You are required to calculate the value of each equity share assuming that the average annual profit…

Model: Valuation of shares—Treatment of non-trading assets On 31 March 2010, the balance sheet of RBS Ltd. was as follows:

Liabilities

Assets

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Share Capital:

Goodwill

50,000

10% Preference Shares (1,000) of Rs. 100

1,00,000

Land & Buildings

2,00,000

Each Fully Paid

Machinery

2,50,000

50,000 Equity Shares of Rs. 10 Each Fully

5,00,000

Furniture

20,000

Paid

Investment in 5% Govt. Securities at Cost

75,000

General Reserve

1,00,000

(Face Value of Rs.60,000)

Capital Reserve

20,000

Stock

4,00,000

P&L A/c

80,000

Book Debts

80,000

6% Debentures

1,60,000

Cash at Bank

25,000

Sundry Creditors

1,00,000

Provision for Taxation

40,000

11,00,000

11,00,000

The assets were revalued as follows

Land & Building

2,80,000

Machinery

2,20,000

Furniture

30,000

The normal return on capital employed for valuation of goodwill is 10%, the basis of valuation being 4 years’ purchase of super profits.

50% of investment in building is treated as non-trading asset because a sum of Rs.12,000 is collected annually as rent from building.

You are required to calculate the value of each equity share assuming that the average annual profit after tax at 50% is Rs.1,32,500.

 

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