Page 209 - Corporate Finance PDF Final new link

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BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 209

2,000 Equity Shares of ` 100 each, ` 50 per share paid
` 100 à˶oH$ Ho$ 2,000 Bp³dQ>r eo¶g©, ` 50 à{V eo¶a n¡S> 1,00,000
2,000, 6% Preference Shares of ` 100 each fully paid
` 100 à˶oH$ Ho$ ’w$br n¡S> 2,000, 6% {à’$a|g eo¶g© 2,00,000
5,00,000

The following further information is available:
{ZåZ{b{IV A{YH$ OmZH$mar CnbãY h¢…
(i) Land and Buildings and Machinery were revalued at ` 3,00,000 and ` 1,70,000 respec-
tively.
b¢S> VWm {~pëS>¨J VWm ‘erZar H$m H«$‘e… < 3,00,000 VWm < 1,70,000 nwZ‘y©ë¶m§H$Z {H$¶m J¶m Wm&

(ii) Normal return on capital employed for valuation of goodwill is 10%. Apart from this,
depreciation to be charged on the revalued assets which are on Land and buildings @ 5%
and on machinery @ 10%. Average Profit of the last 3 years was ` 1,00,500 (after deduction
of tax @ 50%). The basis of valuation of goodwill is 3 years' purchase of super profits.
Preference share dividend of ` 12,000 was in arrear which was included in sundry credi-
tors.
JwS>{db Ho$ ‘yë¶m§H$Z Ho$ {bE à¶w³V H¡${nQ>b na gm‘mݶ [aQ>Z© 10% h¡& BgHo$ A{V[a³V [ad¡ë¶yS> AgoQ²>g na

S>o{à{geeZ bJmZm hmoVm h¡ Omo b¢S> VWm {~pëS>¨J na 5% VWm ‘erZar na 10% h¡& {nN>bo 3 dfm] H$m Am¡gV
bm^ < 1,00,000 Wm (50% Xa go Q>¡³g KQ>mZo Ho$ níMmV)& JwS>{db Ho$ d¡ë¶yEeZ H$m AmYma gwna àm°{’$Q>
H$m 3 dfm] H$m H«$¶ h¡& < 12,000 H$m {à’$a|g eo¶a {S>{dS>|S> E[a¶a ‘| Wm Omo g§S´>r H«o${S>Q>g© ‘| gpå‘{bV Wm&
Bgr àH$ma H$s H§$nZrO B{³dQ>r eo¶a na 10% {S>{dS>|S> H$m ^wJVmZ {H$¶m Om ahm h¡&
Similar companies are paying 10% dividend on equity share.
g‘mZ H$ånZrO Bp³dQ>r eo¶a na 10% bm^m§e H$m ^wJVmZ H$a ahr h¢&
Find out the value of equity shares both on: / {ZåZ{b{IV XmoZm| na B{³dQ>r eo¶g© H$m ‘yë¶ kmV H$s{OE…

(a) Asset Backing method and / AgoQ> ~¢qH$J {d{Y VWm
(b) Yield Method. / ¶rëS> {d{Y&
Solution:

(i) Asset Backing Method of Valuation:
Computation of Capital Employed

Particulars ` `

Sundry Assets:
Land and Buildings 3,00,000
Machinery 1,70,000
Inventories 2,10,000