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Valuation of share

CA SHIVANG SONI (CHARTERED ACCOUNTANT) (266 Points)

12 March 2013

Problem in calculation of future maintainable profit.

How to charge all transaction like (increase in directors remunaration , additional depreciation,change in current assets ) when past 2 or more year profits are given to calculat future maintainable profit.

In some sums.. they charged above effect before average or weighted average and vice versa.

Very confused. Please help...

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4 Replies

Nakul Sharma (CA FINAL) (35 Points)
Replied 12 March 2013

See shivang the issue is very simple, you have to carefully observe the trend of profits on which the valuation assignment is based, of the profits show an increasing or decreasing trend, than this shows that profits have been moving in a particular direction and therefore weights are to be given for calculating the Profit which the business may be able to reap if carried on in future, however if these trends are not appearing in profits, than you have to calculate just Simple average of profits, and this thing largely depends on fact of the case. Pl clarify for further doubts

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CA SHIVANG SONI (CHARTERED ACCOUNTANT) (266 Points)
Replied 12 March 2013

Hi nakul...thanx for replyig.

Please read carefully my query,

I already know when to apply weighted avg n simple avg..this is not my question.

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 12 March 2013

Dear all Simply we can say that we have to find the Actual profit for the purpose of calculating FMP if any of adjustment is coming known after the completion of year and suceeding year then for calculating future maintainable profit first we have to make changes in the net profit of past year. and to arieve at the correct value of profit of last years.

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Nakul Sharma (CA FINAL) (35 Points)
Replied 13 March 2013

it is not a prudent advise to calculate these elements before calculating (simple/weighted) average of profits, because we would not be having any base for future available profits, and future increased/decreased expenses/incomes.. Are there any such sum in any material of Institute or Practise manual, if yes pls let me knw...