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CA Final · Advanced Financial Management · Business Valuation

Meenakshi Engineering Ltd is valued on an adjusted net asset basis. Book and current values (₹ lakh) are: land book 40, market 90; plant book 60, realisable 45; inventory book 30, realisable 24; debtors book 20, of which ₹3 lakh is irrecoverable; cash 5. Recorded outside liabilities are ₹50 lakh, and a legal claim of ₹6 lakh that is certain to be paid has not been recorded. Preference share capital is ₹20 lakh. There are 5 lakh equity shares. What is the value per equity share?

The value is ₹21 per equity share. Adjusted assets total ₹181 lakh. Deduct recorded liabilities of ₹50 lakh and the unrecorded certain claim of ₹6 lakh to get ₹125 lakh. Deduct preference capital of ₹20 lakh, leaving ₹105 lakh, which divided by 5 lakh shares gives ₹21.

  1. A₹21Correct
  2. B₹22.20
  3. C₹25
  4. D₹17

Explanation

Adjusted assets = 90 + 45 + 24 + 17 + 5 = ₹181 lakh. Liabilities = 50 + 6 = ₹56 lakh, giving net assets of ₹125 lakh. Less preference capital of ₹20 lakh leaves ₹105 lakh for equity, and 105/5 = ₹21. Option ₹22.20 omits the unrecorded claim (111/5), and ₹25 forgets to deduct the preference capital.

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