You, as Auditor, are required to fix the `fair value’ of the shares of T Ltd., on 31st March, 2011….

You, as Auditor, are required to fix the `fair value’ of the shares of T Ltd., on 31st March, 2011. The company’s position was as follows:

Liabilities

Rs

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Rs

Assets

Rs

Rs

Capital 5,000 shares  of

 

 

Bldgs. at cost

 

80,000

Rs.100 each

 

 

Furniture at cost

 

3,000

fully paid

 

5,00,000

Stock-in-trade

 

 

Reserve fund

 

1,50,000

at market value

 

4,50,000

Depreciation Funds:

 

 

Investment at Cost:

 

 

Buildings

10,000

 

G.P. Notes for

 

 

Investments

45,000

55,000

Rs.2,00,000

1,80,000

1,80,000

Creditors

 

48,000

Indian Gold Loan

 

 

Bad debts reserve

 

20,000

Repayable 2014

2,00,000

3,80,000

Profit and Loss:

 

 

 

 

 

Balance from 2009-10

80,000

 

Books debts consi-

 

 

Profit for 2010-11

4,30,000 

5,10,000

dered good

 

3,00,000

(subject to tax of 40%)

 

 

Cash and bank balance

 

70,000

 

12,83,000

 

 

 

12,83,000

You are given the following information:

(1) The company’s prospects for 2012-12 are equally good.

(2) Its buildings are now worth Rs.3,50,000.

(3) Public companies doing similar business show a profit earning capacity of 15 per cent on market value of their shares.

(4) Profits for the past three years have shown an increase of Rs.50,000 annually.

(5) Investments yield 8% net on the book value on the whole.

 

 

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