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206 Corporate Finance BRILLIANT’S

Computation of Avg. Maintainable Super Profits

Particulars `
Average annual profit for the last 3 years (Note 3)
` (3,60,000 + 4,40, 000 + 5,20,000) / 3 4,40,000
Less: Interest on investment (5% of ` 15,20,000) 76,000
3,64,000
Less: Income-tax @ 50% (assumed) 1,82,000
1,82,000
Less: Normal return on capital employed (12% on ` 31,34,000) 3,76,080
Average Annual Super Profit (-) 1,94,080

The value of the goodwill is to be taken as nil, since the average annual super profit is
negative.
Computation of Net Assets Available to Equity Shareholders

Particulars `
Closing trading tangible capital employed (as above) 32,45,000
Add: Investments in Govt. Securities 15,20,000
Add: Goodwill Nil
Capital Employed by Equity Shareholders 47,65,000
Add: Notional calls (` 50 × 20,000) 10,00,000
Net Assets available to Equity Shareholders 57,65,000

(a) Intrinsic Value of Each Equity Share

Total assets available to equity shareholders 57,65,000
Full paid shares   = ` 192.17
Total number of equity shares 30,000
Partly paid Share = ` 192.17 – ` 50.00 = ` 142.17
(b) Earning Capacity Method
Computation of average Annual profit Available to Equity Shareholders

Particulars `

Average annual profit for the last 3 years 4,40,000
Less: Income Tax @ 50% 2,20,000
2,20,000
Less: Transfer to General Reserve (10% on ` 2,20,000) 22,000
Average Annual Profit available to Equity shareholders 1,98,000