seas petroleum LLC was incorporated in Oman during 2002 to cater the needs of oil producers and government institutions. Its trial balance as on December 31, 2019 and additional information's are given below. Debit Credit 30.000 150,000 100.000 180.000 4,000 5.000 20.000 1.500 1.000 1.200 5.000 1.650 Particulars Stocki, January 2019 Buildings Purchases Sales Returns Productive wages Carriage inwards Carriage outwards Discounts Salaries Rent Commission General expenses including insurance Profit and loss account, 1 January 2019 Interim dividend paid Capital -2,000 shares of OMR 100 cach Calls in arrears Sundry debtors and creditors Plant and machinery Cash in hand and at Bank 10% debentures Interest paid on debentures Debenture redemption fund Total 1.200 S500 12.000 10.000 200.000 20,300 2.000 50.000 87.750 5.600 50.000 478,500 10.000 478,500 Additional information: ► Closing stock was valued at OMR 40,000 Debtors include OMR 1,000 as advance for expenses. Provide 5% on Debtors for doubtful debts and also provide 2% for Discount on Debtors and Creditors. One month's rent @ OMR 1.800 per annum was due on 31 December 2019. ► Insurance was paid on 30 July, 2019 to run for one year OMR 2,000. ► Transfer OMR 5,000 to debenture redemption fund. Question No. 4 1) You are required to prepare Trading and Profit and Loss Account of Seven Seas petroleum LLC for the year ended December 31, 2019. (6 Marks) 1) Discuss the disadvantage of this form of business with regard to decision making and government regulation in Sultanate of Oman. Answer in 100-150 words (4 Marks)

Answer 1

Date: / / Ans.) Case No. 1 Journal Entries. OMR240.000 T55,000 Bank ol Dr OMR 240,000 To share abblication alul OMR 290000. CBeine amount Turved c abblication Share application all Dr OMR 240.000 u To share capital alone (Being amount of share application na transferred to share capital alu) Share allotment al s o Dr OMR 160,000 To share capital ale OMR 160.000 Being allotment dut) Bank ak Dr OMR 60,000 - To Share allotment alu OMR ISGO00 (Being amount received on allotment of 77 500 shares @ OMR 2 each) share first call al o r OMR 160.000 our To Share capital alu OMR 169.000 I (Being share first call due) hastal Bank ak o to or OMR 155,000 ao To share first call als OMR 155,000 (Being amount received on first call 17 in Shares @ OMR 2 Pech) I share final call ulo at Dr OMR 160.000 10 To share capital al OMR 1690.00 (Being share final call que)

G Bank ale Dr. OMR 155,000 - To share final call al OMR 155.000 amount received on final call of 17500 shares @ OMR 2 each) share capital al Dr OMR 22.500 To share allotment al OMR 5,000 To share first call ale OMR 5,000 To Share final call al OMR 5.000 - To share torfeiture au OMR 7500 (Being 2500 shares forfeited for non payment of allotment & calls) Bank ak Dor OMR 20000 1 share forfeiture al Dr OMR 2,500 To share capital ale OMR 22500 Being Re issue of 2.500 forfekted shares @ 8 each) Share forfeiture al Dr OMR 2000 - To Capital Reserve ale OMR 5.000 (Beine transfer of share forfeiture ak to Capital Reserve ak Note & Question framing is wrong because shares are issued at par y OMR 10 each But total money received is OMR 9 each (3+2+242). so we have solved question assuming par value of OMR 9 each

(ii)   Concept of ‘share forfeiture and re-issue’ :

Forfeiture of shares refers to the cancellation of shares due to non payment of money due on allotment or calls on the due date. On forfeiture, the company extinguishes the title of such shareholder. The company re-issue the forfeited shares and disposes them off at any price but the total amount received on these shares should not be less than the amount in arrears on these shares.

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