Factors affecting the value of goodwill
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This document outlines six events that can impact a partnership: 1) the admission of a new partner, 2) the retirement of an existing partner, 3) the death of a partner, 4) a change in the profit sharing ratio between partners, 5) the amalgamation or merging of two or more firms, and 6) the dissolution of the partnership.
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Valuation of goodwill Methods
It contains valuation of goodwill with a question on every method.
Present it in your class and enjoy it.
Valuation of goodwill
Valuation of Goodwill, types of goodwill, factors affecting goodwill, features of goodwill, methods of calculating goodwill
Factors affecting the value of goodwill
This document discusses the key events that can impact a partnership: admission of a new partner, retirement of an existing partner, death of a partner, changes to partners' profit sharing ratios, the amalgamation or merging of multiple firms, and dissolution of the partnership.
Valuation of goodwill
This document discusses the valuation of goodwill. It defines goodwill as the present value of a firm's anticipated excess earnings above a normal rate of return. Goodwill is an intangible asset that arises from factors like business reputation, customer loyalty, and trade name. The document outlines several reasons why goodwill needs to be valued, such as when a business is sold, partners are added or retired, or a firm is converted to a company. It then describes different methods that can be used to value goodwill, including average profits methods, super profits methods, and capitalization methods.
5.capital and revenue
Capital and revenue expenditures and receipts must be distinguished to determine which items appear in which financial statements. Capital items appear on the balance sheet, while revenue items appear on the profit and loss account. This distinction is also important for determining net profit, which equals revenue receipts minus revenue expenses. Capital receipts include contributions of capital and loans, while revenue receipts are generated from a firm's regular activities like sales. Capital expenditures acquire or improve long-term assets, increasing earning capacity, while revenue expenditures maintain assets and earnings over a single accounting period.
Over capitalization and Under Capitalization
This document discusses over-capitalization and under-capitalization. Over-capitalization occurs when a company's earnings are not large enough to provide a fair return on the capital invested. Under-capitalization is the reverse, where a company earns extraordinarily high returns over its capital. Causes of over-capitalization include excessive purchase of fixed assets and liberal dividend policies. Causes of under-capitalization include high efficiency and conservative dividend policies. Both situations can impact companies, stockholders, society, and workers negatively. Remedies for over-capitalization include reducing shares or interest rates, while remedies for under-capitalization include splitting shares or issuing new shares. Overall, fair capitalization is ideal.
WORKING CAPITAL MANAGEMENT
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Internal & external recounstruction
1. Internal reconstruction involves altering or reducing the claims of shareholders, creditors, and other liabilities of a company experiencing losses or overvaluation of assets, in order to write off accumulated losses and show a true financial position. This can involve reorganizing share capital through actions like increasing or decreasing share capital.
2. Amalgamation is the merging of two or more companies, and can reduce competition and costs while achieving economies of scale. There are two types: amalgamation in the nature of a merger, and amalgamation in the nature of a purchase.
3. External reconstruction involves liquidating an existing financially troubled company and starting a new company to take over its assets and liabilities. It differs from internal reconstruction
Recommended
Valuation of goodwill Methods
It contains valuation of goodwill with a question on every method.
Present it in your class and enjoy it.
Valuation of goodwill
Valuation of Goodwill, types of goodwill, factors affecting goodwill, features of goodwill, methods of calculating goodwill
Factors affecting the value of goodwill
This document discusses the key events that can impact a partnership: admission of a new partner, retirement of an existing partner, death of a partner, changes to partners' profit sharing ratios, the amalgamation or merging of multiple firms, and dissolution of the partnership.
Valuation of goodwill
This document discusses the valuation of goodwill. It defines goodwill as the present value of a firm's anticipated excess earnings above a normal rate of return. Goodwill is an intangible asset that arises from factors like business reputation, customer loyalty, and trade name. The document outlines several reasons why goodwill needs to be valued, such as when a business is sold, partners are added or retired, or a firm is converted to a company. It then describes different methods that can be used to value goodwill, including average profits methods, super profits methods, and capitalization methods.
5.capital and revenue
Capital and revenue expenditures and receipts must be distinguished to determine which items appear in which financial statements. Capital items appear on the balance sheet, while revenue items appear on the profit and loss account. This distinction is also important for determining net profit, which equals revenue receipts minus revenue expenses. Capital receipts include contributions of capital and loans, while revenue receipts are generated from a firm's regular activities like sales. Capital expenditures acquire or improve long-term assets, increasing earning capacity, while revenue expenditures maintain assets and earnings over a single accounting period.
Over capitalization and Under Capitalization
This document discusses over-capitalization and under-capitalization. Over-capitalization occurs when a company's earnings are not large enough to provide a fair return on the capital invested. Under-capitalization is the reverse, where a company earns extraordinarily high returns over its capital. Causes of over-capitalization include excessive purchase of fixed assets and liberal dividend policies. Causes of under-capitalization include high efficiency and conservative dividend policies. Both situations can impact companies, stockholders, society, and workers negatively. Remedies for over-capitalization include reducing shares or interest rates, while remedies for under-capitalization include splitting shares or issuing new shares. Overall, fair capitalization is ideal.
WORKING CAPITAL MANAGEMENT
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Internal & external recounstruction
1. Internal reconstruction involves altering or reducing the claims of shareholders, creditors, and other liabilities of a company experiencing losses or overvaluation of assets, in order to write off accumulated losses and show a true financial position. This can involve reorganizing share capital through actions like increasing or decreasing share capital.
2. Amalgamation is the merging of two or more companies, and can reduce competition and costs while achieving economies of scale. There are two types: amalgamation in the nature of a merger, and amalgamation in the nature of a purchase.
3. External reconstruction involves liquidating an existing financially troubled company and starting a new company to take over its assets and liabilities. It differs from internal reconstruction
Valuation of goodwill
This document discusses various methods for valuing goodwill, including the years' purchase of average profit method, years' purchase of weighted average method, capitalization method, super profit method, and annuity method. It provides examples and calculations to demonstrate how each method is applied in practice. The key information is that goodwill valuation is important for sole proprietorships, partnerships, and companies in various scenarios like sales, mergers, and changes in ownership or profit sharing. Multiple accepted approaches exist to determine the monetary value of goodwill for accounting purposes.
Right shares & bonus shares by Ruby Sharma
A rights issue allows a company to raise capital by issuing new shares to existing shareholders at a discounted price within a specified time period. Existing shareholders have the privilege to buy a specified number of new shares based on how many shares they currently hold. Conducting a rights issue provides companies with benefits like maintaining existing shareholder control, avoiding dilution of shareholder value, and allowing capital formation without delays. However, rights issues also carry risks like share value dilution and management not addressing underlying problems that weakened the company's balance sheet.
Profit Prior to Incorporation
1) Profit earned before a company is incorporated is called pre-incorporation profit. It is considered capital profit and cannot be distributed as dividends.
2) To calculate pre-incorporation profit, expenses are divided between pre- and post-incorporation periods using time and sales ratios. Fixed expenses are divided by time ratio while variable expenses use sales ratio.
3) A net profit statement is prepared to analyze profit for the pre- and post-incorporation periods by allocating income and expenses accordingly.
Valuation of Goodwill (12th commerce / Management Accounting)
The document discusses goodwill, including its meaning, characteristics, factors affecting it, methods of valuation, and provides an example valuation. Goodwill represents the reputation and customer satisfaction that leads to higher profits. It is an intangible asset that is valued using methods like the average profits method, super profits method, or capitalization method. For example, goodwill of a firm was valued at three years' purchase of the average profits of the last five years, which was calculated to be ₹36,000, resulting in a goodwill value of ₹1,31,200.
Dividend policy ppt
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Own or Lease.ppt
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
Corporate tax
Corporate tax is collected from companies incorporated in India and is levied on their global income if the company's control and management is in India. Corporate tax planning aims to minimize current and future tax liabilities through comparing opportunities to defer or reduce taxes, as corporate tax is a significant overhead cost. The minimum alternate tax of 18.5% of book profits is levied if it exceeds the tax payable under normal provisions. Calculation of book profits involves adding certain expenses back and deducting certain incomes for tax purposes.
Fund flow statement
The document discusses what a fund flow statement is and how to prepare one.
A fund flow statement shows changes in a company's working capital between two balance sheet dates by tracing the sources and uses of funds. It is prepared by analyzing changes in current assets and current liabilities, and adjustments such as funds from operations. The statement lists sources of funds like profits and financing activities, and uses of funds like purchases of assets and debt repayments. The objective is to analyze why a company's working capital increased or decreased over a period.
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGO
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGORitish Bedi (Rajveer Singh Bedi)
Hand written Notes of auditing:-
1) Auditing and its objectives
2) Audit plan and its characteristics
3) Internal check advantages/ disadvantages?
4) Vouching and its objectives?
5) Auditors and its provisions?Bonus shares
Bonus shares are additional free shares given to existing shareholders based on the number of shares owned, representing a company's accumulated retained earnings. Companies issue bonus shares to increase liquidity and shareholder participation when earnings per share rise substantially. For example, a company with Rs. 10,000 profit and 100 shares has an earnings per share of Rs. 100. To lower the price per share for retail investors and improve liquidity, the company may declare a 1:4 bonus issue, increasing shares to 500. This lowers the price per share to Rs. 20 while maintaining the same total market value. Bonus shares are accounted for by transferring reserves to share capital.
Accounting for issue of debentures
The document discusses accounting treatments for various aspects of issuing and accounting for debentures by a company. It defines debentures and outlines their key features. It also describes different types of debentures based on security, redemption, records, convertibility, priority, and coupon rate. The document then explains accounting entries for issuing debentures for cash at par, premium, and discount. It also covers entries for interest on debentures, writing off discounts, and accrued interest.
Value Added Reporting
This document provides an overview of value added statements (VAS). It discusses the historical background and introduction of VAS, defines key concepts like value added, gross value added and net value added. It outlines the objectives and assumptions of VAS. It also describes the different approaches (additive and subtractive) and classifications (gross and net) of value added. Finally, it discusses the uses, advantages, and disadvantages of VAS and provides a conclusion on the increasing popularity and social importance of VAS.
Dissolution of Partnership Firm
This document summarizes the key differences between dissolution of a partnership and dissolution of a partnership firm. Dissolution of a partnership refers to a change in the existing agreement between partners, while the business continues. Dissolution of a partnership firm refers to closing the business and ending the economic relationship between partners. Upon dissolution of a firm, the books must be closed, assets sold, liabilities paid, capital returned to partners, and any remaining amount divided according to profit sharing ratios.
Aquisition
The document discusses acquisitions, which are when one company buys another to gain control of it. There are two main types: friendly acquisitions, which have agreement from the target company, and hostile acquisitions, which do not. Companies make acquisitions to achieve economies of scale, expand operations, find growth opportunities, or eliminate competition. Acquisitions can be financed through private equity, equity financing, bank loans, or asset-based loans. The document also discusses the impacts, advantages, and disadvantages of acquisitions, as well as examples of Tata Steel acquiring Corus and Bharti Airtel acquiring Zain Africa.
MERGERS AND TYPES OF MERGERS
This document discusses different types of mergers including horizontal, vertical, conglomerate, market extension, and product extension mergers. It provides examples of each type of merger and recent high profile mergers such as Tata Steel-Corus, Vodafone-Hutchison Essar, and Hindalco-Novelis. It also lists the top 7 examples of mergers by deal size, providing details of each merger such as the acquiring and acquired companies, industries, and deal values.
Managerial remuneration
This document discusses managerial remuneration under the Companies Act of 1956 in India. It defines key terms like manager and director. It outlines that the maximum remuneration paid to a manager cannot exceed 11% of a company's profits and discusses how remuneration is calculated, including salaries, allowances, commissions, and other benefits. The total remuneration to a manager cannot exceed 5% of net profits. Remuneration to directors also requires prior government approval and a special resolution.
Amalgamation ,absorption ,external reconstruction `
There are three types of corporate amalgamations: amalgamation, absorption, and external reconstruction. Amalgamation involves the merger of two existing companies to form a new combined company. Absorption occurs when one company takes over the assets and liabilities of one or two other existing companies. External reconstruction dissolves an existing struggling company and transfers its assets and liabilities to a new company.
Redemption of preference share
Preference shares represent partial ownership in a company and carry preferential rights to dividends and assets. Preference shareholders receive dividends first before common shareholders and do not have voting rights. Preference shares can be redeemed either through company profits, issuing new shares, or a combination. When redeemed through profits, an equivalent amount must be transferred to a capital redemption reserve account.
shut down or continue decision
The document discusses whether a business that is continuously suffering losses should be shut down or continued. It notes that losses can occur due to reduced demand, financial problems, changes in technology, high taxes, or mismanagement. When deciding whether to shut down or continue, tax implications should be considered. Losses can be carried forward if the business is discontinued, and unabsorbed depreciation can be set off against any income. Exceptions exist for cases involving business relocation, department closures, reconstruction after damage, succession, family partition, and amalgamation/demerger. The document provides an illustration comparing the tax implications of continuing versus discontinuing a loss-making business unit. It recommends discontinuing the loss-making unit
Employee stock option plan (esop)
An employee stock option plan (ESOP) allows employees to purchase company shares at a predetermined price, as compensation and motivation. Employees must wait a vesting period before exercising their option. ESOP objectives include retention, compensation, ownership culture, and performance improvement. Coverage differs between industries, with IT companies offering ESOPs to more employees. Shares can be allotted directly or through a trust. Benefits include recruitment, tax savings, and alignment. Limitations include undiversified risk, share dilution, and cash requirements for retiring employees. Infosys and Airtel pioneered successful ESOP programs in India.
Goodwill
Goodwill is defined as the present value of a firm's anticipated excess earnings. The value of goodwill is affected by factors like location, nature of business, management efficiency, time, market situation, and special advantages. Goodwill needs to be valued when there are changes in profit sharing ratios, admissions or retirements of partners, dissolution of the firm, or amalgamation. Common methods to value goodwill include the average profit method, weighted average profit method, super profit method, capitalization method, and present value of super profit method. The sacrificing ratio is the amount of profit share old partners agree to sacrifice for an incoming partner.
Valuation of goodwill
Goodwill is the excess of the purchase price over the fair value of the net assets acquired. It is calculated as the purchase price minus the fair value of net assets. There are three main methods to value goodwill: the super profits method, capitalization method, and annuity method. The super profits method values goodwill as the super profits (profits above a normal rate of return) multiplied by the number of years of purchase. The capitalization method values goodwill as the normal capital employed minus the actual capital employed, divided by the normal rate of return. The annuity method values goodwill as the super profits multiplied by the annuity value of the number of years of purchase.
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Valuation of goodwill
This document discusses various methods for valuing goodwill, including the years' purchase of average profit method, years' purchase of weighted average method, capitalization method, super profit method, and annuity method. It provides examples and calculations to demonstrate how each method is applied in practice. The key information is that goodwill valuation is important for sole proprietorships, partnerships, and companies in various scenarios like sales, mergers, and changes in ownership or profit sharing. Multiple accepted approaches exist to determine the monetary value of goodwill for accounting purposes.
Right shares & bonus shares by Ruby Sharma
A rights issue allows a company to raise capital by issuing new shares to existing shareholders at a discounted price within a specified time period. Existing shareholders have the privilege to buy a specified number of new shares based on how many shares they currently hold. Conducting a rights issue provides companies with benefits like maintaining existing shareholder control, avoiding dilution of shareholder value, and allowing capital formation without delays. However, rights issues also carry risks like share value dilution and management not addressing underlying problems that weakened the company's balance sheet.
Profit Prior to Incorporation
1) Profit earned before a company is incorporated is called pre-incorporation profit. It is considered capital profit and cannot be distributed as dividends.
2) To calculate pre-incorporation profit, expenses are divided between pre- and post-incorporation periods using time and sales ratios. Fixed expenses are divided by time ratio while variable expenses use sales ratio.
3) A net profit statement is prepared to analyze profit for the pre- and post-incorporation periods by allocating income and expenses accordingly.
Valuation of Goodwill (12th commerce / Management Accounting)
The document discusses goodwill, including its meaning, characteristics, factors affecting it, methods of valuation, and provides an example valuation. Goodwill represents the reputation and customer satisfaction that leads to higher profits. It is an intangible asset that is valued using methods like the average profits method, super profits method, or capitalization method. For example, goodwill of a firm was valued at three years' purchase of the average profits of the last five years, which was calculated to be ₹36,000, resulting in a goodwill value of ₹1,31,200.
Dividend policy ppt
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Own or Lease.ppt
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
Corporate tax
Corporate tax is collected from companies incorporated in India and is levied on their global income if the company's control and management is in India. Corporate tax planning aims to minimize current and future tax liabilities through comparing opportunities to defer or reduce taxes, as corporate tax is a significant overhead cost. The minimum alternate tax of 18.5% of book profits is levied if it exceeds the tax payable under normal provisions. Calculation of book profits involves adding certain expenses back and deducting certain incomes for tax purposes.
Fund flow statement
The document discusses what a fund flow statement is and how to prepare one.
A fund flow statement shows changes in a company's working capital between two balance sheet dates by tracing the sources and uses of funds. It is prepared by analyzing changes in current assets and current liabilities, and adjustments such as funds from operations. The statement lists sources of funds like profits and financing activities, and uses of funds like purchases of assets and debt repayments. The objective is to analyze why a company's working capital increased or decreased over a period.
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGO
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGORitish Bedi (Rajveer Singh Bedi)
Hand written Notes of auditing:-
1) Auditing and its objectives
2) Audit plan and its characteristics
3) Internal check advantages/ disadvantages?
4) Vouching and its objectives?
5) Auditors and its provisions?Bonus shares
Bonus shares are additional free shares given to existing shareholders based on the number of shares owned, representing a company's accumulated retained earnings. Companies issue bonus shares to increase liquidity and shareholder participation when earnings per share rise substantially. For example, a company with Rs. 10,000 profit and 100 shares has an earnings per share of Rs. 100. To lower the price per share for retail investors and improve liquidity, the company may declare a 1:4 bonus issue, increasing shares to 500. This lowers the price per share to Rs. 20 while maintaining the same total market value. Bonus shares are accounted for by transferring reserves to share capital.
Accounting for issue of debentures
The document discusses accounting treatments for various aspects of issuing and accounting for debentures by a company. It defines debentures and outlines their key features. It also describes different types of debentures based on security, redemption, records, convertibility, priority, and coupon rate. The document then explains accounting entries for issuing debentures for cash at par, premium, and discount. It also covers entries for interest on debentures, writing off discounts, and accrued interest.
Value Added Reporting
This document provides an overview of value added statements (VAS). It discusses the historical background and introduction of VAS, defines key concepts like value added, gross value added and net value added. It outlines the objectives and assumptions of VAS. It also describes the different approaches (additive and subtractive) and classifications (gross and net) of value added. Finally, it discusses the uses, advantages, and disadvantages of VAS and provides a conclusion on the increasing popularity and social importance of VAS.
Dissolution of Partnership Firm
This document summarizes the key differences between dissolution of a partnership and dissolution of a partnership firm. Dissolution of a partnership refers to a change in the existing agreement between partners, while the business continues. Dissolution of a partnership firm refers to closing the business and ending the economic relationship between partners. Upon dissolution of a firm, the books must be closed, assets sold, liabilities paid, capital returned to partners, and any remaining amount divided according to profit sharing ratios.
Aquisition
The document discusses acquisitions, which are when one company buys another to gain control of it. There are two main types: friendly acquisitions, which have agreement from the target company, and hostile acquisitions, which do not. Companies make acquisitions to achieve economies of scale, expand operations, find growth opportunities, or eliminate competition. Acquisitions can be financed through private equity, equity financing, bank loans, or asset-based loans. The document also discusses the impacts, advantages, and disadvantages of acquisitions, as well as examples of Tata Steel acquiring Corus and Bharti Airtel acquiring Zain Africa.
MERGERS AND TYPES OF MERGERS
This document discusses different types of mergers including horizontal, vertical, conglomerate, market extension, and product extension mergers. It provides examples of each type of merger and recent high profile mergers such as Tata Steel-Corus, Vodafone-Hutchison Essar, and Hindalco-Novelis. It also lists the top 7 examples of mergers by deal size, providing details of each merger such as the acquiring and acquired companies, industries, and deal values.
Managerial remuneration
This document discusses managerial remuneration under the Companies Act of 1956 in India. It defines key terms like manager and director. It outlines that the maximum remuneration paid to a manager cannot exceed 11% of a company's profits and discusses how remuneration is calculated, including salaries, allowances, commissions, and other benefits. The total remuneration to a manager cannot exceed 5% of net profits. Remuneration to directors also requires prior government approval and a special resolution.
Amalgamation ,absorption ,external reconstruction `
There are three types of corporate amalgamations: amalgamation, absorption, and external reconstruction. Amalgamation involves the merger of two existing companies to form a new combined company. Absorption occurs when one company takes over the assets and liabilities of one or two other existing companies. External reconstruction dissolves an existing struggling company and transfers its assets and liabilities to a new company.
Redemption of preference share
Preference shares represent partial ownership in a company and carry preferential rights to dividends and assets. Preference shareholders receive dividends first before common shareholders and do not have voting rights. Preference shares can be redeemed either through company profits, issuing new shares, or a combination. When redeemed through profits, an equivalent amount must be transferred to a capital redemption reserve account.
shut down or continue decision
The document discusses whether a business that is continuously suffering losses should be shut down or continued. It notes that losses can occur due to reduced demand, financial problems, changes in technology, high taxes, or mismanagement. When deciding whether to shut down or continue, tax implications should be considered. Losses can be carried forward if the business is discontinued, and unabsorbed depreciation can be set off against any income. Exceptions exist for cases involving business relocation, department closures, reconstruction after damage, succession, family partition, and amalgamation/demerger. The document provides an illustration comparing the tax implications of continuing versus discontinuing a loss-making business unit. It recommends discontinuing the loss-making unit
Employee stock option plan (esop)
An employee stock option plan (ESOP) allows employees to purchase company shares at a predetermined price, as compensation and motivation. Employees must wait a vesting period before exercising their option. ESOP objectives include retention, compensation, ownership culture, and performance improvement. Coverage differs between industries, with IT companies offering ESOPs to more employees. Shares can be allotted directly or through a trust. Benefits include recruitment, tax savings, and alignment. Limitations include undiversified risk, share dilution, and cash requirements for retiring employees. Infosys and Airtel pioneered successful ESOP programs in India.
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Valuation of Goodwill (12th commerce / Management Accounting)
Valuation of Goodwill (12th commerce / Management Accounting)
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGO
Auditing | B com -5th sem | Hand written Notes | by Ritish Bedi #RVIRGO
Amalgamation ,absorption ,external reconstruction `
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Goodwill
Goodwill is defined as the present value of a firm's anticipated excess earnings. The value of goodwill is affected by factors like location, nature of business, management efficiency, time, market situation, and special advantages. Goodwill needs to be valued when there are changes in profit sharing ratios, admissions or retirements of partners, dissolution of the firm, or amalgamation. Common methods to value goodwill include the average profit method, weighted average profit method, super profit method, capitalization method, and present value of super profit method. The sacrificing ratio is the amount of profit share old partners agree to sacrifice for an incoming partner.
Valuation of goodwill
Goodwill is the excess of the purchase price over the fair value of the net assets acquired. It is calculated as the purchase price minus the fair value of net assets. There are three main methods to value goodwill: the super profits method, capitalization method, and annuity method. The super profits method values goodwill as the super profits (profits above a normal rate of return) multiplied by the number of years of purchase. The capitalization method values goodwill as the normal capital employed minus the actual capital employed, divided by the normal rate of return. The annuity method values goodwill as the super profits multiplied by the annuity value of the number of years of purchase.
Debentures Bonds and Term Loans
This document provides information about term loans. It defines term loans as monetary loans that are repaid in regular installments over a set period of time. It discusses the purposes of term loans including capital expenditure, new industrial undertakings, and acquisition of assets. It also outlines the procedures for term loans including application submission and processing, project appraisal, sanction letter, loan agreement execution, and disbursement. Different types of term loans like short, intermediate, and long term are described. Key features of term loans like interest payment schedules, security requirements, and covenants are summarized. Finally, an example repayment schedule for a term loan is shown.
Redemption of debentures by N.Bala Murali Krishna
1. Redemption of debentures means repaying the amount owed to debenture holders when the debentures mature. There are various conditions that must be met like timing of payment, amount to be paid, mode of payment, and source of funds.
2. Companies must maintain a Debenture Redemption Reserve (DRR) to ensure they have adequate funds for redemption. The DRR is created out of profits and maintained until all debentures are redeemed.
3. Debentures can be redeemed through lump sum payment on maturity, in installments by lottery, or by purchasing debentures on the open market for cancellation. Journal entries are passed
Introduction to Debentures
Debentures are a debt instrument which are issued by a Company. The main feature of debentures is that they are long-term securities yielding a fixed rate of interest against assets
Goodwill & its valuation
under this what do you mean by goodwill and what are the methods of goodwill , how to measure and why we need to measure?
Accounting for goodwill
Goodwill in Partnerships is more simple but still governed by IFRS3: Business combinations and IAS 38.
Redemption of preference shares and bonus issue
This document discusses the redemption of preference shares and bonus issues. It begins by defining preference shares and outlining their preferential rights over equity shares. It then describes the different types of preference shares, including cumulative, non-cumulative, participative, non-participative, convertible, redeemable, and irredeemable. The document focuses on redeemable preference shares, outlining the key provisions around their redemption according to the Companies Act. It discusses the conditions of redemption, including shares being fully paid, redeemed out of profits or fresh issue, and the creation of a capital redemption reserve. Finally, it provides journal entries for the redemption process.
Valuation of shares
This document discusses various methods for valuing shares:
1. Net assets method values shares based on a company's net assets per share.
2. Earnings capitalization method values shares by capitalizing earnings per share using an appropriate capitalization rate.
3. Dividend capitalization method values shares by capitalizing dividends per share using the expected rate of return.
4. PE ratio model values shares based on the company's earnings per share multiplied by its price-earnings ratio.
5. Discounted cash flows method discounts future cash flows to arrive at a present value for share valuation.
Elasticity of Demand
Elasticity measures the responsiveness of quantity demanded to a change in price. It is calculated by finding the percentage changes in quantity and price and taking the ratio. An elasticity over 1 means demand is elastic and sensitive to price, under 1 means inelastic demand not sensitive to price, and exactly 1 means unitary elastic demand where quantity and price move proportionately. Demand for necessities tends to be inelastic while luxuries have elastic demand more impacted by price changes.
Shares & debentures
This document provides an overview of shares and debentures under Indian company law. It defines various types of share capital such as authorized, issued, subscribed, and paid-up capital. It also discusses the classification of shares into equity and preference shares, and the classification of preference shares into cumulative, non-cumulative, redeemable, irredeemable, convertible and non-convertible shares. The document also covers topics such as voting rights of shareholders, issue of shares, share certificates, transfer and transmission of shares, debentures, types of debentures, and certificates of debenture.
Debentures
all about debentures.
Issue, Redemption and its methods.
It is going to help you to have an understanding of concepts in depth.
Goodwill
1. The document presents methods for calculating goodwill in a business. Goodwill represents the value of assets like brand name, customer base, supplier relationships, and workforce that are not separately recognized in a business acquisition.
2. There are three main methods discussed: average profits method, super profits method, and capitalization method. The average profits and super profits methods calculate goodwill as a multiple of average or excess profits. The capitalization method estimates goodwill as the difference between total capitalized value and net assets.
3. Examples are provided to demonstrate calculating goodwill under the super profits capitalization method. Goodwill is estimated as super profits multiplied by a capitalization rate based on normal returns.
Debentures
The document discusses debentures, which are a type of creditor security issued by companies to borrow funds. Debentures acknowledge a debt and provide the holder with a fixed rate of interest. They are issued for purposes like setting up new projects, expansion, or mergers. There are various types of debentures, including secured/unsecured, redeemable/perpetual, and convertible/non-convertible debentures. Debenture holders are creditors and do not have ownership or voting rights in the company. While debentures provide benefits like a steady return, there are also risks if the company defaults on interest or principal payments.
Bonds and Debentures
Bonds are a type of debt security where the issuer owes the bond holders interest payments and repayment of principal at maturity, with interest typically paid at fixed intervals. Bond holders are creditors who provide funds to the issuer in exchange for these payments. The major types of bonds include government bonds, corporate bonds, high yield bonds, zero coupon bonds, and convertible bonds.
Valuation of goodwill & shares with solution of problems
The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples
Debentures
Debentures are a type of loan taken by companies. They are secured by assets of the company and pay a fixed rate of interest. The key features of debentures are the maturity date when principal is repaid, security over company assets in default, and potential convertibility to equity. There are different types of debentures based on security, tenure, registration, coupon structure, and convertibility. The main advantages of debentures are a fixed source of funds for a period without shareholder control. The disadvantages include fixed repayment, limited funds raised, and risk of insolvency.
Valuation
The document discusses various valuation models and approaches including discounted cash flow valuation, relative valuation, and contingent claim valuation. It provides examples of calculating enterprise value and weighted average cost of capital. It also summarizes the steps to conduct a discounted cash flow valuation, including forecasting free cash flows, determining the terminal value, and validating assumptions.
Issue of shares
The document discusses various topics related to the issuance of shares by companies, including:
1) Shares can be issued at a premium or discount to face value. When issued at a premium, a securities premium account is created to record the excess received. Premium can be used for bonus issues or writing off expenses. Discount is recorded as a capital loss.
2) Shares may be forfeited if the shareholder fails to pay calls. Amounts received are transferred to a share forfeiture account. Forfeited shares can be reissued.
3) Oversubscription occurs when applications exceed shares offered. Companies typically allocate shares on a pro-rata basis in this situation.
Elasticity of Supply
Elasticity of supply measures how responsive the quantity supplied is to changes in price. It can be elastic, inelastic, or unitary elastic. Elasticity is calculated by taking the percentage change in quantity supplied divided by the percentage change in price. If the result is greater than 1, supply is elastic. If it is less than 1, supply is inelastic. If it is exactly 1, supply is unitary elastic. Elastic supply responds strongly to price changes in the long run, while inelastic supply is not very sensitive to price changes in the short run. Unitary elastic supply means quantity and price move proportionately.
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Valuation of goodwill & shares with solution of problems
Valuation of goodwill & shares with solution of problems
Factors affecting the value of goodwill
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