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BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 211

Value of Equity Shares under Asset Backing Method
Value of each Fully Paid Share

Net Assets available to Equity Shareholders 6,73,800
  = ` 168.45
Total Number of Equity Shares 2,000 2,000
Value of each partly paid-up equity share = ` 168.45 - ` 50.00 = ` 118.45.
(ii) Yield Method of Valuation:
Computation of Average Annual Profit Available to Equity Shareholders
Particulars `

Adjusted annual average profit after tax (as above) 1,00,000
Less: Transfer to reserves 10% (assumed) 10,000
Net Profit available to equal and preference shareholders 90,000
Less: Preference share dividend (6% on ` 2,00,000) 12,000
Average Annual Profit available to Equity Shareholders 78,000

Therefore, available rate of dividend on equity share capital:

AverageAnnualProfitavailabletoEquityShareholders 78,000
  100   100  26%
Paid upEquityShareCapital 3,00,000
Value of equity Shares under yield method:
Value of each fully Paid Share

AvailableRateof Dividend 26%
  Paid up ValueofaShare   ` 100 ` 260
NormalRateof Dividend 10% =

26%
Value of each Partly paid-up Share   ` 50 = ` 130
10%
Notes:
(i) 5% Debentures are considered as a part of capital-employed with the assumption that
these are issued for a long period.
(ii) Arrear preference dividend is considered as a contingent liability (in fact, it is) and, there-
fore, not deducted from net assets available to equity and preference shareholders.

Illustration 3.1.9
The Hello Ltd. has an issued, subscribed and paid-up share capital comprising 5,000 equity
shares of ` 100 each and 1,500, 9% preference shares of ` 100 each. The following information is
supplied:
hobmo {b{‘Q>oS> H$m < 100 à˶oH$ Ho$ 5000 B{³dQ>r eo¶g© VWm 1500, 9% {à’$a|g eo¶a à˶oH$ < 100 go ~Zm
Bí¶yS>, gãñH«$mBãS> VWm noS>-An eo¶a H¡${nQ>b h¡& {ZåZ{b{IV gyMZm àXmZ H$s J¶r h¡…