Aveneu Park, Starling, Australia

LEARNING value such shares. § The survivors of deceased

LEARNING OBJECTIVES

Ø To enable the students to develop
awareness about Corporate Accounting in conformity with the provisions of
Companies Act.

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Ø To help the students to learn about
the concept of Valuation of shares and goodwill.

Ø Students will come to know about the
amalgamation and liquidation of companies.

 

UNIT 1

Need for
valuation of shares:-

§  When two or more companies amalgamate
or one company absorb another company.

§  When a company has decided to undergo
a process of reconstruction.

§  When preference shares or debentures
are converted into equity shares.

§  Under a scheme of nationalization
when the shares of a company are taken over by the government.

§  Shares are often pledged as security
for raising loans.

§  When one company acquires majority of
the shares of another company it is necessary to value such shares.

§  The survivors of deceased person who
get some shares of company made by will.

§  To declare NAV by the Finance or an
Investment Trust Company.

VALUES OF
SHARES:-

1.   
Face
Value

§  A Company my divide its capital into
shares of @10 or @50 or @100 etc.

§  Company’s share capital is shown as
per Face Value of Shares.

§  Face Value of Share = Share
Capital

                                              Total No of Share

§  This Face Value is printed on the
share certificate.

§  Share may be issued at less (or
discount) or more (or premium) of face value.

 

2.   
Book
Value

Book Value
of Share = Book Value of Company

                                                    Total No. of Shares

Where,

                             Book Value of
Company =

          Share Capital

+        Reserves

+        Accumulated Profits

 – Accumulated Losses

3.   
Intrinsic
Value

Intrinsic
Value of Share = Net Assets of Company

                                                  Total No. of Shares

where,

Net Assets =

          Fixed Assets

+  Current Assets

+        Investments

–        
Outside
Liabilities with Debentures

–        Preference Share Capital

4.   
Capitalised
Value

Capitalised
Value of Share = Capitalised Value of Profit

           
                                              Total
No. of Shares

5.   
Fair
Value

                                      Fair Value
of Share =

Value of
Share by NAV Method + Value of Share by Yield Method

 Total No. of Shares

 

METHODS OF VALUATION:-

1.   
Dividend
Yield Method

                                      Value
of Share =

 
Expected Rate of Dividend      
X      Paid UP Value of Share 

  
                         Normal
Rate of Dividend

 

2.   
Earning
Capacity (Capitalisation) Method

Value of Share =

          Rate of Earnings        X       
Paid UP Value of Share 

     
               Normal Rate of
Return

3.   
Average
(Fair Value) Method

                                      Fair
Value of Share =

Value of Share by NAV Method + Value
of Share by Yield Method

 Total No. of Shares

 

AMALGAMATION:-

Amalgamation is the combination of
one or more companies into a new entity. It includes:

Two or more companies join to form a new company
Absorption or blending of one by the other

Thereby, amalgamation includes
absorption.

 

Types of Amalgamation:-

Amalgamation in the nature of
merger.
Amalgamation in the nature of
purchase.

Why
Amalgamate?

To acquire cash resources
Eliminate competition
Tax savings
Economies of large scale operations
Increase shareholders value
To reduce the degree of risk by diversification
Managerial effectiveness
To achieve growth and gain financially

Procedure
for Amalgamation

The terms of amalgamation are finalized by the board of
directors of the amalgamating companies.
A scheme of amalgamation is prepared and submitted for
approval to the respective High Court.
Approval of the shareholders’ of the constituent
companies is obtained followed by approval of SEBI.
A new company is formed and shares are issued to the
shareholders’ of the transferor company.

5.     
The transferor company is then
liquidated and all the assets and liabilities are taken over by the transferee
company.

Advantages
of Amalgamation

Competition between the companies gets eliminated
R facilities are increased
Operating cost can be reduced
Stability in the prices of the goods is maintained

Disadvantages
of Amalgamation

Amalgamation may lead to elimination of healthy
competition
Reduction of employees may take place
There could be additional debt to pay
Business combination could lead to monopoly in the
market, which is not always positive
The goodwill and identity of the old company is lost

 

 

 

1.   
Merger

·      
When
two or more companies combine their business together by selling their business
as going concern to a newly formed company

•      A new company is formed to acquired
the assets and liabilities of the old companies and these companies are wound
up.

•      The consideration given may consists
of cash, shares and/or debentures in the new company.

  
Absorption

•      when one dominant company acquired
the assets and liabilities of another company being acquired is wound up

•       The purchase consideration given may consists
of cash, shares and /or debentures in the new company, as in amalgamation.

Take Over

•      The investor acquires controls in
another company (investee)

•      An investor company that controls
another company is referred to as the holding or the parent company ant the
acquired company becomes a subsidiary of the investor.

 

 

UNIT 2

 

 Liquidation
of Companies:-

 

 Meaning:

Liquidation
is the legal procedure by which a company comes to an end. The term Liquidation
mean” The process of law where by a company is wound up to terminate its
corporate life”

 

 MODES
OF WINDING UP OR LIQUIDATION OF COMPANY:

1.     
Voluntary Winding Up:

 

 When the members and creditors decide to wind up the
company without the intervention of the court, it is known as voluntary winding
up of a company.

·        
It
could be in following circumstances:

(i) If the period fixed for
the duration of the company has been expired or an event on the occurrence of
which the company is to be wound up has occurred and company in general meeting
has passed an ordinary resolution requiring the company to be wound up.

(ii) If
the company passes a special resolution that the company may be wound up
voluntarily.

 

·        
Voluntary
winding up are of two types:

(a) By its Members: Members
voluntary winding up applies to solvent companies and a declaration of solvency
is necessary to be made within 5 weeks immediately preceding the date of
resolutions for winding up. The declaration must specify the director’s opinion
that the company has no doubt or it will be able to pay debts in full within
three years of the commencement of the winding up.

(b) By the creditors:
Creditors voluntary winding up applies to insolvent companies. In such case,
the company calls a meeting of the creditors on the same day or the next day
following the day fixed for company’s general meeting for passing the resolution
for winding up.

 

 

2.     
Compulsory Winding Up:

A compulsory winding up occur by an order of the court
made on a petition filed by the company, its creditors or shareholders etc.

It could be in following circumstances:

(i)
If the company has, by special resolution, resolved to be qound up by the
court.

(ii) If the default is made in delivering the statutory
reports to the registrar as in holding the statutory meeting.

(iii) If the company does not commence its business within
a year from its incorporation or suspends it business for a whole year.

(iv)
If the number of members reduced, in case of public company below seven and in
case of private company below two.

(v)
If the company is unable to pay its debts. A company is deemed unable to pay
its debt when it does not pay a debt not less than 500 Rs. Within three weeks
of demand.

(vi)
If the court is of the opinion that it is just and equitable that the company
should be wound up.

 

3. Winding Up under the supervision of court:

After passing a resolution for the voluntary winding up,
the court may, at any time, make an order that voluntary winding up shall
continue but subject to such supervision court and with such liberty for creditors,
contributories or others to apply to the court, and generally on such terms and
conditions as the court think fit.  

 

Lists to be attached to the
statement of affairs:

List A. Gives a complete list of assets not specially
pledged or mortgaged

List B. Gives the list of assets which are specially
pledged in favour of fully secured and partly secured creditors

List C. Gives the list of preferential creditors

List D. Gives the detail of debentureholders and other
creditors having a floating charge on the assets

List E. Gives the detail of amount due to unsecured
creditors

List F. Gives the value of shares held by various
preference shareholders

List G. Gives the detail of amount payable to equity
shareholders

List H. Shows deficiency or surplus as per statement of
affairs

 

 

 

 

 

 

Liquidator’s Remuneration:

(i)
Remuneration on assets realised: in case remuneration calculated on assets
including surplus from secured assets. But if liquidator realised the secured
assets then he is entitled to remuneration on the full realised value of
secured assets. Assets include cash and bank also except if specially
mentioned.

(ii) Remuneration on payment to unsecured creditors.
Unsecured creditors include preferential creditors also. But if it is specified
that remuneration on payment to unsecured creditors other than preferential
creditors, then remuneration on preferential creditors will not be given. Some
time amount available for payment to unsecured creditors is less than their
total amount due.

 

In that case liquidator’s remuneration will be calculated
as:

Amount available for unsecured creditors and remuneration
x Rate

100+Rate

(iii) Remuneration on payment to shareholders. In this
case remuneration will be calculated as:

 

Surplus amount left after payment to unsecured creditors x
Rate

100 + Rate

 

 

 

 

 

 

 

UNIT 3

Topic: Accounts of
Banking Companies

Section 5
tells about Banking Regulation Act & it goes about characterizes saving
money Likewise “the accepting, for the reason for loaning or investment, for
store for cash from people in general reimbursement for interest alternately
generally and withdrawal toward cheque, draft, request or generally.

 

Offers about
saving money organization:

·       The borrowing,

·       Raising, or

·       Bringing dependent upon about cash.

·       Those alternately propelling from
claiming cash possibly upon alternately without security are also covered.

·       The conceding and issuing about
letterpress from claiming credit, traveler’s cheques Furthermore hardware notes
are also covered.

·       The purchasing and offering about
bullion.

·       Those purchasing also offers for
remote trade including remote bank notes.

·       Executing trust.

 

The
acquisition, construction, upkeep meets expectations which is important alternately
& helpful for the reason for the organization.

Carrying
with respect to also transacting each sort of ensure and repayment benefits of
the business.

Those
gathering furthermore information of transmitting of cash and securities should
be taken into consideration.

Endeavor the
organization for estates just as executor, trustee do.

Bookkeeping
System: The bookkeeping framework of a keeping money organization may be unique
in relation to that of a exchanging alternately manufacturing particular
organization. A bank need an expansive number of clients whose acc would on
make looked after for such an approach with the goal that these ought a chance
to be held upto date.

Offers from
claiming saving money Acc System: Sections in the particular ledgers need aid
produced straightforwardly from vouchers.

From such
sections in personal acc every day outline judgment sheets on aggregate would
readied.

Those all ledgers’
trial parity will be concentrated and consented consistently.

A trial
parity for personage record will be ready occasionally Furthermore it gets
concurred with general record.

Two vouchers
would ready to each transaction not directing, including cash- charge What’s
more credit voucher.

 

Books Required:

o  
Getting
cashier’s counter trade book.

o  
Paying
cashier’s counter money book.

o  
Present
accounts record.

o  
Credit
record.

o  
Trade
credit record.

o  
Venture
record.

o  
Sparing
bank accounts record.

o  
Repeating
stores accounts record.

o  
Bill
marked down also bought record.

Vital Books of Accounts Are:

Money book: This book provides for the outline
judgment of the getting cashier’s counter money book What’s more paying
cashier’s money book.

General ledger: this record holds control acc to
subsidiary record recorded over Furthermore acc from claiming liabilities and
benefits not secured eventually perusing the subsidiary record.

Notes and direction
book for Compilation: Those formats of monetary record and benefit n reduction
acc spread the sum things likely to show up clinched alongside these
articulation.

The
expressions ‘current year’ Furthermore ‘previous year’ utilized within those
formats need aid main on show the request for presentation Also might not show
up over acc.

Figures
ought to be adjusted off with closest thousand.

 

Topic: Managerial
remuneration

•        
Managerial
remuneration is the remuneration paid to the 
managers of the company who are the top level authoritie

•        
Example
of one such post is:

ü Director of the company

•        
The
managerial remuneration is operated under Companies Act, 1956.

•        
To
clear the concept the Companies Act also defines who is a manager and who is a
director of the company.

Definition:

•        
Manager
:

– Section 2(24) of the Companies Act 1956, defines the term
manager, means an individual who, subject to superintendence, control and direction
of Board of directors, has the management of the whole, or substantially the
whole, of the affairs of the company, and includes a director or any other
person occupying the position of a manager, by whatever name called, and
weather under a contract of service or not.

Maximum and Minimum remuneration to be paid:

•        
Maximum
pay to a manager can be 11% of the company’s profit.

•        
It
is mentioned in Section 198 of the Companies Act 1956.

•        
If
in any financial year company has no profit or the profits are inadequate, the company
shall not pay to its managers.

•        
This
decision was made after an amendment in 1988 to 198 (4) of the companies act
1956.

Calculation of Managerial
Remuneration:

•        
The
remuneration can be broken down into

–      
Salaries
and Allowances

–      
Monitory
values of various prerequisites

–      
Contribution
to provident, superannuation, gratuity funds

–      
Commission

•        
Benefits

–      
Any
expenditure incurred by the company in providing rent free accommodation (RFA),
or any other benefit or annuity.

–      
Other
benefit or concessional benefit

–      
Any
expenditure in respect of any obligation paid.

–      
Any
expenditure incurred by company in effecting any insurance on the life of the
managerial.

Remuneration:

•        
A
manager can receive monthly pay or a percentage of  profit or partly by the way of a monthly
payment and partly by the way of specific percentage.

•        
Total
remuneration cannot exceed 5% of net profit of the company.

•        
The
net profit is to be calculated in the 
manner mentioned in section 349 and

Overall Remuneration
Limit

If there is only one managing director

11%

If more than
one managing director

5%

If there is only
one MD

10%

If there is only part time directors only and has no MD

3%

If there is pert
time directors and also have
one or more MD

1%

If there is manager

5%

Remuneration to the
Director:

Director types

Percentage Profit

If one whole time director

5%

If more than one
whole time director

10%

If only part time directors

3%

If part
time directors as well as
whole  time director

1 %

 

However the company can increase the remuneration with the
previous approval of the central government and by passing a special
resolution.

The net profit for this purpose shall be calculated in the
manner laid down in section 349 and 350.

A director who is in receipt of any commission from the
company is not entitled to receive any commission or remuneration.

 

Topic: Profit prior to Incorporation

MEANING:

•        
Sometimes a company is formed to take over a running
business from a date prior to its incorporation.

•        
In such a case, the amount of profit earned by the
company from the date of purchase to date of its incorporation is called as
Profit prior to incorporation.

EXAMPLE:

l Green ltd.
Is incorporated on 1st April 2015 to take over the running business
of M/s black & white as from 1st January 2015.

l In this
case, the profit earned by green ltd from 1st January2015 to 31st
march 2015 is called profit prior to incorporation.

ASCERTAINMENT OF PROFIT OR LOSS PRIOR TO INCORPORATION:

(1)   Prepare
Trading a/c

(2)   Calculate
time ratio

(3)   Calculate
Sales ratio

(4)   Prepare
profit & loss a/c
for pre-incorporation period & post-incorporation period

(5)   Actual
expenses of both the periods

 

 

 

REFRENCES

1)   

Methods of Valuation of Shares (5 Methods)

2)   
https://accountlearning.blogspot.in/2011/10/methods-of-valuation-of-shares.html

3)   
https://www.icas.com/education-and-qualifications/back-to-basics-valuation-of-ordinary-shares-part-1-student-blog

4)   

Valuation of Shares: Need and Methods (With Illustrations)

5)   

Amalgamation Explained in detail

6)   
https://www.investopedia.com/terms/a/amalgamation.asp

7)   
http://www.mca.gov.in/MinistryV2/restructuring+and+liquidation.html

8)   
https://en.wikipedia.org/wiki/Liquidation

9)   

Methods of Valuing Goodwill of a Company (7 Methods)

10)         

Methods of valuation of Goodwill

11)         

Accounts of Banking Companies | India | Accounting

12)         
https://www.indiafilings.com/learn/managerial-remuneration-directors-salary-companies-act/

13)         

Profit/Loss Prior to Incorporation: Accounting Methods

 

 

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