Page 295 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II Anand Thakur, Lovely Professional University

Notes Unit 13: Valuation of Preference Shares

CONTENTS

Objectives
Introduction
13.1 Valuation of Preference Shares
13.2 Valuation of Shares for Other Purposes
13.2.1 Valuation for Purposes of Stamp Duty
13.2.2 Valuation for Court Fees

13.2.3 Valuation for Probates
13.2.4 Valuation for Purposes of Bank Advances
13.2.5 Valuation of Shares under Companies Act, 1956
13.2.6 Valuation of Shares for Transfer/Issue of Shares by a Non-resident

13.2.7 Valuation of Shares for Fixation of their Issue Price
13.2.8 SEBI Guidelines for Issue of Securities
13.3 Summary
13.4 Keywords
13.5 Review Questions

13.6 Further Readings

Objectives

After studying this unit, you will be able to:

z z Discuss the concept of valuation of preference shares
z z Describe the valuation of shares for other purposes
z z Explain the valuation of preference shares with the help of illustrations
Introduction

Preference Shares are issued by corporations or companies with the primary aim of generating
funds. A preference share usually carries a fixed stated rate of dividend. The dividend is payable
only upon availability of profits. In case of cumulative preference shares, arrears of dividends can
be accumulated and in the year of profits common stock holders can be paid dividend only upon
settlement of all the arrears of cumulative preference dividends.
Preference share holders have preference right over payment of dividend and settlement of
principal amount upon liquidation, over common share holders. A preference share can be
irredeemable or redeemable. Redeemable preference shares have a fixed maturity date and
irredeemable preference shares have perpetual life with only dividend payments periodically
upon profit availability. Preference shares can also be cumulative and non-cumulative. Preference
shareholders have fixed dividend rights as well as right to priority in repayment of their capital.
To equity shareholders on the other hand, belongs the entire business after settling off the claim
of preference.

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