Select a company listed on the Dubai Financial Market or Abu Dhabi Exchange satisfying the following criteria
1. Should be a manufacturing company
2. Should be profit making
3. Has both long and short term borrowings
Obtain 3 years of audited accounts from the stock exchange/company website. Answer the following questions using the details in the audited accounts.
1. Review the key accounting policies and highlight any changes in accounting policies, if any, and its impact on profits and treatment
2. Look at the quantum of receivables as at the end of the latest financial year. To improve its cash position, it offers its customers a credit policy of 2/10 Net 30. Assuming 25% of its customers accept the credit discount, evaluate the impact on its balance sheet and income statement. Prepare appropriate journal entries.
3. Review the quantum of payables as at the end of the latest financial year. Assume that this was from one single supplier. Assume that your company converts 50% of these payables into a 6 month zero interest bearing note payable as on 1stJanuary 2016 and assume further that the market interest rates are 8%. Calculate the amount payable on maturity and prepare appropriate journal entries on each of the key dates as also at end of financial year 2016.
4. Review the dividends announced by the company for the year ended 31st December 2015. Figure out the key dates relevant to this dividend. List out the journal entries for each of these three dates.
5. Look up the amount of long terms interest bearing liabilities as at 31st December 2015. Your company has the option of refinancing these long-term liabilities by a bond issue of face value of AED 100 per bond on 1st January 2016 with a coupon rate of 7% p.a. paid semiannually and maturity of 5 years. Is it advisable for your company to do so? Assuming that it does refinance and that current market rates to be 8% p.a. for bonds of similar nature, estimate the present value of your company’s bond. Prepare an amortization schedule. Prepare Journal entries on the appropriate dates in the year 2016.
6. Now assume that your company has refinanced the long-term liabilities by a convertible bond issue on 1st January 2016 with a coupon rate of 2% p.a. paid annually and maturity of 3 years. Each bond has a face value equivalent of 10 equity shares as per the current market price and will be converted into 10 shares at the end of 3 years. Estimate the fully diluted EPS of the company for the year ended 31st December 2016 assuming a 10% increase in net profits.
7. Your company decides to repurchase 10% of its outstanding shares at market price. By 1st July, the market price of your company has increased by 10% and the company sells 50% of the repurchased shares at this price. Prepare appropriate journal entries both on repurchase and on sale.
8. Your company has issued stock options to its employees on 1st January 2016. The total number of options are 500,000, each giving the right to purchase one share of the company at a price which is 80% of the current market price. Assuming that the market average market price of your company for the year 2016 is 10% of the current market price. Assume that no options were exercised during the year. Estimate the fully diluted EPS of the company for the year ended 31st December 2016 assuming a 10% increase in net profits.