Capitalisation 15 marks problems
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Capitalisation 15 marks problems
- 1. Financial Management Capitalisation By: Smt.UMA MINAJIGI REUR HEAD, DEPT. OF COMMERCE & Management Smt. V G Degree College for Women, Kalaburagi
- 2. Financial Management Problems on Capitalisation 15 Marks
- 3. Particulars Note Amount Total I Equity and Liabilities 1. Share holders funds Share capital Reserves and surplus 1 2 1,25,000 50,000 1,75,000 2. Current liabilities Trade payable 3 25,000 Total 2,00,000 II Assets 1. Non current assets Fixed assets Tangible assets 4 1,50,000 2. Current Assets Trade receivable 5 50,000 Total 2,00,000 1. The following is the statement of assets and liabilities of ABC Ltd.
- 4. Note 1 : Share capital Equity capital 1000 Shares of Rs 100 each 10% preference capital 250 shares of Rs. 100 each Share capital 1,00,000 25,000 1,25,000 Note 2: Reserves and Surplus Reserves Reserves and Surplus 50,000 50,000 Note 3: Trade payable Creditors Trade payable 25,000 25,000 Note 4: Tangible Assets Land & Buildings Furniture Plant & Machinery Tangible Assets 50,000 25,000 75,000 1,50,000 Note 5: Trade receivables Debtors Trade receivables 50,000 50,000 Notes to accounts The normal rate of return in case of similar business is 10%. Ascertain whether the company is over-capitalised, under-capitalised or fairly capitalized, when the earnings available for equity shareholders are: i) Rs.12,500/- ii) Rs.20,000/-; iii) Rs.15,000.
- 5. Solution: Steps for ascertainment of Capitalisation status of the Company with different earnings: 1. Calculation of Net Assets available to Equity Shareholders 2. Calculation of Book Value of Equity Shares of Company 3. Calculation of Real Value of Equity Shares of Company: Based on---- I. When Earnings are RS.12,500/- II. When Earnings are RS.20,000/- III. When Earnings are RS.15,000/-
- 6. 1.CalculationofNetAssetsavailabletoEquityShareholders: Particulars Note Amoun t Total I Equity and Liabilities 1. Share holders funds Share capital Reserves and surplus 1 2 1,25,00 50,000 50,000 1,75,000 2. Current liabilities Trade payable 3 25,000 Total 2,00,000 II Assets 1. Non current assets Fixed assets Tangible assets 4 1,50,000 2. Current Assets Trade receivable 5 50,000 Total 2,00,000 Particulars Amount Total Total Assets Less: Preference Share Capital Current Liabilities 25,000 25,000 2,00,000 50,000 Net Assets available for Equity Shareholders 1,50,000 Note 1 : Share capital Equity capital 1000 Shares of Rs 100 each 10% preference capital 250 shares of Rs. 100 each Share capital 1,00,000 25,000 1,25,000 Note 2: Reserves and Surplus Reserves Reserves and Surplus 50,000 50,000 Note 3: Trade payable Creditors Trade payable 25,000 25,000 Note 4: Tangible Assets Land & Buildings Furniture Plant & Machinery Tangible Assets 50,000 25,000 75,000 1,50,000 Note 5: Trade receivables Debtors Trade receivables 50,000 50,000 Particulars Amount Total Equity Share Capital Reserves & Surplus 1,00,000 50,000 Net Assets available for Equity Shareholders 1,50,000 Another Method
- 7. 2. Calculation of BookValue of Shares: Book Value for Shares = Net Assets available to Eq Shareholders Number of equity shares Note 1 : Share capital Equity capital 1000 Shares of Rs 100 each 10% preference capital 250 shares of Rs. 100 each Share capital 1,00,000 25,000 1,25,000 Note 2: Reserves and Surplus Reserves Reserves and Surplus 50,000 50,000 Note 3: Trade payable Creditors Trade payable 25,000 25,000 Note 4: Tangible Assets Land & Buildings Furniture Plant & Machinery Tangible Assets 50,000 25,000 75,000 1,50,000 Note 5: Trade receivables Debtors Trade receivables 50,000 50,000 Book Value for Shares = 1,50,000 1000 shares Particulars Amoun t Total Total Assets Less: Preference Share Capital Current Liabilities 25,000 25,000 2,00,000 50,000 Net Assets available for Equity Shareholders 1,50,000 Book Value for Shares = Rs.150 per share
- 8. 3.CalculationofRealValueofEquityShares: Capitalised Value = Expected earnings X 100 Rate of Return Real Value for Shares = Capitalised Value of Earnings Number of Equity Shareholders 1. When the earnings are Rs.12,500/-.: Capitalised Value = 12,500 X 100 = 1,25,000 10 Real Value for Shares = 1,25,000 = Rs. 125 Per Share 1,000 Position: The Company is Over-Capitalised as Book Value of Shares =Rs. 150/- is more than Real Value of Shares =Rs. 125/-
- 9. 3.CalculationofRealValueofEquityShares: Capitalised Value = Expected earnings X 100 Rate of Return Real Value for Shares = Capitalised Value of Earnings Number of Equity Shareholders 2. When the earnings are Rs.20,000/-.: Capitalised Value = 20,000 X 100 = 2,00,000 10 Real Value for Shares = 2,00,000 = Rs. 200 Per Share 1,000 Position: The Company is Under-Capitalised as Book Value of Shares =Rs. 150/- is less than Real Value of Shares =Rs. 200/-
- 10. 3.CalculationofRealValueofEquityShares: Capitalised Value = Expected earnings X 100 Rate of Return Real Value for Shares = Capitalised Value of Earnings Number of Equity Shareholders 3. When the earnings are Rs.15,000/-.: Capitalised Value = 15,000 X 100 = 1,50,000 10 Real Value for Shares = 1,50,000 =Rs. 150 Per Share 1,000 Position: The Company is Fairly-Capitalised as Book Value of Shares =Rs. 150/- is Equal to Real Value of Shares =Rs. 150/-
- 11. Abstract Solution: 1. Net Assets available to Equity Shareholders = Rs.1,50,000/- 2. Book Value of Equity Shares of Company = RS.150 Per Share 3. Calculation of Real Value of Equity Shares of Company: Based on---- I. When Earnings are Rs.12,500/- Capitalised Value = Rs.1,25,000/- Real Value of Share = Rs.125 Per Share Position : The Company is Over-Capitalised as Book Value of Shares =Rs. 150/- is more than Real Value of Shares =Rs. 125/- II. When Earnings are Rs.20,000/- Capitalised Value = Rs.2,00,000/- Real Value of Share = Rs.200 Per Share Position : The Company is Under-Capitalised as Book Value of Shares =Rs. 150/- is less than Real Value of Shares =Rs. 200/- III. When Earnings are Rs.15,000/- Capitalised Value = Rs.1,50,000/- Real Value of Share = Rs.150 Per Share Position : The Company is Fairly-Capitalised as Book Value of Shares =Rs. 150/- is Equal to Real Value of Shares =Rs. 150/-
- 12. Particulars Note Amount Total I Equity and Liabilities 1. Share holders funds Share capital 1 5,50,000 2. Non-Current liabilities Long Term Borrowings 2 2,00,000 3. Current liabilities Trade Payables 3 50,000 Total 8,00,000 II Assets 1. Non current assets a. Fixed assets Tangible assets 4 8,00,000 Total 8,00,000 2. The following is the statement of assets and liabilities of DCM Ltd.
- 13. Note 1 : Share capital Equity capital 4000 Shares of Rs 100 each Preference Share capital 1500 shares of Rs. 100 each Share capital 4,00,000 1,50,000 5,50,000 Note 2: Long Term Borrowings 8% Debentures Long Term Borrowings 2,00,000 2,00,000 Note 3: Trade payable Creditors Trade payable 50,000 50,000 Note 4: Tangible Assets Sundry Assets Tangible Assets 8,00,000 8,00,000 Notes to accounts The normal rate of return in case of similar business is 10%. Ascertain whether the company is over-capitalised, under-capitalised or fairly capitalized, when the earnings available for equity shareholders are: i) Rs.20,000/- ii) Rs.60,000/-; iii) Rs.40,000.
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