Name: Ayushi Patel
Course: TYBAF
Roll No: 135
Subject: FA (VI)
Phone No: 8433759737
E-mail: ayupatel098@[Link]
Area: Vile Parle (East) Mumbai- 400057
Chapter 4 (Valuation of Goodwill and Shares)
Exercise
Q18. The balance sheet of a company on 31st december,2013 was as follows:-
Liabilities ₹ Assets ₹
Paid-up Capital: Goodwill
1000 6% Pref Shares of ₹100 each 100000 Investments (4% Govt. Securities, 10000
fully paid face value ₹10000) 15000
2000 Equity Shares of ₹100 each fully 200000 Other Assets
paid
1000 Equity Shares of ₹100 each ₹75 75000 695000
paid up
2000 Equity Shares of ₹100 each ₹50 100000
per share paidup
6% Debentures 25000
Sundry Creditors 100000
Reserve 50000
Profit & Loss account 70000
720000
720000
Revaluation of Assets was made as follows:
₹
Investment 20000
Other Assets 715000
The Normal return on capital employed for the purpose of Goodwill is 10% The Average Profit for the last three
years is ₹65000. The basis of valuation of Goodwill is three year’s Purchase of Super Profits. Find the value of
different types of shares on Assets Backing Method. Ignore Tax.
Q19. Given below is the balance sheet of Wye Co. Ltd. as on 31st December 2013.
Liabilities ₹ Assets ₹
1000 8% [Link] of ₹100 each fully 100000 Building 155000
paid up Less: Dep 25000 130000
2000 equity shares of ₹100 each fully 200000 Machinery 160000
paid Less Dep 40000 120000
General Reserves 110000 Furniture 25000
Profit & Loss account 40000 Less Dep 5000 20000
Creditors 100000 Investment in 6% govt securities (FV 90000
₹100000)
Stock 100000
Debtors 65000
Less Bad debts Reserve 5000 60000
Cash & bank balance 20000
Preliminary expense 10000
550000 550000
You are given the following information:
(1) The present value of building is ₹180000 and that of machinery is ₹80000
(2) Companies doing similar business show profit earning capacity of 10 per cent on market value of their
shares
(3) The average annual profit after 50% tax of last 3 years is ₹48000
(4) The company has held 6% govt securities for last 3 years and interest on the govt securities is liable to tax.
(5) Goodwill of the company is to be taken at 5 year’s purchase of super profits.
Calculate the fair value of shares of the company.
Q20. The following is the summarised Balance Sheet of Hrishi Ltd. as on 31st December,2013.
Liabilities ₹ Assets ₹
50000 Equity Shares of ₹10 each 500000 Plant & Machinery 240000
Securities Premium Furnitures 100000
General Reserve 100000 Stock 620000
Profit & Loss account 239400 Debtors 206000
Sundry Creditors 157600 Cash in Hand 3400
Provision For Tax 409400 Cash at Bank 434000
197000
1603400 1603400
The company transfers 20% of its profits (after tax) to General Reserve.
The NET Profits before tax for the last 3 years have been as follows:
Year Ended ₹
31-12-2011 275000
31-12-2012 394000
31-12-2013 366000
Machinery is valued at ₹320000. Average Dividend in this type of business is 20%. The rate of Tax is 50%.
Calculate the value of one equity share on the basis of:
(a) Intrinsic value (b) Yield basis (C) Fair value.
Q21. From the information given below and the balance sheet of a Ltd. on 31st December, 2013 find the value of its
equity shares by intrinsic value method and yield method.
(a) Company’s prospects for 2014 are good.
(b) Buildings are now worth ₹3,50,000
(c) Profits for the last three years have shown an annual increase of ₹50,000. The annual transfer to reserves is
25% of net profit.
(d) Preference shares are preference as to capital and dividend.
(e) Normal rate of return expected at 15% ignore taxation.
liabilities ₹ Assets ₹
1,000 8% preference shares Building 70,000
Of ₹100 each fully paid 1,00,000 Furniture 3,000
4,000 equity shares of ₹100 each fully paid Stock (Market value) 4,50,000
Reserves 4,00,000 Investment (at cost) 3,35,000
Profit and Loss Account: 1,50,000 (Face value ₹4,00,000)
Balance on 1-1-2013 80,000 Debtors 2,80,000
Add: Profit for 2013 4,80,000 Bank balance 60,000
(before transfer to reverse) 5,10,000 Preliminary Expenses 10,000
Creditors
48,000
12,08,000
12,08,000
Q.22: The following is the balance sheet of sunrise Ltd. as at 31st December,2013.
liabilities ₹ Assets ₹
Share capital: Land and Buildings 55,000
10,000 shares of ₹10 each 1,00,000 Plant and Machinery at cost
General Reserves 20,000 Less Depreciation 65,000
Taxation Reserves 30,000 Trade Marks 10,000
Workmen’s Savings 15,000 Stocks 24,000
Profit and Loss Account 16,000 Debtors 44,000
Sundry Creditors 49,000 Cash at Bank 26,000
Preliminary Expenses 6,000
2,30,000 2,30,000
Valuation of goodwill and shares
The plant and machinery is worth ₹60,000 and land and buildings have been valued at ₹1,20,000 by an
independent valuer. ₹4,000 of the debts are bad. The profits of the company are as follows:
2011 ₹40,000
2012 ₹45,000
2013 ₹53,000
It is the company’s practice to transfer 35% of the profits to Reserve. Ignoring taxation, find out the value of shares
on the yield basis and also on the Net assets basis. Similar Companies give a yield of 10% on the market value of
their shares. Goodwill may be taken to be worth ₹90,000.
