Dear CA Final
This is a very brief note on types of valuation
Net Asset Basis
What is Net Assets ?
This includes Tangible & Intangible assets (Goodwill only if inherent , In case of purchased goodwill in teh books should be eliminated and new valuation can be taken), Investments - Market price for traded investment can be taken as current value for other investments book value,Inventory for Finished goods may be taken at Market price else rest of inventories can be taken at cost., Need to Exclude all Fictitious Assets
Libailities tobe reduced includes - provisions Pref shacapital including arrears of dividend, Short term and long term liabilities with accrued interest
Normal Rate of return
The reutrn on an investment is based on nature of investment and would decide the return.The return is highest for the classof investment where risk is higher too
When do you use Dividends capitalisation Approach & Earning capitalization Approach for valuation ?
Dividend method is used when the valuation is done for Small lot ofs investment in company
Earnings capitalization is used when comapnies invest at an higher value creation
The choice of method from an exam stand point is to look for key woreds in the problem. Like Small lots,Controlling Interest .Once you identify the method next would be to organize the problem in sections where certain calculatio of assets, future Maintanable profits , Equivalent shares in case of different class of shares.
regards,
Satish-Bangalore
Tejas Learning Centre
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