Page 303 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

Notes
×
Less: One years’ Debenture Interest due 5,000 7 350
100
Net Assets 34,650
(i) When preference shares have the priority for the payment of capital and arrears of
dividend:
`
Net assets as calculated above 34,650

Less: Preference Capital 10,000

×
×
10,000 6 2
Two years’ dividend 1,200 11,200
100
Intrinsic value for Equity Shares 23,450
23,450
Value of one Equity Share = = ` 7.82
3,000

11,200
Value of one Preference Share = = ` 11.20
1,000
(ii) When the preference shares are not preferential to capital and the arrears of dividends are
payable in priority:

`
Net assets as calculated above 34,650
Less: Two years’ dividend in arrears on preference shares 1,200
Intrinsic value for both the shares 33,450

33,450
Value of one share = = ` 8.36
3,000 + 1,000
Thus, value of one equity shares = ` 8.36

1200
Value of one preference share = ` 8.36 +
1000
= ` 8.36 + ` 1.2
= ` 9.56
(iii) When preference shares are preferential for the repayment of capital only at the time of
liquidation:
`
Net assets as calculated above 34,650

Less: Preferences share capital 10,000
Intrinsic value for equity shares 24,650

24,650
Thus value of one equity share = = ` 8.22
3,000

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