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unquoted shares
Valuation of shares for tax purpose e.g. gift tax, wealth tax
When shares are pledged as collateral for a loan
Determining the amount payable to the dissenting shareholders
under section 494 of the companies act, 1956
Compensating the shareholders when the undertaking is
nationalised
Valuation of shares by an investment company
Profit Based
Method
Yield Method
Amalgamation
Sick
Companies
(Revivals or
liquidation)
Unquoted
Equity Shares Lenders (when
forming part of
shares are
wealth (Where
pledged as
market value
security
is not readily
against loan)
available)
Step 2
Calculate total number of shares outstanding in the
market
Step 3
Calculate value per share: Step 1/ Step 2
for ESH)
Closing Capital Employed (Assets excluding Goodwill
Outside Liabilities excluding Preference Capital)
XXX
(XXX)
XXX
Total (A)
XXX
XXX
Premium
on redemption of Pref Capital
Unpaid Preference
Dividend
XXX
XXX
Total (B)
XXX
(A - B)
XXX
XXX
Step 1
Step 2
Step 3
Step 4
Step 5
(Step 2 - Step 3)
Goodwill = Super Profits X No. of years considered for goodwill
Solution:
Step 1: Calculation of Net Assets for Equity Shareholders
a) Calculation fo Goodwill
i) Future Maintainable Profits
Particulars
2010-11
2011-12
2012-13
2013-14
Rs.
Rs.
Rs.
Rs.
18,00,000
20,50,000
23,00,000
24,50,000
2,00,000
Less:
Depreciation on Machinery for 3 years on reducing
balance method
20,000
18,000
16,200
1,00,000
20,000
18,00,000
22,30,000
22,82,000
23,13,800
21,56,450
Rs
Rs
Assets
Fixed Assets
Building
Machinery
24,00,000
22,00,000
2,00,000
54,200
1,45,800
23,45,800
Furniture
10,00,000
Vehicle
18,00,000
75,45,800
22,63,740
Total Revalued FA
98,09,540
96,09,540
20%
Normal Profit
19,21,908
Super Profit =
2,34,542
=2,34,542 X 2
Goodwill =
4,69,084
Rs
Rs
96,09,540
4,69,084
1,00,78,624
Less:
Preference Share Capital
20,00,000
Yield Method
SUITABILITY OF YIELD
METHOD
Use for
valuation of
small
companies
Investors
More interested
in Yield, i.e.,
Dividend or
Earnings
Value
2