B.

com Forth Semester Valuation Script (Company Accounts -II)

B.com Examination (August-September 2022)
Section A
a. Purchased goodwill is a Goodwill When a firm is sold to another firm generally a
consideration is paid in cash or kind because the buyer will enjoy the benefits of the brand
image that has been created over the years once the purchase is complete.
b. Super Profit is the excess of the average profit over the normal profit. An enterprise earns
more profit than the normal profit because of Goodwill.
c. Normal Rate of Return is the rate based on the earnings which the investors generally expect
on their investments in an industry. Normal profit is the average capital employed by the
normal rate of return
d. Factors Affecting the Value Of Shares
1. The nature of the business 2. The income yielding capacity of the company
3. The demand and supply of shares 4. The percentage of dividend declared on shares
e. If the goods sold at a profit by the subsidiary company to the holding company or vice-versa
remain unsold at the close of the financial year, the profit charged by the company on
unsold goods remains unrealized is called unrealized profit.
f. Following the reasons for Amalgamation as follows:
1. Expansion and Diversification 2. Optimum Economic Benefit 3. Risk Strategy
4. Increase the Market capitalization 5. Access Foreign Markets 6. Tax Benefits
g. At the time of Liquidation of a company, the liquidator realises all the assets and discharge
the liabilities and capital. The statement prepared to record to such receipts and payments is
called Liquidator's Final Statement of Account.
h. Total Unsecured Creditors = (Fully Unsecured +Partly Unsecured + Preferential) Creditors
= 1,00,000 +(80,000 – 60,000) + 0 = 1,20,000
i. Contingent liability is a potential liability that may occur in the future, such as pending
lawsuits or honoring product warranties. If the liability is likely to occur and the amount can
be reasonably estimated, the liability should be recorded in the accounting records of a firm.
j. Minority interest is a stake in a company that is controlled by a larger parent company.
Minority interest is the portion of a subsidiary co's stock that is not owned by the parent co.
k. Selling company is known as Subsidiary Company if it sells majority (more than 50%) of its
shares to another (Holding) Company.
l. 1. Non Performing Assets. 2. Fixed Maturity Plan (Future Maintainable Profit)
SECTION – B
2. Distinguish between merger method and Purchase method of amalgamation
1. Acquisition method, the first to come into force, was the standard form of accounting.
Purchase method came later and is used for a merger or acquisition.
2. In the acquisition method, there are two methods of accounting — acquisition and
merger accounting. The acquisition has to be valued at fair value. Moreover, the
difference between purchase price and fair value has to be recognized as goodwill.
3. Purchase method helps in having a uniform mode of accounting for expenditures
related with purchase.
4. The purchase method has a more discretionary purchase- price allocation mode. On the
other hand, the acquisition method has a more market-driven recognition mode.
5. In the acquisition method, the business combinations are reflected at full fair value.
3. Computation of Ex and Cum Value per Equity shares
Ex-Dividend Cum-Dividend
Total assets 15,00,000 15,00,000
Less: External Liabilities - 7,00,000 - 7,00,000
Less: Equity Dividend (20% x 5,00,000) - 1,00,000 --
Net Assets 7,00,000 8,00,000
/ / /
No of Equity Shares 50,000 50,000
Value per Equity shares 14 16

4. DR Liquidators Final stamen of A/C CR

Receipts Amount Payments Amount
To Cash-in-hand 5,000 By Liquidation expenses 3,100
By Liquidators Remuneration
To Surplus from securities 1) 5% x 1,08,000 = 5,400 5,400
(50,000 – 40,000) 10,000 By Unsecured creditors
Preferential creditors 8,000
To Other Assets realized 1,50,000 Unsecured creditors 1,00,000 1,08,000
By Equity shareholders 48,500
1,65,000 1,65,000

Working Notes
Amount available for Distribution 1,65,000
Less: Liquidation Expenses 3,100
Less: Unsecured Creditors 1,08,000
Less: Liquidators Remuneration 5,400
Amount Available for Equity Shareholders 48500

5. Statement showing Minority & Majority Interest

SL NO Total A.co (3/5) B.co (2/5)
1) Share Capital of Subsidiary Co 5,00,000 3,00,000 2,00,000
2) General Reserve of Subsidiary Co
Pre-Acquisition 2,00,000 1,20,000 80,000
3) Profit & Loss A/C of Subsidiary Co
Pre-Acquisition Profit 2,25,000 1,35,000 90,000
Post- Acquisition Profit 1,25,000 75,000 50,000
Minority Interest 4,20,000

A. Ltd. Acquired 3,000 share out of 5,000 shares of B. Ltd.

Therefore Ratio A. Ltd 3,000 sh : B. Ltd 2,000 sh 3:2
Pre-Acquisition Profit = 1,00,000 + 6/12 x 2,50,000 = 1,00,000 + 1,25,000 = 2,25,000
Post-Acquisition Profit = 6/12 x 2,50,000 = 1,25,000

6. Schedule No 1: Capital
Authorized Capital
-----shares of Rs ---- each
Paid-up Capital
-----shares of Rs ---- each
Less : Calls in arrears
Add : Forfeited shares
Total
 Section – C
7. Goodwill is the value of the reputation of a firm built over time with respect to the
expected future profits over and above the normal profits. Goodwill is an intangible real asset
which cannot be seen or felt but exists in reality and can be bought and sold.
Methods of Goodwill Calculation
Goodwill is recognized in several ways. However, valuation methodologies are dependent on
an individual company's position and various trading practices. In principle, the goodwill
calculation technique sounds simple. However, in fact, it may look incredibly complicated for
laymen.
1a. Average profit method:
The term "average profit" refers to the sum of profits realized in each of the preceding years.
Simple average method:
In this procedure, goodwill calculation involves dividing the average profit by the number of
years purchased, referred to as the year's purchase. A specific formula is used to compute it.
Formula:
Simple Average profit = Total profit of the n number of years/ Total number of years
Goodwill = Simple average profit X No. of years of purchase.
1b. Weighted average method:
In this case, the profit from the previous year is computed after assigning the profit figures a
set of weights. We get the weighted average profit by calculating the yearly earnings and
dividing it by the total number of weights.
Formula:
Weighted Average profit = Sum of Profits multiplied by weights/ Sum of weights
Goodwill = Weighted Average Profit X No. of years of purchase.
2. Super profit method:
Super Profits are an excess of projected future sustainable earnings over regular profits. Under
this approach, we must compute the company's super profit for a specified amount of years
while also assisting in goodwill calculation..
Formula:
Super profit = Actual or Average Profit - Normal Profit.
3. Annuity method:
In this case, the average super profit gets calculated as an annual value over a set amount of
time. A discounted quantity of super profit is used to evaluate the current value of an annuity
at a particular interest rate.
Formula:
Goodwill = Super Profit X Discounting Annuity Factor
4. Capitalization method:
To determine the value of the company's goodwill, we have to capitalize on its earnings. We
can capitalize on both sorts of gains, namely super profits and regular profits. The two are
sub-methods of the goodwill capitalization method.
The following are examples of goodwill valuation methods: –
 4a. Average profits method:
In this approach for goodwill calculation, we must first compute the business's simple average
profit for the specified years, multiplying it by 100 and dividing it by an average rate of
return. One can often refer to this method as company valuation.
Formula :
Capitalized Average profits = Average Profits X (100/average return rate)
Net Assets = Total Assets - outside liabilities
Goodwill = Capitalized Average profits - Net Assets
4b. Super profits method:
The super profit is capitalized here, as is the goodwill. First, we have to compute the
business's super profit for the specified years, multiplying it by 100 and dividing it by a
normal rate of return;
Formula: Goodwill = Super Profits multiplied by (100/Normal Rate of Return)

8. Amalgamated Balance-sheet of H CO
Note No Amount
LIABILITIES
I SHAREHOLDERS FUND
a) Share Capital 1 7,13,100
II NON-CURRENT LIABILITIES
a) 6% Debentures 2 1,00,000
III CURRENT LIABILITYIES
a) Trade Payables 3 79,000
Total A 8,92,100
ASSETS
I NON CURRENT ASSETS
a) Fixed Tangible Assets 4 6,24,000
b) Fixed Intangible Assets 5 90,000
II CURRENT ASSETS
a) Inventories (Stock) 6 63,050
b) Trade Receivables 7 64,800
c) Cash/Cash equivalents 8 50,250
Total B 8,92,100

Note 1 Share Capital Rs.

Equity Share Capital Day. Ltd 4,60,000
Light. Ltd 2,53,100
Total 7,13,100

Note 2 Non Current Liabilities Rs.

6% Debentures Day. Ltd
Light. Ltd 1,00,000
Total 1,00,000

Note 3 Trade Payables Rs.

Creditors Day. Ltd 34,000
Light. Ltd 45,000
Total 79,000
Note 4 Tangible Fixed Assets Rs.
Plant and Machinery Day. Ltd 3,00,000
Light. Ltd 3,24,000
Total 6,24,000

Note 5 In Tangible Assets Rs.

Goodwill Day. Ltd 90,000
Light. Ltd --
Total 90,000

Note 9 Inventories Rs.

Stock Day. Ltd 32,000
Light. Ltd 31,050
Total 63,050

Note 10 Trade Receivables Rs.

Debtors Day. Ltd 42,750
Light. Ltd 22,050
Total 64,800

Note 11 Cash/ Cash Equivalents Rs.

Cash at Bank Day. Ltd 29,250
Light. Ltd 21,000
Total 50,250

Working Notes:
Calculation of Purchase Consideration
Day. Ltd Light. Ltd
Assets Taken Over
Plant and Machinery 3,00,000 3,24,000
Goodwill 90,000 --
Stock 32,000 31,050
Sundry Debtor 42,750 22,050
Cash at Bank 29,250 21,000
4,94,000 3,98,100
Less :Liabilities Taken Over
Debentures -- - 1,00,000
Sundry Creditors - 34,000 - 45,000
4,60,000 2,53,100
09. Consolidated of Balance sheet of H. co. with its subsidiary. S. co. as on 31-03-2020
Equity And Liabilities Note no Rs
I SHARE HOLDERS FUND
a) Share capital 1 4,00,000
b) Reserves and Surplus 2 1,12,000

II MINORITY INTEREST 3 60,000

III NON CURRENT LIABILITIES --
IV CURRENT LIABILITIES
Trade Payables 4 90,000
TOTAL 6,62,000
Assets
I NON CURRENT ASSETS
a) Tangible Assets (Sundry Assets) - 6,50,000
b) In -Tangible Assets(Goodwill on Consolidation) 5 12,000
II CURRENT ASSETS --
TOTAL 6,62,000

Note 1 Share Capital

Particular Rs Rs
Equity Capital of H.co 4,00,000
Share Capital 4,00,000

Note 2 Reserves and Surplus

Particular Rs Rs
Capital Reserve
3/5 share of Pre- acquisition Reserve 12,000
3/5 share of Pre- acquisition Profit 6,000
Less : Deduct as per contra 18,000
Total A - 18,000 Nil
General Reserve
General Reserve of H.co 60,000
¾ share of Post - acquisition Reserve 6,000
Total B 66,000
P&L A/C
P&L A/C of H.co 40,000
¾ share of Post - acquisition Profit 6,000
Total C 46,000
Reserves and Surplus A+ B+ C 1,12,000

Note : 3 Statement showing Minority & Majority Interest

SL NO Total H.co (3/5) S.co (2/5)
1) Share Capital of Subsidiary Co 1,00,000 60,000 40,000
2) General Reserve of Subsidiary Co
Pre-Acquisition 20,000 12,000 8,000
Post- Acquisition 10,000 6,000 4,000
3) Profit & Loss A/C of Subsidiary Co
Pre-Acquisition Profit 10,000 6,000 4,000
Post- Acquisition Profit 10,000 6,000 4,000
Minority Interest 60,000
 Note 4 Current Liabilities
Particular Rs Rs
Trade Payables
Creditors H.ltd 80,000
S.ltd 10,000
Current Liabilities 90,000

Note 5 Goodwill on Consolidation

Particular Rs Rs
Cost of Acquisition 90,000
Less: Face value - 60,000
30,000
Less: Deduct Capital Reserve as per contra - 18,000
Goodwill on Consolidation 12,000

10. Schedule No13: Interest Earned

Interest and Discount 6,00,000
Income on Investments 20,000
Interest on Balance with R.B.I 22,000
Accrued Interest on Investments 5,000
Total 6,47,000

Schedule No 14: Other Incomes

Commission and Brokerage received 58,000
Misc Income 12,000
Less: Loss on sale of Investments 20,000
Total 50,000

Schedule No 15: Interest Expended

Interest on Saving Deposits 2,10,000
Interest on Borrowings from R.B.I 50,000
Total 2,60,000

Schedule No 15: Operating Expenses

Payment & Provision for Employees 1,50,000
Rent Rates & Taxes 15,000
Printing & Stationery 23,400
Depreciation on Bank’s Property 18,400
Directors fees 14,000
Auditors fees 10,000
Law Charges 6,200
Postages and Telegrams 10,000
Repairs & Maintenance 20,000
Insurance 5,000
Total 2,72,000

Provisions & Contingencies

Provisions for Taxation 10,000
Provisions for Diminishing in the value of Investments 20,000
Provisions for Unexpired Discount 10,000
Total 40,000
 Form B
Profit & Loss A/C of Sadhana Bank Ltd. For the year ending 31-03-2021
Sched. No Amount
INCOMES
Interest Earned 13 6,47,000
Other Incomes 14 50,000
Total (A) 6,97,000
EXPENSES
Interest Expended 15 2,60,000
Operating Expenses 16 2,72,000
Provisions & Contingencies - 40,000
Total (B) 5,72,000
Net Profit for the Year ( A – B ) 1,25,000
Last year Profit 1,70,000
Total (C) 2,95,000
APPROPRIATIONS
Statutory Reserve at (25% x 1,25,000) 31,250
Proposed Dividend ( 15% x 5,00,000) 75,000
Dividend Tax ( 10% x 75,000) 7,500
Surplus(Balancing figure transferred to schedule no 2) 1,81,250
Total (C) 2,95,000

11. DR Liquidators Final stamen of A/C on 31-03-2022 CR

Receipts Amount Payments Amount
To Cash-in-hand -- By Liquidation expenses 30,000
By Liquidators Remuneration
To Surplus from securities -- 1) 3% x 22,00,000 = 66,000 66,000
By Debentures
To Other Assets realized 22,00,000 By Unsecured creditors NIL
Trade creditors 1,00,000
Bills Payable 2,00,000 3,00,000
To Calls-in-Arrears on Equity 20,000 By Preferential shareholders
Calls-in-Advance 2,40,000
Capital 7,00,000 9,40,000
By Equity shareholders
Calls-in-Advance 40,000
Capital 8,44,000 8,84,000
22,20,000 22,20,000

Working Notes
Amount available for Distribution 22,20,000
Less: Liquidation Expenses Paid 30,000
Less: Liquidators Remuneration Paid 66,000
Amount Available for Debentures 21,24,000
Less: Debentures NIL
Amount Available for Unsecured Creditors 21,24,000
Less: Unsecured Creditors Paid 3,00,000
Amount Available for Preference Shareholders 18,24,000
Less: Paid to Preference shareholders 9,40,000
Amount available for Equity Shareholders (+) 8,84,000