Skip to content

CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Sundaram Textiles Ltd's board proposes to issue shares on preferential basis to a promoter group entity. The Company Secretary advises that a valuation by a registered valuer is needed. Which purpose of valuation does this best illustrate?

The valuation serves to fix a fair issue price for a preferential allotment. Since shares go to selected persons such as promoters, an independent registered valuer's report protects existing shareholders from dilution at an arbitrary price and supports compliance with law.

  1. ADetermining a fair price for a preferential allotment so that shares are not issued at an arbitrary priceCorrect
  2. BComputing depreciation for the current year
  3. CFixing the audit fee payable to the statutory auditor
  4. DDeciding the date of the next annual general meeting

Explanation

A preferential allotment involves issue of shares to selected persons, so the price must be supported by an independent valuation to protect existing shareholders and meet legal requirements. The other options have nothing to do with valuation of the business or its securities.

Did you get it right without looking?

One question tells you little. A timed set on Overview of Business Valuation shows your real accuracy, how long you take and where you lose marks.

Practise Overview of Business ValuationFree diagnostic mock

More Overview of Business Valuation questions