Page 290 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 12: Valuation of Shares

Debtors 5,60,000 Notes
Bank 1,20,000
Gross Total Assets 29,56,000
Less: External Liabilities: Creditors 96,000

Net Assets 28,60,000
Less: Net Assets for Preference Shares 2,00,000
Net Assets for Equity Shares 26,60,000

Value per Equity Share (intrinsic value per share) = Net AssetsforEquityShareholders
No.of EquityShares

Rs.26,60,000
= = ` 332.50
8,000
Valuation of Share by Yield Method `
Profit for the year 2005 (given) 8,60,000
Add: Expected increase in next year 1,00,000

Less: 25% Transfer to Reserve 9,60,000
2,40,000
Profits Available for Dividend 7,20,000
Less: 8% Preference Dividend on ` 2,00,000 16,000
Profits Available for Equity Shares 7,04,000

ProfitsAvailableforEquityShares
Rate of Return on Equity Capital = × 100
EquityPaidupCapital

Rs.7,04,000 × 100 = 88%
Rs.8,00,000

Rateof Earning
Market Value per Equity Share = × PaidupValueof aShare
NormalRateof Return
88
= × ` 100 = ` 586.67
15
Fair value (Appropriate Value) of an Equity Share

+
Intrinsic Valueof theShare Marketor Yield Valueof theShare
=
2
332.50 + 586.67
= = ` 459.56
2

Task Discuss the methods of valuation of shares.

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