Page 271 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

Notes
4
Net Assets for C Category = 5,00,000 ×` = ` 2,00,000
10
2,00,000
Value of one equity share of C Category = = ` 25
8,000
Here, one point is to be noted that if there is any calls-in-arrear on the shares,
the value of such shares will be calculated in the manner explained above,
assuming that the calls-in-arrear have been received in full. After calculating
the value of the share, the amount of calls-in-arrear will be subtracted from the
respective calculated value of the share.
When there is possibility to receive the unpaid part of the share in near future: When the company
expects to receive the uncalled up amount in immediate future, value of shares will be calculated
by adding the unpaid and uncalled amount of shares (or making the national call and making the
shares fully paid up) to the net assets of the company. Then, the total of net assets will be divided
by the total number of equity shares (now fully paid up). The result will be the value of each fully
paid up equity share and to ascertain the value of partly paid up shares, the unpaid part of the
share will be subtracted from the value of each fully paid up share.
When there are both equity and preference shares: If there are equity and preference shares in the
total capital of a company, according to the right of preference shares mentioned in the Articles of
Association, the value of shares will be calculated. There can be the following conditions:
(i) When the preference shares have the priority of the dividend and repayment of capital on
the liquidation of the company: There will be the following two cases:
First Case: When the rate of dividend on preference shares is equal to the normal rate
of return, amount of preference share capital and arrears of preference shares will be
deducted from the net assets of the company and the balance of net assets will be divided
by the number of equity shares to ascertain the value of each equity share. To ascertain
the value of preference share, only that portion of net assets which belongs to preference
shares (this will be equal to the paid up capital of preference shares and arrears of dividend
on preference shares) will be divided by the number of preference shares.
Second Case: If the rate of dividend on preference shares is more or less than the normal
rate of preference dividend, amount of dividend payable on preference shares will be
capitalised at the normal rate of preference dividend. Then, the capitalised value of the
preference dividend will be divided by the total number of preference dividend to compute
the value of preference shares. The formula:

Amount of Preference Dividend
Capitalised Value of Preference Dividend = ×100
Normal Rate of Preference Dividend
(ii) When the preference shares have the priority only to the payment of capital at the time of
liquidation: In such a condition, only the amount of preference share capital is subtracted
from the total of net assets of the company and the remaining part of the net assets is
divided by the total number of equity shares to ascertain the value of one equity share.

(iii) When the preference shares have the priority only for the payment of dividend: In this
case, the amount of arrears of dividend on preference shares is deducted from the total net
assets and then the balance of net assets is divided in the ratio of paid up capital of equity
and preference shares. To calculate the value of each equity share, that portion of net assets
which belongs to equity shares will be divided by the number of equity shares. To ascertain
the value of preference shares, that portion of net assets which belongs to preference shares
will be divided by the number of preference shares and the arrears of dividend payable per
preference share will be added to the intrinsic value of each preference share.

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