1. How do the number and value of outstanding shares of the company affected after the repurchase?                

2. The treasury shares have the right to dividend? Calculate the dividend per share before and after the repurchase of shares but before reissue.                                                  

Scenario A:

sara SAOG had risen from a humble origin to grow rapidly to accumulate wealth and success in various areas of business. One astonishing feature in sara LLC is its spending of large amounts of money in buying back their own shares. It is long established feature of Lubna and investors even started to correlate repurchase with sara. This does not end here and it goes even further that the company has even apportioned OMR 5.8 billion to support the buyback consisting of almost 23% of its outstanding shares. 35 million shares were repurchase in the year 2019 at the rate of OMR 22per share. Analyze the scenario carefully and answer the questions below:

Questions for scenario A:

Why does a company willingly provide billions of Rials to shareholders to repurchase its own shares? The company has to giveaway vast amount of money. Why don’t they consider investing in developmental or expansion projects? Why does a corporation buy back its own shares as treasury stock? Also provide the detailed treatment that includes journal entries and for such transactions that have taken place for the year 2019.                  

Scenario B:

On 1st January 2018, the issued and paid up capital of Said SAOG was 25.5 million shares with a face value of 0.65. The issue price of the shares was OMR 1.9 per share. The company repurchased 4 million shares at the rate of OMR 16.25 per share on 28thFebruary and one more time in that year it bought back 900,000 shares at the rate of OMR 21.3 per share on 20thSeptember 2018.

The company has repurchased its own shares from the market two times in the same year. How do you see this? It is indeed appealing. Right? Now, the following questions may arise for which you must find the answers.

Questions for Scenario B:

Is this a signal that Treasury shares can be held permanently or ultimately should be sold at prices that may vary significantly from repurchase price? If sold at a higher price, is the gain recognized? If sold at lesser price than the repurchase price, is a loss reported? How will you show the treasury stock reissued in a corporation’s financial statements?                                              

Scenario C:

On 1stFebruary 2016, ahmed SAOG’s issued and paid up capital was 950,000,000 shares of OMR 0.08per share issued at a premium of 1.85 RO each and on the same date the retained earnings of the company is estimated at 18.8 million. 18 % of its outstanding shares are repurchased at the rate of OMR 19.86 per share on 16th May 2016. A resolution was passed by the board of directors to

hand out 11% of dividends to the shareholders out of retained earnings. This resolution was passed on 18thMay and comes in to force only if the shareholders consent for the same in the annual general meeting. The Annual general meeting was held on 21st June 2016and it readily approved the board resolution. After reading the scenario carefully, answer the following questions:

Questions for scenario C:

1. How do the number and value of outstanding shares of the company affected after the repurchase?

2. The treasury shares have the right to dividend? Calculate the dividend per share before and after the repurchase of shares but before reissue.

Answer rating: 100% (QA)

When a company repurchases its own shares the number of outstanding shares decreases while the value of outstanding shares increases This is because t... View the full answer