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210 Corporate Finance BRILLIANT’S

Debtors 60,000
Cash at Bank 75,000 8,15,000
Less: Current Liabilities
Sundry Creditors (` 1,26,000 - 12,000) 1,14,000
Arrear Preference Dividend 12,000 1,26,000
Average Trading Tangible Capital Employed 6,89,000
Computation of Avg. Maintainable Super Profits

Particulars `

Average annual profit for the last 3 years before taxation ` (1,00,500 x 100 / 50) 2,01,000
Add: Depreciation overcharged on decrease in the value of machinery
(10% on ` 30,000) 3,0000
2,04,000
Less: Depreciation undercharged on increase in the value of land and buildings
(5% on ` 80,000) 4,000
2,00,000
Less: Income Tax @50% 1,00,000
Adjusted Annual Average Profit after Tax 1,00,000
Add: Interest on Debenture (5% on ` 10,000) 500
1,00,500
Less: Normal return on capital emp. (10% on ` 6,89,000) 68,900
Average Annual Maintainable Super Profit 31,600

Value of goodwill is the 3 year's purchase of super profits = ` 31,600 x 3 = ` 94,800
Computation of Net Assets Available to Equity Shareholders
Particulars `

Average trading tangible capital employed (as above) 6,89,000
Add: Goodwill (as above) 94,800
7,83,800
Less: Long-term liabilities - 5% Debentures 10,000
Net assets available to equity and preference shareholders 7,73,800
Less: Preference share capital 2,00,000
5,73,800
Add: Notional calls on partly paid-up equity shares (` 50 x 2,000) 1,00,000
Net Assets available to Equity Shareholders 6,73,800