Model: Valuation of shares—Treatment of non-trading assets On 31 March 2010, the balance sheet of RBS Ltd. was as follows:
|
Liabilities |
Assets |
||
|
Share Capital: |
Goodwill |
50,000 |
|
|
10% Preference Shares (1,000) of Rs. 100 |
1,00,000 |
Land & Buildings |
2,00,000 |
|
Each Fully Paid |
Machinery |
2,50,000 |
|
|
50,000 Equity Shares of Rs. 10 Each Fully |
5,00,000 |
Furniture |
20,000 |
|
Paid |
Investment in 5% Govt. Securities at Cost |
75,000 |
|
|
General Reserve |
1,00,000 |
(Face Value of Rs.60,000) |
|
|
Capital Reserve |
20,000 |
Stock |
4,00,000 |
|
P&L A/c |
80,000 |
Book Debts |
80,000 |
|
6% Debentures |
1,60,000 |
Cash at Bank |
25,000 |
|
Sundry Creditors |
1,00,000 |
||
|
Provision for Taxation |
40,000 |
||
|
11,00,000 |
11,00,000 |
The assets were revalued as follows
|
Land & Building |
2,80,000 |
|
Machinery |
2,20,000 |
|
Furniture |
30,000 |
The normal return on capital employed for valuation of goodwill is 10%, the basis of valuation being 4 years’ purchase of super profits.
50% of investment in building is treated as non-trading asset because a sum of Rs.12,000 is collected annually as rent from building.
You are required to calculate the value of each equity share assuming that the average annual profit after tax at 50% is Rs.1,32,500.