Page 304 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 13: Valuation of Preference Shares

Notes
10,000
Value of one preference share = = ` 10
1,000
(iv) When preference shares have no preferential for the payment of capital and arrears of
dividend: Here both the shares will be of the same rank for the valuation of shares.

Net Assets
Value of one share =
+
No.of EquityShares No.of PreferenceShares
34,650 34,650
= = = ` 8.66
3,000 + 1,000 4000
Illustration 2 (Valuation of Equity and Preference Shares When Normal Rate of Preference Shares is
Given)

The Balance Sheet of Kavita Ltd. as on 31 December, 2010 was given below:
st
Liabilities ` Assets `
Share Capital: Fixed Assets:
Equity Shares of ` 10 each 3,00,000 Goodwill 22,500
Equity Shares of ` 5 each 1,50,000 Land & Buildings 75,000
8% Preference Shares of ` 10 each 1,50,000 Plant & Machinery 2,25,000
Reserve and Surplus: Furniture 4,500
General Reserve 75,000 Current Assets:
Profit and Loss Account 30,000 Stock 2,70,000
Provident Fund 45,000 Debtors 2,02,500
Current Liabilities: Cash 7,500
Creditors 60,000 Prepaid Expenses 3,000
Outstanding Expenses 7,500 Miscellaneous Expenditure:
Preliminary Expanses 7,500
8,17,500 8,17,500
Market value of Land & Buildings is ` 1,50,000. Goodwill is worth ` 60,000, Plant & Machinery
is valued at ` 2,50,000. Stock is worth ` 3,00,000. Outstanding expenses do not include disputed
bonus claim of ` 15,000 out of which ` 12,000 is likely to be paid. You are required:

(a) To find out the value of each kind of shares assuming normal rate on preference shares to
be 5%.
(b) To find out the value of each kind of shares if the preference shares have the right of
participation in surplus in case of liquidation.

Solution

Valuation of Shares of Kavita Ltd.
Net Tangible Assets: `
Goodwill 60,000

Land & Building (revalued) 1,50,000

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