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Corporate Financial Reporting · Valuation of Shares (including Determination of Goodwill)

Net Asset (Intrinsic Value) Method of Valuing Shares

Updated 11 October 2026 · Fact-checked

The net asset method values a share from what the company owns after it pays everyone ahead of equity holders. Take assets at realistic values, deduct outside liabilities and preference capital with its arrears, then divide the balance by the number of equity shares, adjusting for partly paid shares.

Understand Net Asset (Intrinsic Value) Method

The net asset method (also called the intrinsic value or balance sheet method) asks one question: if the business were wound up at fair values, how much would be left for equity shareholders? That balance, divided by the number of equity shares, is the value per share.

The balance sheet is only a starting point. Book values are historical, so you restate assets to current realisable or fair values as the question gives them. You drop fictitious assets such as preliminary expenses, discount on issue of shares and debit balance of the Statement of Profit and Loss, because they cannot be sold. You add unrecorded assets and deduct unrecorded liabilities if the question mentions them.

Only outside liabilities are deducted before reaching equity: creditors, debentures, loans, provisions that are real liabilities, and contingent liabilities if the question says they are likely to crystallise. Preference capital ranks ahead of equity, so deduct it too, along with any arrears of preference dividend that are payable. Reserves and accumulated profits are not deducted. They are already part of the net assets that belong to equity.

When shares are partly paid, the shares are not equal, so you cannot just divide by the share count. The usual treatment is to assume the unpaid money is called up, value a fully paid share, and then reduce the value of each partly paid share by its unpaid amount.

The method suits asset-heavy or investment companies and companies that are being wound up. It ignores future earning power, so exam answers often combine it with a yield or earnings method. If a question uses fair value and several techniques, the idea in Ind AS 113 (para 63) is similar: judge the reasonableness of the range and pick the figure most representative of fair value.

Key rules to remember

Net assets available to equity
Net assets for equity = Adjusted assets − Outside liabilities − Preference capital − Arrears of preference dividend
Adjusted assets exclude fictitious assets and are at realisable or fair values given in the question. Deduct arrears only if payable.
Intrinsic value per equity share
Value per share = Net assets for equity ÷ Number of equity shares
Use this directly when all equity shares are fully paid and rank equally.
Fully paid share (call-up method)
Value of fully paid share = (Net assets for equity + Uncalled amount on partly paid shares) ÷ Total number of equity shares
Assumes the unpaid money is called and received.
Partly paid share (call-up method)
Value of partly paid share = Value of fully paid share − Unpaid amount per share
Check: total of all share values must equal net assets before the notional call.
Proportionate method
Value per ₹1 paid-up = Net assets for equity ÷ Total paid-up equity capital; Share value = Paid-up amount × Value per ₹1
Use only if the question asks for it or treats shares in proportion to amount paid.

How to solve Net Asset (Intrinsic Value) Method questions

Follow this order for any net asset question. It keeps the working clean and lets the examiner follow each adjustment.

  1. 1List every asset from the balance sheet. Strike out fictitious assets such as preliminary expenses, discount on issue and debit balance of profit and loss.
  2. 2Replace book values with the realisable or fair values given. Apply write-offs, such as bad debts and obsolete stock, and add unrecorded assets such as goodwill if the question gives a value.
  3. 3List outside liabilities and add any unrecorded ones, such as a claim, arrears of tax or a likely contingent liability. Remove any provision that is not a real liability.
  4. 4Compute total adjusted assets minus outside liabilities. Then deduct preference capital and payable arrears of preference dividend to get net assets for equity.
  5. 5Count the equity shares. If some are partly paid, add the uncalled money to net assets and divide by the total number of shares to get the fully paid value.
  6. 6Deduct the unpaid amount per share to get the partly paid value, or use the proportionate method if the question says so.
  7. 7Verify the total, then state the answer per share with a one-line comment on limits of the method.

Quickest way: Adjusted equity shortcut

When to use it: Use it when the question gives equity share capital, reserves and a list of adjustments instead of asking for a full asset list.

  1. Start with equity share capital plus all reserves and surplus, less fictitious assets and any debit balance of profit and loss. This is the book net worth of equity.
  2. Add increases in asset values and subtract decreases and write-offs. Subtract new liabilities.
  3. If preference shares sit inside the capital figure, remove them and any payable arrears.
  4. Divide by the number of shares, using the call-up adjustment if any shares are partly paid.
  5. Cross-check against the long method only if time allows. Both must give the same net assets.

Common mistakes in Net Asset (Intrinsic Value) Method

  • Deducting reserves and accumulated profits as liabilities

    They appear on the liabilities side of the balance sheet, so they feel like amounts owed.

    Fix: They belong to equity holders. Deduct only outside liabilities and preference capital.

  • Keeping preliminary expenses or the debit balance of profit and loss as assets

    They are shown on the assets side, so students copy them across.

    Fix: Treat them as fictitious assets with no realisable value and exclude them.

  • Forgetting preference capital or its arrears of dividend

    Students stop after deducting creditors and debentures.

    Fix: Preference holders are paid first. Deduct the capital and any arrears that are payable, as the question states.

  • Dividing by the total shares for partly paid shares without adjusting the value

    Students treat every share as identical.

    Fix: Add uncalled money to net assets, find the fully paid value, then subtract the unpaid amount for partly paid shares.

  • Ignoring unrecorded items such as a pending claim or an undervalued asset

    These are hidden in the notes or adjustments rather than the balance sheet.

    Fix: Read every adjustment line and tick it off against your working. Adjust net assets for each one.

  • Taking assets at book value when realisable values are given

    Students start from the balance sheet and skip the revaluation.

    Fix: Make a separate column for the revised value of each asset before you total.

Worked examples

Example 1

The balance sheet of Sundaram Textiles Ltd shows: fixed assets ₹10,00,000 (realisable value ₹12,00,000); non-trade investments ₹2,00,000 (market value ₹2,50,000); current assets ₹6,00,000, of which debtors of ₹50,000 are bad; preliminary expenses ₹30,000. Creditors are ₹3,00,000 and 10% debentures ₹4,00,000. Preference capital is ₹2,00,000 with dividend arrears of ₹20,000. There are 50,000 equity shares of ₹10 each, all fully paid. Find the intrinsic value per equity share.

Show the solution
  1. Fixed assets at realisable value: ₹12,00,000.
  2. Investments at market value: ₹2,50,000.
  3. Current assets after bad debts: ₹6,00,000 − ₹50,000 = ₹5,50,000.
  4. Preliminary expenses are fictitious, so they are excluded.
  5. Total adjusted assets = ₹12,00,000 + ₹2,50,000 + ₹5,50,000 = ₹20,00,000.
  6. Less outside liabilities: creditors ₹3,00,000 + debentures ₹4,00,000 = ₹7,00,000. Balance = ₹13,00,000.
  7. Less preference capital ₹2,00,000 and arrears ₹20,000 = ₹2,20,000. Net assets for equity = ₹10,80,000.
  8. Value per share = ₹10,80,000 ÷ 50,000 = ₹21.60.

Answer: Intrinsic value per equity share = ₹21.60

Example 2

Net assets available to equity holders of Kaveri Industries Ltd, before any call on partly paid shares, are ₹4,60,000. There are 20,000 equity shares of ₹10 each: 12,000 are fully paid and 8,000 are paid up to ₹7.50 per share. Value each class of share using the call-up method.

Show the solution
  1. Unpaid amount per partly paid share = ₹10 − ₹7.50 = ₹2.50.
  2. Uncalled money = 8,000 × ₹2.50 = ₹20,000.
  3. Net assets after notional call = ₹4,60,000 + ₹20,000 = ₹4,80,000.
  4. Value of a fully paid share = ₹4,80,000 ÷ 20,000 = ₹24.
  5. Value of a partly paid share = ₹24 − ₹2.50 = ₹21.50.
  6. Check: 12,000 × ₹24 = ₹2,88,000 and 8,000 × ₹21.50 = ₹1,72,000. Total = ₹4,60,000, which equals the original net assets.
  7. If the proportionate method were asked: paid-up capital = ₹1,20,000 + ₹60,000 = ₹1,80,000. Value per ₹1 paid = ₹4,60,000 ÷ ₹1,80,000 = ₹2.5556. Fully paid share = ₹25.56 and partly paid share = ₹19.17 (rounded).

Answer: Call-up method: fully paid share ₹24 and partly paid share ₹21.50. (Proportionate method: ₹25.56 and ₹19.17.)

Exam tips

  • Show the asset list with a book value column and a revised value column. Marks are given for each adjustment even if the final figure is wrong.
  • Read the question for the stated method on partly paid shares. If it is silent, use the call-up method and say so in one line.
  • State your assumption when a point is unclear, such as arrears of preference dividend or a contingent liability, and apply it consistently.
  • In a multiple-choice question, first check whether preference capital, arrears and fictitious assets were handled, since options often differ by exactly these items.
  • If the question asks for a combined value, compute the net asset value cleanly first, since it feeds into the average with the yield value.

Practice questions from Valuation of Shares (including Determination of Goodwill)

Net Asset (Intrinsic Value) Method in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Net Asset (Intrinsic Value) Method: frequently asked questions

What is the net asset method of valuation of shares?

It values an equity share by dividing the net assets available to equity holders by the number of equity shares. Net assets are adjusted assets less outside liabilities and preference claims. It is also called the intrinsic value or balance sheet method.

Do I deduct reserves while calculating intrinsic value per share?

No. Reserves and surplus belong to equity holders and are part of net assets for equity. Deduct only outside liabilities, preference capital and payable preference dividend arrears.

How do I value partly paid shares under the net asset method?

Add the uncalled money to net assets and divide by the total number of shares to get the value of a fully paid share. Then subtract the unpaid amount per share to value each partly paid share. Use the proportionate method only when the question asks for it.

Should goodwill be included in net assets?

Include goodwill only if the question gives a value for it or asks you to include it. A purchased goodwill at book value is usually kept only if it is realisable. Always state your treatment.