Going through the Valuation of Goodwill & Shares – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.
Valuation of Goodwill & Shares – Corporate and Management Accounting MCQs
Question 1.
…………. may be described as the aggregate of those intangible attributes of a business which contribute to its superior earning capacity over a normal return on investment.
(A) Image of firm
(B) Goodwill
(C) Work quality
(D) Value
Answer:
(B) Goodwill
Question 2.
Which of the following factor generally contribute to the value of goodwill of a firm?
(A) Efficiency of management
(B) Risk involved in the business
(C) Location of the business
(D) All of above
Answer:
(D) All of above
Question 3.
Following are the factors affecting goodwill except:
(A) Nature of business
(B) Efficiency of management
(C) Technical knowhow
(D) Location of the customers
Answer:
(D) Location of the customers
Question 4.
Which of the following formula is used to calculate goodwill under simple average profit method?
(A) Goodwill = Weighted average profit × No. of year purchase
(B) Goodwill = Average profit × No. of year purchase
(C) Goodwill = Super profit × No. of years purchases
(D) Goodwill = Super profit × Annuity factor
Answer:
(B) Goodwill = Average profit × No. of year purchase
Question 5.
Under average profit basis goodwill is calculated by –
(A) No. of years purchased multiplied with average profits.
(B) No. of years purchased multiplied with super profits.
(C) Summation of the discounted value of expected future benefits.
(D) Super profit divided with expected rate of return.
Answer:
(A) No. of years purchased multiplied with average profits.
Question 6.
Which of the following formula is used to calculate goodwill under super profit method?
(A) Goodwill = Weighted average profit × No. of year purchase
(B) Goodwill = Average profit × No. of year purchase
(C) Goodwill = Super profit × No. of years purchases
(D) Any of the above
Answer:
(C) Goodwill = Super profit × No. of years purchases
Question 7.
Weighted average method of calculating goodwill should be followed when –
(A) Profits are uneven
(B) Profits has increasing trend
(C) Profits has decreasing trend
(D) Either (B) or (C)
Answer:
(B) Profits has increasing trend
Question 8.
Under annuity basis goodwill is calculated by –
(A) No. of years purchased multiplied with average profits.
(B) No. of years purchased multiplied with super-profits.
(C) Summation of the discounted value of expected future benefits.
(D) Super profit divided with expected rate of return.
Answer:
(C) Summation of the discounted value of expected future benefits.
Question 9.
Under capitalization basis goodwill is calculated by:
(A) No. of years purchased multiplied with average profits
(B) No. of years purchased multiplied with super profits
(C) Summation of the discounted value of expected future benefits
(D) Super profit divided with expected rate of return
Answer:
(D) Super profit divided with expected rate of return
Question 10.
Goodwill is …………..
(A) An intangible asset
(B) A fixed asset
(C) Realizable assets
(D) All of the above
Answer:
(D) All of the above
Question 11.
Good will is paid for obtaining
(A) Future benefit
(B) Present benefit
(C) Past benefit
(D) None of the above
Answer:
(A) Future benefit
Question 12.
Super profit is …………
(A) Excess of average profit over normal profit
(B) Extra profit earned
(C) Average profit earned by similar companies
(D) Profit earned in abnormal circumstance
Answer:
(A) Excess of average profit over normal profit
Question 13.
Normal profit is …………….
(A) Profit earned by similar companies in the same industry
(B) Average profit earned
(C) Excess of average profit over super profit
(D) Profit earned in abnormal circumstance
Answer:
(A) Profit earned by similar companies in the same industry
Question 14.
Normal profit depends on -………….
(1) Normal Rate of Return
(2) Leverage
(3) Average capital employed
(4) Beta
(5) Dividend policy.
Select the correct answer from the options given below.
(A) (3) and (5) only
(B) (1), (4) and (5) only
(C) (1) and (3) only
(D) (1), (2) and (3) only
Answer:
(C) (1) and (3) only
Question 15.
While calculating capital employed –
(A) Tangible trading assets should be considered
(B) Fictitious assets should be considered
(C) Unrecorded assets should be ignored
(D) Assets written off should be considered at original book value
Answer:
(A) Tangible trading assets should be considered
Question 16.
At the time of valuation of goodwill, any non-trading income included in the profit should be
(A) Considered
(B) Added
(C) Ignored
(D) Given special consideration
Answer:
(C) Ignored
Question 17.
Net asset value is also called as –
(A) Asset backing value
(B) Intrinsic value
(C) Liquidation value
(D) All of the above
Answer:
(D) All of the above
Question 18.
Net asset value method of share valuation is based on the assumption that the company is………….
(A) A going concern
(B) Going to be liquidated
(C) Risk-free
(D) Both (A) & (B)
Answer:
(B) Going to be liquidated
Question 19.
Yield value depends on -………………
(A) Future maintainable profit
(B) Paid-up equity capital
(C) Normal rate of return
(D) None of the above
Answer:
(D) None of the above
Question 20.
FMP for yield valuation is …………..
(A) Future profit
(B) Profit that would be available to equity shareholders
(C) Past profit
(D) None of the above
Answer:
(B) Profit that would be available to equity shareholders
Question 21.
Yield value is based on the assumption that –
(A) The company is a going concern
(B) The company will be liquidated
(C) The company is sick
(D) None of the above
Answer:
(A) The company is a going concern
Question 22.
Value of a partly paid equity share is equal to:
(A) Value of fully paid share divided by face value and multiplied by paid-up value per share
(B) Value of fully paid share less Calls unpaid per share
(C) Value of fully paid share less Calls unpaid per share divided by face value and multiplied by paid-up value per share
(D) None of the above
Answer:
(B) Value of fully paid share less Calls unpaid per share
Question 23.
Yield basis valuation of shares may take the form of valuation based on rate of return and
(A) Inflation factor
(B) Productivity factor
(C) Risk free factor
(D) Beta factor
Answer:
(B) Productivity factor
Question 24.
When only a few shares are sold basis will be appropriate to value share under yield method.
(A) Rate of dividend
(B) Rate of earning
(C) Benchmark rate
(D) Any of the above
Answer:
(A) Rate of dividend
Question 25.
Which of the following intangibles is/ are prohibited from being recognized as an asset?
(a) Self-generated goodwill
(b) Separately acquired intangible
(c) Internally generated intangibles
(d) Goodwill acquired as part of an on-going business
Select the correct answer from the options given below.
(A) (b) & (d)
(B) (a) & (c)
(C) (c) & (d)
(D) (a) & (b)
Answer:
(B) (a) & (c)
Question 26.
If the intrinsic value of a share of common stock is less than its market value, which of the following is the most reasonable conclusion?
(A) The stock has a low level of risk.
(B) The stock offers a high dividend payout ratio.
(C) The market is undervaluing the stock.
(D) The market is overvaluing the stock.
Answer:
(D) The market is overvaluing the stock.
Question 27.
Market based methods of valuation should not be adopted when –
(A) When business is too small
(B) When assets are less than liabilities of the business
(C) In case of significant and unusual fluctuations in market price
(D) It is difficult to estimate the realizable value in case of going concern.
Answer:
(C) In case of significant and unusual fluctuations in market price
Question 28.
Market value method is generally the most preferred method in case of –
(A) Frequently traded shares of companies fisted on stock exchanges having nationwide trading
(B) Valuation of a division of a company
(C) Where the share are not listed or are thinly traded
(D) Where there is an intention to liquidate it and to realize the assets and distribute the net proceeds.
Answer:
(A) Frequently traded shares of companies fisted on stock exchanges having nationwide trading
Question 29.
Which of the following is required to be taken into consideration while valuing equity shares of the company?
(A) Size of the block of shares
(B) Restricted transferability aspect
(C) Dividends
(D) All of the above
Answer:
(D) All of the above
Question 30.
Which of the following shall not be taken into consideration while calculating Capital Employed?
(A) Discount on issue of debentures
(B) Preliminary expenses
(C) Fictitious assets
(D) All of the above
Answer:
(D) All of the above
Question 31.
Goodwill is –
(A) Intangible asset
(B) Valuable asset
(C) Non-current asset
(D) All of the above
Answer:
(D) All of the above
Question 32.
Net asset value per share is also known as –
(A) Internal value per share
(B) Intrinsic value per share
(C) Economic value per share
(D) Recoverable value per share
Answer:
(B) Intrinsic value per share
Question 33.
Which of the following is deducted while calculating net assets available to equity shareholders?
(A) Proposed preference dividend
(B) Share suspense account
(C) Know-how
(D) Non-trading investment
Answer:
(A) Proposed preference dividend
Question 34.
Statement I:
Net Asset Method can be fairly used to value shares when the firm is liquidated.
Statement II:
This method does not give any weight to earning capacity of the company.
Select the correct answer from the options given below:
(A) Statement I is correct but Statement II is incorrect
(B) Statement I is incorrect but Statement II is correct
(C) Both Statement I and Statement II are incorrect
(D) Both Statement I and Statement II are correct
Answer:
(D) Both Statement I and Statement II are correct
Question 35.
In which of the following cases valuation is essential?
(A) Conversion of debt instruments into shares.
(B) On directions of Tribunal orAuthonty or Arbitration Tribunals.
(C) When issuing shares to public either through an Initial Public Offer or by offer for sale.
(D) All of the above
Answer:
(D) All of the above
Question 36.
While deciding net asset value, fictitious assets –
(A) Should be considered
(B) Should not be considered
(C) Added to total assets
(D) Valued separately
Answer:
(B) Should not be considered
Question 37.
For which one or more of the following reasons is the recognition as an asset of an internally generated intangible prohibited?
(a) Because there may not be an active market for that asset.
(b) Because its cost is usually relatively insignificant.
(c) Because it is difficult to reliably identify the related costs
(d) Because it is difficult to establish the probability of flow of economic benefits
Select the correct answer from the options given below.
(A) (a) & (b)
(B) (c) & (d)
(C) (b) & (c)
(D) (b) & (d)
Answer:
(B) (c) & (d)
Question 38.
When controlling shares are to be sold then which of the following will be the appropriate base for valuation of shares:
(A) Rate of dividend
(B) Rate of earning
(C) Rate of gross profit
(D) Rate of risk free return
Answer:
(B) Rate of earning
Question 39.
Fair value is the average of the –
(A) Intrinsic value and yield value
(B) Internal value and external value
(C) Capitalized value and earning value
(D) Notional value and book value
Answer:
(A) Intrinsic value and yield value
Question 40.
As per valuation of equity shares based on price-earnings ratio, the shares are valued on the basis of multiplied by price earnings ratio.
(A) Dividend per share
(B) Earnings per share
(C) Bonus per share
(D) Interest per share
Answer:
(B) Earnings per share
Question 41.
Market value of share =
(A) DPS × EPS
(B) P/E Ratio × DPS
(C) P/E Ratio × EPS
(D) (P/E Ratio 4 ÷ EPS) × 100
Answer:
(C) P/E Ratio × EPS
Question 42.
Which of the following Accounting Standard deals with Intangible Assets?
(A) AS-22
(B) AS-24
(C) AS-26
(D) AS-28
Answer:
(C) AS-26
Question 43.
As per AS-26, there is a rebuttable presumption that the useful life of an intangible asset will not exceed from the date when the asset is available for use.
(A) Ten years
(B) Five years
(C) Eight years
(D) Six years
Answer:
(A) Ten years
Question 44.
If control over the future economic benefits from an intangible asset is achieved through legal rights that have been granted for a finite period, the useful life of the intangible asset should not exceed the period of the legal rights unless:
(A) The legal rights are renewable and
(B) Renewal is virtually certain.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)
Question 45.
As per AS-26, intangible asset can be recognized at -………..
(A) Research phase
(B) Development Phase
(C) Both (A) and (B)
(D) Either (A) or (B)
Answer:
(B) Development Phase
Question 46.
As per AS-26, expenditure on research or on the research phase of an internal project should be recognized as when
it is incurred.
(A) An Asset
(B) An expense
(C) Profit
(D) Liability
Answer:
(B) An expense
Question 47.
Which of following is NOT the method of valuation of Goodwill?
(A) Average profit Method
(B) Super profit Method
(C) Capitalization Method
(D) Straight line Method
Answer:
(D) Straight line Method
Question 48.
Super profit means – …………..
(A) Future maintainable profit minus normal return
(B) Weighted Average Profit
(C) Future maintainable profit minusnet profit earned by business
(D) Normal return plus PAT
Answer:
(A) Future maintainable profit minus normal return
Question 49.
In balance sheet shares appears at –
(A) Face value
(B) Adjusted market value
(C) Market price
(D) Paid-up value
Answer:
(D) Paid-up value
Question 50.
Which of the following is not required while calculating yield value per share?
(A) Expected return rate
(B) Normal return rate
(C) Super profit
(D) Paid-up value per share
Answer:
(C) Super profit
Question 51.
The profits of last 5 years are ₹ 60,000; ₹ 67,500; ₹ 52,500; ₹75,000 & ₹ 60,000. Find the value of goodwill, if it is calculated on average profits of last 5 years on the basis of 3 years of purchase.
(A) ₹ 63,750
(B) ₹ 1,91,250
(C) ₹ 1,89,000
(D) ₹ 2,13,750
Answer:
(C) ₹ 1,89,000
Average Profit =\(\frac{60,000+67,500+52,500+75,000+60,000}{5}\) = 63,000
Goodwill = Average Profit × No. of years purchases
= 63,000 × 3
= 1,89,000
Question 52.
It is agreed that goodwill of the company is to be valued at 3 years purchase of average profits for the last 5 years.
Value of goodwill will be –
(A) ₹ 28,953 thousand
(B) ₹ 29,673 thousand
(C) ₹ 28,673 thousand
(D) ₹ 29,953 thousand
Answer:
(A) ₹ 28,953 thousand
Average Profit = \(\frac{16,110+11,850+8,145-600+12,750}{5}\)= 9,651 thousand
Goodwill = Average Profit × No. of years purchases
=9,651 × 3
= 28,953 thousand
Question 53.
It is agreed that goodwill of the firm is valued at 2 years purchase of weighted average profits for the last 3 years.
Value of goodwill will be –
(A) ₹ 1,22,000
(B) ₹ 2,22,000
(C) ₹ 1,22,222
(D) ₹ 1 ,20,000
Answer:
(A) ₹ 1,22,000
Question 54.
Find the goodwill of the company from the following information:
Total Capital Employed = ₹ 8,00,000
Reasonable Rate of Return =15%
Profits for the year = ₹ 12,00,000
Use capitalization method.
(A) ₹ 82,00,000
(B) ₹ 12,00,000
(C) ₹ 72,00,000
(D) ₹ 42,00,000
Answer:
(C) ₹ 72,00,000
Question 55.
Find the goodwill from the following information:
Capital employed – ₹ 11,00,000
Rate of normal return – 10%
Future Maintainable profit – ₹ 2,00,000
No. of year purchases – 3 years
(A) ₹ 6,00,000
(B) ₹ 2,70,000
(C) ₹ 9,00,000
(D) ₹ 3,70,000
Answer:
(B) ₹ 2,70,000
Goodwill = Super profit × No. of years purchases
= 90,000 × 3
= 2,70,000
Question 56.
Find the goodwill of the firm using capitalization method from the following information:
Capital employed = ₹ 4,80,000.
Rate of normal return = 15%.
Profits for the year = ₹ 90,000
(A) ₹ 4,20,000
(B) ₹ 3,11,000
(C) ₹ 1,20,000
(D) ₹ 2,20,000
Answer:
(C) ₹ 1,20,000
Question 57.
Average profit of a firm is ₹ 1,20,000. The rate of capitalization is 12%. Assets and liabilities of the company are ₹ 10,00,000 & ₹ 4,25,000 respectively.
(A) ₹ 3,25,000
(B) ₹ 2,25,000
(C) ₹ 5,25,000
(D) ₹ 4,25,000
Answer:
(D) ₹ 4,25,000
Assets – Liabilities = Capital employed
10,00,000 – 4,25,000 = 5,75,000
Question 58.
The profits for 2016-2017 is ₹ 2,000; for 2017 – 2018 is ₹ 26,100 and for 2018-2019 is ₹ 31,200. Closing stock for 2017-2018 and 2018- 2019 includes the defective items of ₹ 2,200 and ₹ 6,200 respectively which were considered as having market value nil. Calculate goodwill on average profit method.
(A) ₹ 23,700
(B) ₹ 17,700
(C) ₹ 13,700
(D) ₹ 17,300
Answer:
(B) ₹ 17,700
Note: Closing stock of one year is opening stock of next year. In next year it will be added
Average profit= \(\frac{2,000+23,900+27,200}{3}\) =17,700
Goodwill = Average profit (As no. of year purchase is not given)
Question 59.
A company has a total capital investment of ₹3,60,000. The company earned net profit during the last four years as ₹ 56,000, ₹ 64,000, ₹ 96,000 & ₹ 80,000. The fair return on the net capital employed is 15%. Value of goodwill if it is based on 3 years purchase of the average super profits of past 4 years.
(A) ₹ 37,500
(B) ₹ 50,000
(C) ₹ 60,000
(D) ₹ 40,000
Answer:
(C) ₹ 60,000
Question 60.
Find the goodwill from the following information:
Capital employed – ₹ 8,25,000
Rate of normal return – 10%
Future Maintainable profit – ₹ 1,50,000
Annuity factor – 3.17
(A) ₹ 4,75,500
(B) ₹ 2,61,525
(C) ₹ 3,13,975
(D) ₹ 2,13,975
Answer:
(D) ₹ 2,13,975
= 67,500 × 3.17
= 2,13,975
Question 61.
The net profits after tax of Z Ltd. for the past 5 years are as follows:
The capital employed is ₹ 16,00,000. Rate of normal return is 15%. Calculate the value of the goodwill on the basis of annuity method on super-profits basis, taking the present value of an annuity of ₹ 1 for the 4 years at 15% as ₹ 2.855.
(A) ₹ 7,65,000
(B) ₹ 8,67,800
(C) ₹ 5,70,000
(D) ₹ 4,06,838
Answer:
(D) ₹ 4,06,838
Question 62.
The following particulars are available in respect of the business carried on by X Ltd.:
You are required to compute the value of goodwill on the basis of 5 years purchase of average profit.
(A) ₹ 1,25,000
(B) ₹ 1,50,000
(C) ₹ 10,000
(D) ₹ 1,20,000
Answer:
(B) ₹ 1,50,000
Goodwill 30,000 × 5=1,50,000
Question 63.
The net profits after tax of NZ & Co. for the past 3 years are as follows:
Year —- Profit (Zr)
2010-2011 — 20,000
2011 -2012 — 2,61,000
2012-2013 — 3,12,000
Closing stock for 2011-2012 and 2012-2013 includes the defective items of ₹ 22,000 and ₹ 62,000 respectively which were considered as having no market value. Calculate goodwill on average profit method.
(A) ₹ 2,37,000
(B) ₹ 1,77,000
(C) ₹ 1,37,000
(D) ₹ 1,73,000
Answer:
(B) ₹ 1,77,000
Note: Closing stock of one year is opening stock of next year. In next year it will be added
Average profit = \(\frac{20,000+2,39,000+2,72,000}{3}\) = 1,77,000
Goodwill Average profit (As no. of year purchase is no given)
Question 64.
Profits & losses for the last years are:
2011-2012 — Losses ₹ 10,000
20 12-2013 — Losses ₹ 2,500
2013-2014 — Profits ₹ 98,000
2014-2015 — Profits ₹ 76,000
The average capital employed in the business is ₹ 2,00,000. The rate of interest expected from capital invested is 12%. The remuneration of partners is estimated to be ₹ 1,000 per month. Calculate the value of goodwill on the basis of four years purchase of super profits based on the annuity of the four years. Take discounting rate as 10%.
(A) ₹ 13,500
(B) ₹ 13,568
(C) ₹ 13,668
(D) ₹ 13,868
Answer:
(D) ₹ 13,868
Question 65.
Following information is available for N Ltd.:
Capital employed is ₹ 5,40,000. Standard rate of return on capital employed in this type of business is 12%. Above net profit included a fixed income on non-trading investment of ₹ 8,000 per year. At the end of year 2008-2009 closing stock was overvalued by ₹ 25,000. Calculate goodwill on weighted average super profit basis at 3 years purchase. Ignore taxation.
(A) ₹ 2,74,671
(B) ₹ 2,47,671
(C) ₹ 2,74,167
(D) ₹ 2,47,716
Answer:
(A) ₹ 2,74,671
Goodwill = Super profìt × No. of years purchases
= 91,557 × 3
= 2,74,671
Question 66.
Profit after tax of Z Ltd. for the 3 financial years are as follows:
2013 — 4,41,000
2014 — 6,45,000
2015 — 4,80,000
Capital employed is ₹ 29,25,000. Normal rate of return is 10%. Tax rate is 40%. 10% of profits for the year 2014 arose from a transaction of non-recurring nature. A provision of ₹ 31,500 on sundry debtors was made in the financial year 2015 which is no longer required. A claim of ₹ 16,500 is to be provided against profit for year 2015. Goodwill may be calculated at 3 times adjusted average profits of 3 years.
(A) ₹ 6,33,000
(B) ₹ 15,10,500
(C) ₹ 7,22,667
(D) ₹ 15,50,100
Answer:
(B) ₹ 15,10,500
Goodwill = Adjusted average profits × No. of years purchases
= 5,03,500 × 3 = 15,10,500
Question 67.
Average net profit before adjustments is ₹ 5,14,000. Profit includes interest at 8% on non-trading investments. Cost of these investments is ₹ 1,98,200 while the face value is ₹ 2,00,000. Expenses amounting to ₹ 7,000 per annum are likely to be discontinued in future. The provision for income-tax to be made at 30%. Normal rate of return may be taken at 10%. Average capital employed in the business (including investments) is ₹ 18,98,200. Assuming 4 years purchase of super-profits, what is the value of goodwill?
(A) ₹ 7,43,000
(B) ₹ 8,34,000
(C) ₹ 7,34,000
(D) ₹ 8,43,000
Answer:
(C) ₹ 7,34,000
Question 68.
Average net profit of a business as adjusted for valuation of goodwill amounted to ₹ 2,35,000. Net tangible assets employed were of the value of ₹ 4,50,000. But upon valuation, they amounted to ₹ 15,00,000. Assuming that 10% represented a fair commercial return, value of goodwill by capitalizing super profits will be –
(A) ₹ 8,75,000
(B) ₹ 8,25,000
(C) ₹ 8,90,000
(D) ₹ 8,50,000
Answer:
(D) ₹ 8,50,000
Question 69.
From the following particulars, calculate goodwill on the basis of 3 years purchase of super profits:
Capital employed : ₹ 50,000 Trading profit (after tax):
2011 : ₹ 12,200
2012 : ₹ 15,000
2013 : ₹ 2,000 (loss)
2014: ₹ 21,000
Normal rate of interest on investment 10% p.a. Remuneration from alternative employment: ₹ 3,600 p.a. (included in above profit).
(A) ₹ 10,250
(B) ₹ 8,850
(C) ₹ 7,450
(D) ₹ 12,350
Answer:
(B) ₹ 8,850
Question 70.
Compute the amount of goodwill based on 3 years purchase of super profit from the following:
Future maintainable profit after tax: ₹ 15,00,000; Normal pre-tax rate of return: 20%; Capital employed: ₹ 60,00,000; Tax rate: 30%
(A) ₹ 12,30,000
(B) ₹ 21,40,000
(C) ₹ 19,80,000
(D) ₹ 14,70,000
Answer:
(C) ₹ 19,80,000
Question 71.
Total assets of X Ltd. are ₹ 10,00,000 and total liabilities are ₹ 4,00,000. Expert valued goodwill of the company at ₹ 2,00,000. The company has two types of equity shares:
50,000 shares of 10 each fully paid-up 50,000 shares of 10 each, 7 paid-up. Intrinsic value per share of 7 paid-up is:
(A) ₹ 3.5
(B) ₹ 4.5
(C) ₹ 6.5
(D) ₹ 7.5
Answer:
(B) ₹ 4.5
Note: In case of ₹ 10 but ₹ 7 paid up shares 100% has been taken as notional call ₹ 3 has been considered while calculating Wet Assets hence shares are fully mid-up.
Question 72.
Profit available for equity shareholder of JK Ltd. is ₹ 1,27,500. The company has two types of equity shares:
50,000 shares of ₹ 10 each fully paid-up
50.000 shares of 10 each, ₹ 7 paid-up.
Other companies in same industries pays dividend @ 20%.
Yield value per share of ₹ 7 paid-up share is –
(A) 4.50 per share
(B) 6.25 per share
(C) 5.25 per share
(D) 3.50 per share
Answer:
(C) 5.25 per share
Question 73.
Total assets of X Ltd. tire ₹23,00,000 and total liabilities are ₹ 12,00,000. Expert valued goodwill of the company at ₹ 6,50,000. The company has two types of equity shares:
25.000 shares of ₹ 10 each fully paid-up
25.000 shares of ₹ 5 each, ₹ 3 paid-up.
Intrinsic value per share of ₹ 3 paid-up is:
(A) ₹ 22 per share
(B) ₹ 8 per share
(C) ₹ 6 per share
(D) ₹ 4 per share
Answer:
(A) ₹ 22 per share
Note: In case of 5 but 2 paid-up shares notional call 2 has been considered while calculating “Net Assets “hence shares are fully paid-up e. 5. However, face of these shares is liait of the /ace values other shares; hence 50% shares in terms of 10 paid-up shares will have to be taken.
Question 74.
Total assets of X Ltd. are ₹ 5,00,000 and total liabilities are ₹ 2,00,000. The company has three types of equity shares:
36.000 shares of ₹ 10 each fully paid-up
18.000 shares of ₹ 10 each, ₹ 8 paid-up.
30.000 shares of ₹ 5 each, ₹ 5 paid-up.
Company has earned ₹ 2,94,300 as profit after tax, which can be considered to be normal for the company. Average EPS for a fully paid share of ₹ 10 of a Company in the same industry in ₹ 2.
Value per share on EPS basis of 30,000 shares of 10 each, ₹ 5 paid-up is –
(A) ₹ 22.5 per share
(B) ₹ 11.25 per share
(C) ₹ 18 per share
(D) ₹ 17.5 per share
Answer:
(B) ₹ 11.25 per share
As there are different types of shares 10, 8 & 5, we have to convert it into 10 shares as follows:
Note: In case of 10 but 8 paid-up shares 80% has been taken as notional call ₹ 2 has not been considered hence shares are partly paid-up.
Question 75.
Capital Structure of SZ Ltd. is as follows:
What is value per share as per yield method for
(a) ₹ 10 fully paid-up shares
(b) ₹ 8 paid- up shares
(c) ₹ 6 paid-up shares?
Answer:
(C)
Question 76.
Following are the details of N Ltd.:
Total assets = ₹ 7,50,450
Outsiders liabilities = ₹ 3,35,100
Details of paid-up capital:
9,000 Equity shares ₹ 10 fully paid-up
4.500 Equity shares ₹ 10, ₹ 8 paid-up
7.500 Equity shares ₹ 5, fully paid-up
Goodwill is valued at ₹ 21,000.
What is value per share as per intrinsic value method for:
(a) ₹ 10 fully paid-up shares
(b) ₹ 8 paid-up shares
(c) ₹ 5 paid- up shares?
Answer:
(C)
Value of partly paid-up share Value of fully paid-up share – Unpaid amount on shares
As there are different types of shares 10 fully Paid-up, 10 but 8 paid-up 5, fully paid-up, we have to convert it into ‘ 10 shares as follows:
Note: In case of ₹ 10 but ₹ 8 paid-up shares 100% has been taken as notional calle ₹ 2 has been considered while calculating “Net Asset” hence shares are fully paid-up.
Question 77.
Following are the details of P Ltd.:
Details of paid-up capital are as follows:
27,000 Equity shares ₹ 10 fully paid-up
13.500 Equity shares ₹ 10, ₹ 8 paid-up
22.500 Equity shares ₹ 5, fully paid-up
Normal rate of dividend in the concerned industry is 15%, whereas P Ltd. has been paying 20% dividend for the least four years and is expected to maintain it in the next few years.
What is value per share on the basis of dividend yield for:
(a) ₹ 10 fully paid-up shares
(b) ₹ 8 paid-up shares
(c) ₹ 5 paid- up shares?
Answer:
(D)
Question 78.
From the following particulars, calculate the value of an equity share:
2,000,9% Preference shares of ₹ 100 each: ₹ 2,00,000
50,000 Equity shares of ₹ 10 each, ₹ 8 per share paid-up: ₹4,00,000
Expected profit per year before tax: ₹ 2,18,000
Rate of tax: 40%
Transfer to general reserve every year: 20% of profit
Normal rate of earning: 15%
(A) ₹ 12.55
(B) ₹ 11.55 per share
(C) ₹ 13.65 per share
(D) ₹ 10.35 per share
Answer:
(B) ₹ 11.55 per share
Question 79.
Balance Sheet of Diamond Ltd. as on 31st March, 2019:
The expert valuer valued the land and building at 240 lakh, goodwill at 160 lakh and plant and machinery at 120 lakh. Out of the total debtors, it is found that debtors for 8 lakh are bad. Intrinsic Value per share ?
(A) 296 per share
(B) 256 pershare
(C) 236 pershare
(D) 226 pershare
Answer:
(B) 256 pershare
Question 80.
Profits of the company are as follows:
For the year 2016-2017 : 92 Lakh
For the year 2017-2018 : ₹ 88Lakh
For the year 2018-2019 : 88 Lakh
Paid-up capital of the company is ₹ 200 lakh (Face value ₹ 100 fully paid-up). Company follows the practice of transferring 25% of profits to general reserve. Similar type of companies earn at 10% of the value of their shares. Plant & machinery and land & building stood at 130 lakh and 110 lakh in balance sheet respectively. However, the expert valuer valued the land & building at ₹ 240 lakh and plant & machinery at ₹ 120 lakh. Plant & machinery and land & building have been depreciated at 15% & 10% respectively. Ignore taxation.
Yield Value per share = ?
(A) ₹ 199.1 per share
(B) ₹ 268.4 per share
(C) ₹ 291.9 per share
(D) ₹ 321.7 per share
Answer:
(C) ₹ 291.9 per share
Question 81.
Dividend declared by the company for last 4 years is 24%, 30%, 36% & 40%. Face value of shares is ₹ 15 but f 10 so far have been called up and paid-up. Rate of market expectation is 24%. As dividend is showing increasing trend it was agreed to assign the weight of 1,2, 3 & 4. Value per share is –
(A) ₹ 11.67 per share
(B) ₹ 12.67 per share
(C) ₹ 13.67 per share
(D) ₹ 14.67 per share
Answer:
(D) ₹ 14.67 per share
Question 82.
Details of the capital employed and profit earned by Piyush Ltd. are given below:
As profit is showing increasing trend it was agreed to assign the weight of 1,2,3 & 4 for the purpose of valuation of shares. Market rate of return is 12% and paid-up value per share is ₹ 10. Value per share is –
(A) ₹ 18.5 per share
(B) ₹ 17.5 per share
(C) ₹ 16.5 per share
(D) ₹ 15.5 per share
Answer:
(A) ₹ 18.5 per share
Weighted average rate of return on capital employed can be treated as expected return.
Question 83.
Capital employed by PQR Ltd. is ₹11,40,000 excluding purchased goodwill that is appearing in balance sheet at ₹ 3,00,000. It is considered reasonable to increase the value of goodwill by an amount equal to average book value and a valuation made at 3 years purchase of average super profit for the last 4 years valuation made 3 years purchase of average rates Eire tabled as follows:
Year — PAT(₹)
2016 — 1,80,000
2017 — 2,10,000
2018 — 240,000
2019 — 1,86,000
Normal expectation in the industry to which the company belongs is 10%.
Increase in value of goodwill = ?
(A) ₹ 2,54,000
(B) ₹ 2,32,000
(C) ₹ 2,46,000
(D) ₹ 1,63,000
Answer:
(C) ₹ 2,46,000
Question 84.
Capital employed by BMW Ltd. is 19,00,000 excluding purchased goodwill that is appearing in balance sheet at ₹ 5,00,000. It is considered reasonable to increase the value of goodwill by ₹ 4,75,000. Paid-up capital of the company is ₹ 16,00,000 (₹ 10 each).
Normal expectation in the industry to which the company belongs is 10%.
Value of share is –
Answer:
(D)
Question 85.
Balance sheet of Himalaya Ltd. disclosed the following position:
On the above mentioned date, the tangible fixed assets were independently valued at ₹ 3,50,000 and goodwill at ₹ 50,000.
Intrinsic value per share is –
(A) ₹ 14.25 per share
(B) ₹ 15.75 per share
(C) ₹ 16.25 per share
(D) ₹ 18.75 per share
Answer:
(A) ₹ 14.25 per share
Question 86.
Net profits for 3 years of YTM Ltd. are: 2013-2014:₹ 1,03,200,2014-2015: ₹ 1,04,000 & 2015-2016: ₹ 1,03,300 of which 20% was transferred to general reserve, this proportion being considered reasonable in the industry in which the company is engaged and where a fair return on investment may be taken at 18%. The company has 40,000 equity shares of ₹ 10 each fully paid-up. Ignore taxation. Value of share as per yield method –
(A) ₹ 10.5 per share
(B) ₹ 15.5 per share
(C) ₹ 11.5 per share
(D) ₹ 12.5 per share
Answer:
(C) ₹ 11.5 per share
Question 87.
Capital structure of H Ltd. is as follows:
14% Pref. shares of ₹ 10 each — 20,00,000
Equity shares of ₹ 10 each — 32,00,000
Reserves and surplus — 16,00,000
10% Debentures — 24,00,000
11% Loans from banks — 28,00,000
Average annual profit before payment of tax and interest is — 24,00,000.
The income-tax rate is assumed to be 40%.
Price-earnings ratio is 9.
Value per share = ?
(A) ₹ 32.38 per share
(B) ₹ 28.33 per share
(C) ₹ 28.83 per share
(D) ₹ 23.38 per share
Answer:
(D) ₹ 23.38 per share
Question 88.
Total assets and liabilities of Raman Ltd. are ₹ 1,84,96,000 and ₹ 23,40,000. It has three types of equity shares details of which Eire as follows:
(a) 4,00,000 shares (₹ 10), fully paid-up
(b) 4,00,000 shares (₹ 10), paid-up ₹ 7.50
(c) 4,00,000 shares (₹ 10), paid-up ₹ 5
Values per share as per asset backing method are –
Answer:
(A)
While calculating Net Assets we have added notional call on ₹ 7.5 & ₹ 5 paid-up
shares, hence all the shares are ₹ 10 fully paid-up.
Total number of shares 4,00,000 + 4,00,000 + 4,00,000 = 12,00,000
Value of equity share of 10 each fully paid-up 15.96
Value of equity share of ₹ 10 each, ₹ 7.5 paid-up = 15.96 – 2.5 13.46
Value of equity share of ₹ 10 each, ₹ 5 paid-up 15.96 – 5 = 10.96
Question 89.
Shashi Ltd. has three types of equity shares details of which are as follows:
(a) 4,00,000 shares (₹ 10), fully paid-up
(b) 4,00,000 shares (₹ 10), paid-up ₹ 7.50
(c) 4,00,000 shares (₹ 10), paid-up ₹ 5
Normal average profit after tax for the company is estimated to be ₹ 21,60,000. Applicable capitalization rate is 12%.
Values per share as per earning capacity method are –
Answer:
(B)
For 12% Capitalization rate – Earning is ₹ 21,60,000
For 100%
Capitalized value \(\frac{21,60,000}{12}\) × 100 = 1,80,00,000
Note: Under this method notional call is not considered and hence Z5 paid-up shares are taken at 75% and 5 paid-up shares are taken at 50% in terms ₹ 10 paid-up shares.
Question 90.
Balance sheet of Super Sound Ltd. as at is given below:
Building was revalued at ₹ 3,00,000; machinery at ₹ 3,75,000 and sundry debtors include ₹ 10,000 as irrecoverable. Goodwill was valued at ₹ 2,72,800. You are required to value the company’s share ex-dividend.
(A) ₹ 160.87 per share
(B) ₹ 150.87 per share
(C) ₹ 158.08 per share
(D) ₹ 157.80 per share
Answer:
(B) ₹ 150.87 per share
Note: Generally proposed dividend’ is not deducted but since share has to be valued ‘ex-dividend’ it is deducted to calculate ‘net assets’.
Question 91.
Profit after tax of Bahubali Ltd. was ₹ 10,00,000. The capital structure of company consists of following types of shares:
12% Preference capital — ₹ 10,00,000
(shares of ₹ 100 each)
Equity capital — ₹ 50,00,000
(shares of ₹ 10 each)
Market expectation is 15% & 80% profit is distributed. If only few shares are to be acquired of this company then what is the maximum price per share that buyer would pay?
(A) ₹ 9.40 per share
(B) ₹ 11.73 per share
(C) ₹ 10.13 per share
(D) ₹ 12.67 per share
Answer:
(A) ₹ 9.40 per share
Question 92.
Take the data of above question. What is the maximum price per share that buyer would pay if controlling shares are to be acquired?
(A) ₹ 9.40 per share
(B) ₹ 11.73 per share
(C) ₹ 10.13 per share
(D) ₹ 12.67 per share
Answer:
(B) ₹ 11.73 per share
Question 93.
Following details related to Best Ltd.
It has ₹ 10,00,000 equity share capital (face value of ₹ 100) and ₹ 3,00,000, 10% preference share capital (face value of ₹ 100). Company has investments worth ₹ 3,00,000 (market value), the yield in respect of which has been excluded in arriving at adjusted taxed profit. It is usual in similar type of companies to set aside 25% of taxed profit for rehabilitation purposes. Net worth (excluding investments) amounts to ₹ 24,00,000. Normal return expected is 10%. Company pays dividend within a range of 10% to 12% and expects to maintain it. Consider weights -1,2 & 3. Value per share = ?
(A) ₹ 171.11 per share
(B) ₹ 161.87 per share
(C) ₹ 151.08 per share
(D) ₹ 184.53 per share
Answer:
(A) ₹ 171.11 per share
Since both profits and net.worth of the company are showing a steady growth, it would be reasonable to attach due weight for valuation purposes.
Question 94.
Profits & weights for the past four years are as follows:
On scrutiny of the books of account, the following matters were revealed:
(i) On 1st December, 2017, a major repair was made in respect of the plant incurring ₹ 75,000 which was charged to revenue. Depreciation rate is 10% p.a. on reducing balance method. (ii) The closing stock for the year 2016-2017 was overvalued by ₹ 30,000. (iii) To cover management costs, an annual charge of ₹ 60,000 should be made. Goodwill = ?
(A) ₹ 13,24,000
(B) ₹ 13,20,500
(C) ₹ 13,50,200
(D) ₹ 12,30,500
Answer:
(B) ₹ 13,20,500
Weighted average profit =\(\frac{26,41,000}{10}\)= 2,64,100
Goodwill = Weighted average profit X No. of years purchases
= 2,64,100 × 5
= 13,20,500
Note:
Question 95.
Following details are available for two companies:
X Ltd. has 9 lakh Equity Shares of ₹ 150 each, ₹ 135 paid-up.
Y Ltd. has 40 lakh Equity Shares of ₹ 75 paid-up.
What is the intrinsic value per share of these companies?
(A) ₹ 185.10 & ₹ 180 per share
(B) ₹ 118.50 & ₹ 102 per share
(C) ₹ 181.50 & ₹ 108 per share
(D) ₹ 185.10 & ₹ 102 per share
Answer:
(C) ₹ 181.50 & ₹ 108 per share
