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4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.?
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4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equi...
Solution:
To find out the fair value of the share of the company, we need to follow the below steps:
Step 1: Calculation of Total Capital Employed
Total Capital Employed = Equity Share Capital + Preference Share Capital + Reserves + Outside Liabilities + Fictitious Assets
= (45,000 x 100) + (4,500 x 100) + 35,000 + 75,000 + 3,500
= 45,00,000 + 4,50,000 + 35,000 + 75,000 + 3,500
= 49,63,500
Step 2: Calculation of Average Profit before Interest and Tax (PBIT)
PBIT = Average Profit (after tax) / (1 - Tax Rate)
= 84,600 / (1 - 0.3) [Assuming Tax Rate to be 30%]
= 84,600 / 0.7
= 1,20,857.14
Step 3: Calculation of Expected Return on Capital Employed (ROCE)
ROCE = (PBIT / Total Capital Employed) x 100
= (1,20,857.14 / 49,63,500) x 100
= 2.43%
Step 4: Calculation of Fair Value of Share
Fair Value of Share = (Average Profit after tax / Expected Rate of Return on Capital Employed) x 100
= (84,600 / 0.09) x 100
= 94,000
Therefore, the fair value of the share of the company is Rs. 94,000.
Explanation:
The fair value of the share is calculated based on the expected rate of return on capital employed, which is 9% in this type of business. The total capital employed is calculated by adding up the equity share capital, preference share capital, reserves, outside liabilities, and fictitious assets. The average profit before interest and tax (PBIT) is calculated based on the average profit after tax and the tax rate. The expected return on capital employed (ROCE) is calculated by dividing the PBIT by the total capital employed and multiplying the result by 100. Finally, the fair value of the share is calculated by dividing the average profit after tax by the expected rate of return on capital employed and multiplying the result by 100.
To find out the fair value of the share of the company, we need to follow the below steps:
Step 1: Calculation of Total Capital Employed
Total Capital Employed = Equity Share Capital + Preference Share Capital + Reserves + Outside Liabilities + Fictitious Assets
= (45,000 x 100) + (4,500 x 100) + 35,000 + 75,000 + 3,500
= 45,00,000 + 4,50,000 + 35,000 + 75,000 + 3,500
= 49,63,500
Step 2: Calculation of Average Profit before Interest and Tax (PBIT)
PBIT = Average Profit (after tax) / (1 - Tax Rate)
= 84,600 / (1 - 0.3) [Assuming Tax Rate to be 30%]
= 84,600 / 0.7
= 1,20,857.14
Step 3: Calculation of Expected Return on Capital Employed (ROCE)
ROCE = (PBIT / Total Capital Employed) x 100
= (1,20,857.14 / 49,63,500) x 100
= 2.43%
Step 4: Calculation of Fair Value of Share
Fair Value of Share = (Average Profit after tax / Expected Rate of Return on Capital Employed) x 100
= (84,600 / 0.09) x 100
= 94,000
Therefore, the fair value of the share of the company is Rs. 94,000.
Explanation:
The fair value of the share is calculated based on the expected rate of return on capital employed, which is 9% in this type of business. The total capital employed is calculated by adding up the equity share capital, preference share capital, reserves, outside liabilities, and fictitious assets. The average profit before interest and tax (PBIT) is calculated based on the average profit after tax and the tax rate. The expected return on capital employed (ROCE) is calculated by dividing the PBIT by the total capital employed and multiplying the result by 100. Finally, the fair value of the share is calculated by dividing the average profit after tax by the expected rate of return on capital employed and multiplying the result by 100.
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4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.?
Question Description
4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about 4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.?.
4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about 4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.?.
Solutions for 4,500 8% Preference shares of Rs. 100 each, fully paid-up; 45,000 Equity shares of Rs. 100 each, fully paid-up; Reserves Rs. 35,000; Outside Liabilities Rs. 75,000; Fictitious Assets Rs. 3,500; Average Profit (after tax) Rs. 84,600; Rate of expected return on capital employed, in this type of business is 9%. Find out the fair value of share of the company.? in English & in Hindi are available as part of our courses for B Com.
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