#1

Following is the balance sheet of a sports shoe manufacturer for the calender year 2018 amount in lakhs
liabilities amount assets amount
40000, 11% preference shares of Rs.100 each 40 fixed assets 150
120000 equity shares of Rs.100 each 120 less: dep 30
P/L account 23 stocks 100
10% debentures 20 debtors 50
trade creditors 71 cash and bank 10
provision for income tax 8 preliminary exp
282
1. A firm of professional valuers has provided the following market estimates of its various assets: fixed assets 130 lakhs, stock
2. the company is yet to pay its preference dividend
3. the valuers also estimate the current sale proceeds of the assets, in the event of liquidation: Fixed assets 105 lakhs, debtors

compute the net asset value per share as per book value, as per market value and as per liquidation value bases.

#2
In the current year a firm has reported a profit of Rs.65 lakhs after paying taxes @ 35%. On close examination, the analyst asce
extraordinary loss of Rs.3 lakhs. Apart from the existing operations, which are normal in nature and are likely to continue in th
with a counterpart
revenue and cost estimates in respect of the new producct are as follows
sales 60 lakh
material cost 15 lakh
labour cost 10 lakh
allocated fixed costs 5 lakh
additional fixed cost 8 lakh
from the above information, compute the value of the business, given that the capitalisation rate applicable to the business in
suggest whether the merger will be adding synergy of the counterpart is having the market value of 510 lakhs and the historic
Share your view on the category of merger

Extraordinary Income and Expenses : Sudden income and expenses that occur.
ROCE Rate = Capitalization Rate
mount in lakhs
amount
p/l in liabilites- loss
120 p/l in assets - surplus.

160
2
282
fixed assets 130 lakhs, stock 102 lakhs, debtors 45 lakh. All other assets are taken at the book value

d assets 105 lakhs, debtors 40 lakhs, stock 90 lakhs, besides the firm is to incur 15 lakh as liquidation costs.

n value bases.

xamination, the analyst ascertains that the current year's income includes 1)extraordinary income of Rs.10 lakh and
d are likely to continue in the future, the company expects to launch a new product in the coming year by joining hands

applicable to the business in the market is 15%.

f 510 lakhs and the historical annual after tax profit of Rs.75 lakhs
 Determination of net value per share Rs.in Lakhs
Particulars Amt Amt
a. Book Value Basis
Fixed Assets ₹ 120.00
Current Assets
Stock ₹ 100.00
Debtors ₹ 50.00
Cash ₹ 10.00
₹ 160.00
Total Assets ₹ 280.00
Less: External Liabilities
10% Debentures ₹ 20.00
11% Preference Shares ₹ 40.00
Dividend on preference shares ₹ 4.40
Trade Creditors ₹ 71.00
Provision for Income Tax ₹ 8.00
Total Liabilities (b)
₹ 143.40
Net Asset available for equity shareholders(a-b) ₹ 136.60 c
Total Number of equity shares ₹ 1.20 d
Net Asset Value per share in rupees (not in lakh) ₹ 113.83 c/d

Liquidation Basis
Determination of net value per share Rs.in Lakhs
Particulars Amt Amt
a. Liquidation Basis
Fixed Assets ₹ 105.00
Current Assets
Stock ₹ 90.00
Debtors ₹ 40.00
Cash ₹ 10.00
₹ 140.00
Total Assets ₹ 245.00
Less: External Liabilities
10% Debentures ₹ 20.00
11% Preference Shares ₹ 40.00
Dividend on preference shares ₹ 4.40
Trade Creditors ₹ 71.00
Provision for Income Tax ₹ 8.00
Liquidation expenses ₹ 15.00
Total Liabilities (b)
₹ 143.40
Net Asset available for equity shareholders(a-b) ₹ 101.60
Total Number of equity shares ₹ 1.20
Net Asset Value per share in rupees (not in lakh) ₹ 84.67
 Determination of net value per share Rs.in Lakhs
Particulars Amt Amt
a. Book Value Basis
Fixed Assets ₹ 130.00
Current Assets
Stock ₹ 102.00
Debtors ₹ 45.00
Cash ₹ 10.00
₹ 157.00
Total Assets ₹ 287.00
Less: External Liabilities
10% Debentures ₹ 20.00
11% Preference Shares ₹ 40.00
Dividend on preference shares ₹ 4.40
Trade Creditors ₹ 71.00
Provision for Income Tax ₹ 8.00
Total Liabilities (b)
₹ 143.40
Net Asset available for equity shareholders(a-b) ₹ 143.60 c
Total Number of equity shares ₹ 1.20 d
Net Asset Value per share in rupees (not in lakh) ₹ 119.67 c/d
 Calculation of Income and Valuation of Business
Particulars Amt Amt
Profit Before Tax ₹ 10,000,000.00
Less : Extraordinary Income of the year ₹ -1,000,000.00
Add: Extraordinary Loss of the year ₹ 300,000.00
Total ₹ 9,300,000.00

Sales Forecast of new product ₹ 6,000,000.00

Less:
Material Cost ₹ -1,500,000.00
Labour Cost ₹ -1,000,000.00
Fixed Cost (additional) ₹ -800,000.00
Profit from the new product ₹ 2,700,000.00
Total Profit before tax (Including old and new profit) ₹ 12,000,000.00
Less: Tax@35% ₹ 4,200,000.00
Profit after tax ₹ 7,800,000.00 a
Capitalization Factor 15% b
Value of the business ₹ 52,000,000.00 a/b

Solution : Based on the evaluation, It is found that the value of the Acquirer company is more