Page 264 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 12: Valuation of Shares
Anand Thakur, Lovely Professional University

Unit 12: Valuation of Shares Notes

CONTENTS

Objectives
Introduction
12.1 Meaning of Valuation of Shares
12.2 Necessity of Valuation of Shares
12.3 Various Types of Value of Shares
12.4 Factors Affecting the Value of Shares

12.5 Methods of Valuation of Shares
12.5.1 Assets Valuation Method or Intrinsic Value Method
12.5.2 Earning Basis Method
12.5.3 Average Basis or Fair Value Method

12.6 Summary
12.7 Keywords
12.8 Review Questions
12.9 Further Readings

Objectives

After studying this unit, you will be able to:

z z Define the term valuation of shares
z z Describe the necessity of valuation of shares

z z Explain the types and factors affecting the value of shares
z z Discuss the methods of valuation of shares
Introduction

Tax legislation may require that share transfers within a multinational group be conducted at
arm’s length, i.e. an inter-company share transfer should be made at the same price and terms
as it would have been had the parties not been related to each other. This reference leaves room
for interpretation and requires judgement and explanation when choosing valuation methods
or making valuation assumptions. Making sure that the transfer price complies with local
regulations can save costs and time. Independent valuation reports help in providing backing
and support where a share transfer is planned. Importantly, transfer pricing associates’ unique
approach to valuation is based on the premise that any intra-group valuation study must be
performed in an integrated way with due regard to core valuations principles as well as specific
transfer pricing and tax implications in each jurisdiction.
The valuation of the shares of a company involves use of judgment, experience and knowledge. The
accountant undertaking this work should possess knowledge of the analysis and interpretation
of financial statements backed by a practical appreciation of business affairs and investments. A
valuation based on quantitative information alone will not be adequate for a real valuation. It
should also be recognised that the method of valuation of shares would vary, depending on the
purpose for which it is to be used.

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