trinsic Value Method

Following is the balance sheet of Max [Link]. as on 31.3.2015:

fabilitles ·- , Assets
Share Capital: . Fixed Assets
1,000, 8% Preference Shares of ~100 each 1,00,000 Current Assets
30,000 Equity Shares of ~10 each 3,00,000 Preliminary Expenses
Debenture Redemption Fund 50,000 Discount on lssµe'Debentures
1,00,000 Profit & Loss Account
6% Debentures
Depreciation Fund 1,00,000
, 70,000
Sundry Creditors 7,20,
7,20,000

Calculate the value of the · Equity Share under net assets method after considering the followln
information:
1. Debenture interest is due for 1 year.
2. Current assets include Book Debts of which 12,000 which were doubtful for which no
provision has been made .

1 ~,.(''lf'ration 2 llntrinsic Value Method)

. . ' 'i
F~ll~~i~g is the Balance Sheet of Fast Grow Ltd. as on 31st March 2015· .
l Llab1llt1es r Assets · r
Capital : Fixed Assets:
3,000 Shares of 100 each 3,00,000 Land & Bulldings 1,50,000
General Reserve 50,000 Machinery 1,00,000
Profit and Loss Account 25,000 Investments at Cost 45,000
Creditors 40,000 (Market value of ~40,000)
Provision for Taxation 20,000 Debtors 1,00,000
Provident Fund 10,000 Stock 40,000
Cash 10,000
4,45,000 4,45,000

Adffltional Information
(a) Geodwill is taken at ~50,000.
(b) Depreciate Machinery @ 10% and increase La rid and Buildings to 1,80,000.
(c) Provide 8% towards bad debts.
(d) 20% is the normal rate of dividend declared by similar type of busine5s on their paid up
capital, .oowever ttTe company could declare only 18% dividend for the current year.
Calculate the 1nt11nsic value of shares of the Company. (B.U. B.B.M. April 2000)
 I ~tration 3 (Intrinsic Value Method when oreference shares have orioriM
The following is the Balance Sheet of Sunmate Ltd. as on 31.3.2015:
r Assets r
Liabilities
55,00l
2,000, 6% Preference Shares of f 10 e, :Ch 20,000 Buildings
65,00l
8,000 Equity Shares of f 10 each 80,000 Machinery
10,00l
Reserve Fund 50,000 Patents
28,00l
Profit & Loss A/ c 16,000 Stock
Sundry Debtors 40,00l
15,000
Workmen's Saving A/c 26,00l
Sundry Creditors 49,000 Cash
6,00l
Preliminary expenses
2,30,~
2,30,000

It was discovered that machinery was under depreciated by fS,000.

1.
2. Value of buildings is t1,30,000 and Goodwill is no,ooo.
3. ?6,000 worth of debts are bad.
The preference shares have priority for capital repayment.
4.
Findout the intrinsic value of both types of shares. (B.U. 8.8.M. Nov.1997

~tration 5 (Intrinsic va1ue Method when preference shares have no priority)

.-
The following 15
· th e Balance Sheet of Bangalore Trading Co. Ltd.
Balance Sheet as at 31 ..
I
Liabilities r
3 2015
Assets -
(

2,000 6% preference shares of f 100 each 2,00,000 Fixed assets 3,00,0CQ-

30,000 equity shares of f 10 each 3,00,000 Current assets 3,00,0CQ
Liabilities 1,00,000
6,00,000 6,00,0CQ

The Market value of Fixed assets is 10% more than book value. The market value of current assets
is 5% less than book value. There is an unrecorded liability of f 5,000. Assume preference shares have
no priority either as to repayment of capital or dividend. You are required to value the equity share.
(Bangalore University [Link] April/1997 & 1998)
 Intrinsic Value Per Preference and Per E Shares : When there are p

The following figures were extracted from the books of Mis. Prosperous Limited:
Share Capital
9% Preference Shares off 100 each !
3,00,(n
(a) 1,000 Equity Shares of f 100 each, t 50 called up
50,00J
(b) 1,000 Equity Shares of f 100 each, f 25 called up
25,00J

valuation of Shares

(c) 1,000 Equity Shares of 100 each fully called up 1,00,000

Reserve and Surplus 4,75,000
General Reserve 2,00,000
Profit and Loss Account 50,000 2,50,000
7,25,000
on a fair valuation of all the assets of the company, it is found that they have an appreciation
of t 75,000. . . h ld rs will
The articles of association provided that , In case of liquidation, t~e preference share O eerence
have a further claim to the ~tent of 10%of the surplus assets. Ascei:am the value of each pref
and equity share, assuming a liquidation . Ignore expe nses of winding up. (A. C.S. Final, Jun~ 1980)
flUS"tl'ation77 Intrinsic Value Method when artl aid shares are not converted ir~to full
shares} · .
Following is the Balance Sheet of M/ s. sukh Ch ain
· L'mited
1 as on 31 March , 2015
Liabilities r Assets r
Share Capital Fixed Assets
30,000 Equity shares of no each fully paid 6,00,000 Goodwill 25,CXX)
25,000 Equity shares of no each, rn paid .2,00,000 Building 6,00,CXX)
15,000 Equity shares of ~10 each fully paid 1,50,000 Machinery 3,75,CXX)
10,000 Equity shares of ~10 each, ~5 paid 50,000 Investments 50,CXX)
Reserves and Surplus ·current Assets
General Reserves 4,50,000 . Stock 3,00,0X)
Profit and Loss Account · 50,000 Debtors 1,50,000
Current Liabilities Bills receivable 50,000
Creditors 2,00,000 Bank 1,30,000
Miscellaneous Expenditure
Discount on issue of Shares 20,000
17,00,000 . 17,00,000

This goodwill is· valued at 1.5,000; Buildings at 12,00,000; Machinery at 3,00',000; Investments
at 35,000; Stock at 2, 50,QOO; pebtors at 1,40,000. There was a contingent liability of 20,000.
Determine the value of different shares.

Illustration 8 Intrinsic Val .

di ference In the face value u~ Wlti~ Pre~erence Shares Ad ustment - When there"'is'no
0 e u an reference shares
Balance Sheet of Weak Ltd . as on March 31, 2015

Share capital: ·-
' Sundry assets
r
10,000, 6% preference shares 5,10,000
of 10 each , fully paid Discount on debentures 10,000
1,00,000 Preliminary expenses 30,000
30,000 ordinary shares of
Profit and Loss A/ c 60,000
f 10 each, fully paid 3,00,000
Debenture Redemption Fund 30,000
7% debentures 50,000
Depreciation fund 30,000
Sundry creditors 1,00,000
6,10,000 6, 10,000
The sundry assets are worth 5,25,000. One year's interest is owing on debentures and the
dividends on preference shares are in arrears for two years. You are required to value the shares on
the Net Assets Method, if:
(a) Preference shares have priority both as to the payment of capital and arrears of dividend,
in the event of liquidation.
(b) Preference shares have no priority as to capital or arrears of dividend.
(c) Preference shares have priority as to payment of capital only.
(d) Preference shares have priority as to the payment of arrear of dividend only.