Capitalisation Solved Question Papers (KSAWU)- 2015

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
Capitalisation
Solved Question Paper 2015

3. 2 Marks:
1.
b.What is Fair Capitalisation?
5 Marks:
3.Explain the remedies for Under Capitalisation.

4. Particulars Total
Share Capital
(1,00,000 equity shares of Rs.10 each)
10,00,000
Reserves and Surplus 2,00,000
Profit & Loss A/c 2,00,000
Sundry Creditors 4,00,000
Bank Overdraft 2,00,000
Total 20,00,000
Rate of earnings 12% earnings per year
2012
2013
2014
2,40,000
1,44,000
1,68,000
15 Marks:
11. From the following given information find out real value of shares during the year 2012, 2013, 2014
compute with book value. Comment on the capitalisation situation. Extract of balance sheet of
Siddeshwar Ltd. is as follows:

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.2,40,000/- for year 2012.
II. When Earnings are RS.1,44,000/- for year 2013.
III. When Earnings are RS.1,68,00/- for year 2014.

6. 1.CalculationofNetAssetsavailabletoEquityShareholders:
Particulars Amount Total
Total Assets (Capital + Liabilities)
Less: Sundry Creditors
Bank Overdraft
4,00,000
2,00,000
20,00,000
6,00,000
Net Assets available for Equity Shareholders 14,00,000
Particulars Amount Total
Equity Share Capital
Reserves & Surplus
Profit & Loss A/c
10,00,000
2,00,000
2,00,000
Net Assets available for Equity Shareholders 14,00,000
Another Method
Particulars Total
Share Capital
(1,00,000 equity shares of Rs.10 each)
10,00,000
Reserves and Surplus 2,00,000
Profit & Loss A/c 2,00,000
Sundry Creditors 4,00,000
Bank Overdraft 2,00,000
Total 20,00,000
Rate of earnings 12% earnings per year
2012
2013
2014
2,40,000
1,44,000
1,68,000

7. 2. Calculation of BookValue of Shares:
Book Value for Shares =
Net Assets available to Eq Shareholders
Number of equity shares
Book Value for Shares =
14,00,000
1,00,000 shares
Book Value for Shares = Rs.14 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.2,40,000/- for year 2012:
Capitalised Value =
2,40,000
X 100 = 20,00,000
12
Real Value for Shares =
20,00,000
= Rs. 20 Per Share
1,00,000
Position: The Company is Under-Capitalised as Book Value of Shares =Rs. 14/- is less than
Real Value of Shares =Rs. 20/- .

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.1,44,000/- for year 2013:
Capitalised Value =
1,44,000
X 100 = 12,00,000
12
Real Value for Shares =
12,00,000
= Rs. 12 Per Share
1,00,000
Position: The Company is Over-Capitalised as Book Value of Shares =Rs. 14/- is more than
Real Value of Shares =Rs. 12/-

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.1,68,000/- for year 2014:
Capitalised Value =
1,68,000
X 100 = 14,00,000
12
Real Value for Shares =
14,00,000
=Rs. 14 Per Share
1,00,000
Position: The Company is Fairly-Capitalised as Book Value of Shares =Rs. 14/- is Equal to
Real Value of Shares =Rs. 14/-

11. Comments:
First Case:
From the point of view of---
Shareholders: Company’s earnings are more , hence company can pay high rate of dividend to shareholders.
Company: Companies operational efficiency is very high and funds are effectively utilised. But company runs short of
funds.
Second Case:
From the point of view of---
Shareholders: Company’s earnings are less than the warranted by the Capital employed and therefore shareholders
cannot get the expected rate of dividend i.e, shareholders will get low rate of dividend.
Company: It indicates that the funds are not effectively used.
Third Case:
From the point of view of---
Shareholders: Normal or fair rate of dividend will be received by the shareholders.
Company: Sufficient funds are available.

12. Thank You
Follow my next video for more problems