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Discuss the practice of transferring of profits

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Reference no: EM131791785

The balance sheet of Platinum Ltd. as on 31st march 2016 is as below

Liabilities

Amount

Assets

Amount

Share capital

4000 shares of Rs 100 each fully paid

General Reserve

Profit and loss Account

Sundry creditors

Income tax reserve

Total

 

 

400000

80000

64000

256000

120000

920000

Land and building

Plant and machinery

Patents

Stock

Debtors

Bank

Preliminary Expenses

Total

220000

260000

40000

96000

176000

104000

24000

920000

The expert valuer valued land and building at Rs 480000, Goodwill at Rs 320000 and Plant and machinery at Rs 240000. Out of the total debtors, it is found that debtors of Rs 16000 are bad. The profits of the company for the three years ended on March 31st have been as follows:

1999- Rs 160000, 2000- Rs 180000, 2001- Rs 212000. The company follows the practice of transferring 25% of profits to general reserve. Similar type of companies earns 10% of the value of their shares. Ascertain the value of shares of company under fair value method.

Reference no: EM131791785

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