- The Balance Sheet of Y Ltd. as at 31st March, 2009 is given below:
Liabilities Rs. Assets RS.
Equity Share capital 50,00,000 Land 14,00,000
(5,00,000 shares of Rs. 10 each) Buildings 23,00,000
General Reserve 15,00,000 Plant and Machinery 28,00,000
Debentures (14%) 10,00,000 Sundry Debtors 6,00,000
Sundry Creditors 5,00,000 Inventory 8,00,000
Bank Overdraft 4,00,000 Cash and Bank 2,00,000
Provision for Taxation 1,00,000 Patents and Trademarks 3,00,000
Preliminary expenses 1,00,000
85,00,000 85,00,000
The profi ts of the company for the past four years are as follows:
(Rs.)
2005 - 06 12,00,000
2006 - 07 15,00,000
2008 - 08 21,00,000
2009 - 09 23,00,000
Every year, the company transfers 20% of its profi ts to the general reserve. The industry average rate of
return is 15% of the share value.
On 31st March, 2009 Independent expert valuer has assessed the values of the following assets:
(Rs.)
Land 26,00,000
Buildings 40,00,000
Plant and Machinery 32,00,000
Debtors (after bad debts) 5,00,000
Patents and Trademarks 2,00,000
Based on the information given above, calculate the fair value of Y Ltd.’s share.
Solution:
(i) Calculation of Share Value based on Net Assets Method
(Rs.)
Assets:
Land 26,00,000
Buildings 40,00,000
Plant and Machinery 32,00,000
Debtors (after bad debts) 5,00,000170
Business Valuation Basics
Inventory 8,00,000
Cash and Bank 2,00,000
Patents and Trademarks 2,00,000
1,15,00,000
Less: Liabilities:
Debentures (14%) 10,00,000
Sundry creditors 5,00,000
Bank overdraft 4,00,000
Provision for taxation 1,00,000 20,00,000
Net assets 95,00,000
Intrinsic value of share =
Net assets
=
Rs. 95,00,000
= Rs. 19
No. of shares 50,000
(ii) Calculation of Share Value based on Yield Method
(Rs.)
Total profi ts of last 4 years 71,00,000
Less : Bad debts 1,00,000
Total 70,00,000
Average profi t (Rs. 70,00,000/4) 17,50,000
Less : Transfer to reserve (20% of Rs. 17,50,000) 3,50,000
Profi t available for dividend 14,00,000
friends plz solve this problem
thanks in advance
CAclubindia
