VALUATION OF SHARES

1. Compute the fair value of the company’s shares. The net profits for the three years were
1981- Rs 51,600, 1982- Rs 52,000 and 1983- Rs 51,650. Of which 20% was placed to
reserves, this proportion being considered reasonable in the industry in which the
company is engaged and where a fair investment return may be taken 10%.
On 31stDecember 1983, the balance sheet of Mukul Ltd. disclosed the following position:
Liabilities Rs Assets Rs
Equity share capital of Rs 10 4,00,000 Fixed assets 5,00,000
each Current assets 2,00,000
8% Preference share capital 90,000 Goodwill 40,000
Profit and loss account 20,000
5% Debentures 1,00,000
Current Liabilities 1,30,000
7,40,000 7,40,000

2. The following is the balance sheet of Vijay Ltd. as on 31/12/1983.

Liabilities Rs Assets Rs
Share capital: Land and building 70,000
10,000 equity shares of Rs 10 1,00,000 Plant and Machinery 70,000
each Trade marks 20,000
General Reserve 50,000 Stock 20,000
Taxation Reserve 20,000 Debtors 48,000
Workmen’s saving account 20,000 Cash at bank 25,000
Profit and loss account 30,000 Preliminary expenses 7,000
Creditors 40,000
2,60,000 2,60,000

The plant and machinery was revalued at Rs 60,000 and land and building at Rs 1,30,000. The
profits of the company were in1981- Rs 50,000, 1982- Rs 60,000 and 1983- Rs 70,000. It is
the practice of the company to transfer 25% of the profits to reserves. Ignoring taxation find
out the fair value of shares of the company. Shares of similar companies quoted in the stock
exchange yield 12% of their market value.
 3. From the following particulars of Sunrise Ltd., find out fair value of shares.
Liabilities Rs Assets Rs
40,000 shares of Rs 10 each 4,00,000 Goodwill 40,000
Reserves 20,000 Fixed assets 3,20,000
Creditors 1,20,000 Current assets 1,66,000
Preliminary expenses 4,000
5,40,000 5,40,000
Goodwill is worth Rs 50,000. Fixed assets are worth Rs 3,00,000. Dividend for last three years
were 13%, 17% and 15% respectively. Normal rate of return of similar companies is 10%.
4. The following is the balance sheet of H Ltd. as on 31st September 1991.
Liabilities Rs Assets Rs
5,000, Equity shares of Rs 100 each 5,00,000 Land and Building 10,00,000
Profit and loss account 7,50,000 Machinery 2,00,000
Bank Loan 2,50,000 Stock 3,00,000
Creditors 1,00,000 Debtors 1,80,000
Provision for Tax 2,00,000 Bank balance 2,10,000
Proposed dividend 1,20,000 Preliminary expenses 30,000
19,20,000 19,20,000
The net profit after tax for five year ending 30th September 1991 were- 1986-87 Rs 2,20,000,
1987-88 Rs 2,50,000, 1988-89 Rs 1,75,000, 1989-90 Rs 3,00,000, 1990-91 Rs 1,60,000.
The profits for 1987-88 was adjusted by Rs 20,000 due to loss by theft and the profit of 1989-
90 included Rs 30,000 on sale of investments. Land and building is revalued at Rs 15,00,000
and a return of 10% on tangible capital employed (before adjustment) is reasonable. Goodwill
is to be calculated at five years purchase of super profit. Also find the fair value of shares. Tax
Rate is 50%.
5. Below is given the balance sheet of Relax Ltd. as on 31st March 1989.
Liabilities Rs Assets Rs
6,000 equity shares of Rs 100 Land and building 2,70,000
each 6,00,000 Plant and Machinery 1,00,000
Profit and loss account 40,000 Stock 3,60,000
Bank overdraft 10,000 Debtors 1,60,000
Creditors 80,000
Provision for taxation 1,00,000
Proposed dividend 60,000
8,90,000 8,90,000
The net profits of the company after deduction of usual working expenses but before providing
for taxation were as under: 1984-85 Rs 1,70,000, 1985-86 Rs 2,10,000, 1986-87 Rs 1,80,000,
1987-88 Rs 2,20,000 and 1988-89 Rs 2,00,000.
On 31st March 1989, land and building were valued at Rs 2,20,000 and plant and machinery at
Rs 1,20,000. Debtors on the same date includes Rs 4,000 as irrecoverable. Having regards to
the nature of business, a 10% return on net tangible capital investment is considered reasonable.
You are required to value the company’s shares. Goodwill may be based on five years purchase
of super profits. Tax Rate to be assumed at 50%.
6. The following is the Balance Sheet of Uniplas Ltd. as on 31st December 2017:
Liabilities Rs Assets Rs
Share Capital: Land and Building 42,000
7,500 shares of Rs. 10 each 75,000 Plant and Machinery 48,000
General Reserve 15,000 Trade Marks 7,500
Provision for taxation 22,500 Stock 18,000
Workmen’s Saving Account 11,250 Debtors 33,000
Profit and Loss Account 12,000 Cash at bank 19,500
Creditors 36,750 Preliminary expenses 4,500
1,72,500 1,72,500
The plant and machinery is worth Rs. 45,000 and land and buildings have been valued
at Rs. 90,000 by an independent valuer. Rs. 3,000 of the debtors are bad, the profits of
the company have been as follows:
2015: Rs. 30,000
2016: Rs. 33,750
2017: Rs. 39,750
It is the company’s practice to transfer 25% of the profits to reserve. Ignore taxation.
Find out the value of shares on the yield basis and also on the net asset basis. Similar
companies give a return of 10% on the market value of their shares. Goodwill may be
taken to be worth Rs. 60,000.

7. Mr. Kulkarni intends to invest 33,000 in Equity Shares of a Limited Company and seeks
your advice as to the maximum number of shares he can expect to acquire based on a
fair value of the shares.
The following information is available:
6% Preference share capital Rs. 5,50,000
Equity share capital of Rs 10 each Rs. 3,50,000
Average net profit of the business is Rs. 75,000. Expected normal yield is 8% in case
of such equity shares. It is observed that the net assets on revaluation are worth Rs.
70,000 more than the amounts at which they are stated in the books. Goodwill is to be
calculated at 5 year’s purchase of super profits, if any. Ignore taxation. It is assumed
that the entire profit is not withdrawn from the business.
8. The assets and liabilities of Hind Alloys Ltd. as on 31st December, 2017 were as
follows:
Liabilities Rs Assets Rs
10,000 shares of Rs 10 each 1,00,000 Land and Building 84,000
fully paid Plant and Machinery 60,000
Profit and Loss A/c 20,000 Furniture 5,000
Debentures 15,000 5% (tax free) Govt. Bonds 20,000
Trade Creditors 20,000 Stock 2,000
Provision for taxation 9,000 Book debts 6,000
Proposed Dividend 15,000 Cash 2,000
1,79,000 1,79,000
The net profits of the company after charging depreciation and taxes were as follows:
2013: Rs 17,000
2014: Rs. 19,000
2015: Rs. 18,000
2016: Rs. 20,000
2017: Rs. 19,000
On 31st December 2017, land and building were revalued at Rs. 95,000, Plant and
Machinery at Rs. 71,000 and furniture at Rs 4,000. 10 % represents a fair commercial
rate of return on investment in the company.
Find out the value of goodwill basing it at five years purchase of the average super
profits for the last five years.

9. The following is the Balance Sheet of Delton Ltd. as on 31st December 2017:
Liabilities Rs Assets Rs
6,000, Equity Shares of Rs. 100 each 6,00,000 Cash at Bank 50,000
500, 6% debentures of Rs. 100 each 5,00,000 Debtors 80,000
General reserve 70,000 Stock 1,20,000
Profit and Loss Account 20,000 Investment 1,00,000
Creditors 30,000 Land and Building 4,10,000
Other Liabilities 10,000 Furniture 1,30,000
Plant and Machinery 3,40,000
12,30,000 12,30,000
All assets were independently valued at Rs. 13,80,000.
The company earned net profits for the last five years as follows:
Rs. 80,000, Rs. 84,000, Rs. 92,000, Rs.88,000 and Rs. 96,000.
It was decided to set aside 15% of the profits towards General Reserve. This proportion
was considered reasonable in the industry in which the company was engaged and
where a fair investment return may be taken at 10%.
Find out the value of equity shares of the company by the:
Assets Valuation Method and
Yield Valuation Method.