Page 270 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 12: Valuation of Shares

Notes
Net Assets
Intrinsic Value per Share =
Numberof EquityShares
When the share capital is divided into various types of equity shares and the paid up value of
each type of shares is equal: To compute the value of each equity share the net assets will be
divided by the total number of shares.
When the share capital is divided into various types of equity shares and their paid up values
are not equal: To calculate the value of one equity share, any one of the following methods can
be adopted:
1. On the basis of unit value of the share: Here, the entire net assets of the company are
divided by the total paid up amount of the capital and the result is called the unit value of
the share. To ascertain the value of the share, it is multiplied with the paid up value of the
share. Thus, this procedure is divided into two parts: The formulae:

Net Assets
Unit value of the share capital = , and
PaidupShareCapital
Value of one equity share = Unit Value of the Share Capital × Paid up Value of One Share.
2. On the basis of the proportion to the paid up capital: First of all, the entire net assets are
divided in the proportion to paid-up capital. The net assets of each type of the share capital
are divided by its number of shares to find out the value of one share.
Illustration 1
X Ltd.’s equity capital consists of:

A – 1,000 equity shares of ` 10 each fully paid-up.
B – 6,250 equity shares of ` 10 each ` 8 was paid-up.
C – 8,000 equity shares of ` 10 each ` 5 was paid-up.
The net assets available to the equity share-holders are of ` 5,00,000. Here, the intrinsic value of
the equity share of each category will be computed as below:
`
A – Category 1,000 shares of ` 10 each 10,000
B – Category 6,250 shares of ` 10 each ` 8 paid up 50,000
C – Category 8,000 shares of ` 10 each ` 5 paid up 40,000

1,00,000

1
Net Assets for A Category = ` 5,00,000 × = ` 50,000
10
50,000
Value of one equity share of A category = = ` 50
1,000

5
Net Assets for B Category = ` 5,00,000 × = ` 2,50,000
10

2,50,000
Value of one equity share of B category = = ` 40
6,250

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