It is provided in the Articles of Association that on the death of a shareholder, his shares shall be purchased by the remaining shareholders at a price to be settled by the Auditors, on the basis of the last balance sheet.
It is further provided that for this purpose, goodwill was to be of the value of three years’ purchase of the average annual profits for the last four years. The last balance sheet is as follows:
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20,000 shares of Rs.10
Investment at cost
each fully paid
Stock at cost
Profit and Loss Account
The profits for the last four years were (after tax) Rs.15,000, 20,000, 25,000 and 40,000 respectively.
You are required to state with details of working the price which should be paid per share.