3. |
(a) |
The following is the Balance Sheet (as at 31st December, 2006) of Sun Ltd:
Liabilities | Rs. | Assets | Rs. |
Share Capital: 80,000 Equity shares of Rs. 10 each fully paid up 50,000 Equity shares of Rs. 10 each Rs. 8 paid up 36,000 Equity shares of Rs. 5 each fully paid up 30,000 Equity shares of Rs. 5 each Rs. 4 paid–up 3,000 10% Preference shares of Rs. 100 each fully paid Reserve and Surplus: General reserve Profit and Loss account Secured Loan : 12% debenture Unsecured loan : 15% term loan Deposits Current Liabilities Bank Loan Creditors Outstanding expenses Provision for tax Proposed Dividend: Equity Preference |
8,00,000
4,00,000
1,80,000
1,20,000
3,00,000
1,40,000 2,10,000 2,00,000 1,50,000 1,00,000
50,000 1,50,000 20,000 2,00,000
1,50,000 30,000 |
Fixed Assets Goodwill Plant and Machinery Land and Building Furniture and Fixtures Vehicles Investments Current Assets Stock Debtors Prepaid Expenses Advances Cash and Bank balance Preliminary Expenses |
1,00,000 8,00,000 10,00,000 1,00,000 2,00,000 3,00,000
2,10,000 1,95,000 40,000 45,000 2,00,000 10,000 |
|
32,00,000 |
|
32,00,000 |
Additional Information:
(1) | In 2004 a new machinery costing Rs. 50,000 was purchased, but wrongly charged to revenue (no rectification has yet been made for the same). |
(2) | Stock is overvalued by Rs. 10,000 in 2005. Debtors are to be reduced by Rs. 5,000 in 2006, some old furniture (Book value Rs. 10,000) was disposed of for Rs. 6,000. |
(3) | Fixed assets are worth 5 per cent more than their actual book value. Depreciation on appreciated value of Fixed assets except machinery is not to be considered for valuation of goodwill. |
(4) | Of the investment 20 per cent is trading and the balance is non-trading. All trade investments are to be valued at 20 per cent below cost. Trade investment were purchased on 1st January, 2006. 50 percent of the non–trade investments were acquired on 1st January, 2005 and the rest on 1st January, 2004. A uniform rate of dividend of 10 percent is earned on all investments. |
(5) | Expected increase in expenditure without commensurate increase in selling price is Rs. 20,000 |
(6) | Research and Development expenses anticipated in future Rs. 30,000 per annum. |
(7) | In a similar business a normal return on capital employed is 10% |
(8) | Profit (after tax) are as follows: In 2004 – Rs. 2,10,000, in 2005 – Rs. 1,90,000 and in 2006 – Rs. 2,00,000. |
(9) | Current income tax rate is 50%, expected income tax rate will be 40%. |
From the above, ascertain the ex–dividend and cum–dividend intrinsic value for different categories of Equity shares. For this purpose goodwill may be taken as 3 years purchase of superprofits. Depreciation is charged on machinery @ 10% on reducing system. |
|
4x4=16 |