S Ltd is considering buying the business of R Ltd the final accounts of which for the last 3 years were as follows: MGC-FN-705 Page 5 of 5 Profit and loss account for the 3 years ended 31st Dec (Rs.) Particulars 2011 2012 2013 Sales 200,000 190,000 224,000 Material Consumed(100,000) (95,000) (112,000) Business Exp (80,000) (80,000) (82,000) Depreciation (12,000) (13,000) (14,000) Net Profit 8000 2000 16,000 Balance sheet as at 31st Dec (Rs.) Particulars 2010 2011 2012 2013 Fixed Assets(at cost) 100,000 120,000 140,000 180,000 Less: Depreciation (70,000) (82,000) (95,000) (109,000) Net fixed Assets 30,000 38,000 45,000 71,000 Stock in Trade 16,000 17,000 18,500 21,000 Sundry Debtors 21,000 24,000 26,000 28,000 Cash in hand &at Bank32,000 11,000 28,000 13,200 Prepaid Expenses 1000 500 2000 1000 Total Assets 100,000 90,500 119,500 134,200 Equity capital 50,000 50,000 70,000 70,000 Share premium - - 5000 5000 General reserves 16,000 24,000 26,000 42,000 Debentures 20,000 - - - Sundry creditors 11,000 13,000 14,000 14,000 Accrued exp 3000 3500 4500 3200 Total liability 100,000 95,500 119,500 134,200 S ltd wishes the offer to be based upon trading cash flow rather than book profits. Trading cashflow is the cash received from debtors less cash paid to creditors and for business expenses (excluding depreciation), together with an allowance for average annual expenditure on fixed assets of Rs 15,000 per year. The cost of capital is 12.5 %. The actual expenditure on fixed assets is to be ignored and also any cash received or paid out on the issue or redemption of shares or debenture. S Ltd wishes the trading cash flow to be calculated for the years 2011, 2012, 2013 and for these to be combined using weights of 30% for 2011, 20% for 2012 and 50% for 2013 to given an average annual trading cash flow.
S Ltd is considering buying the business of R Ltd the
years were as follows:
MGC-FN-705 Page 5 of 5
Particulars 2011 2012 2013
Sales 200,000 190,000 224,000
Material Consumed(100,000) (95,000) (112,000)
Business Exp (80,000) (80,000) (82,000)
Net Profit 8000 2000 16,000
Particulars 2010 2011 2012 2013
Fixed Assets(at cost) 100,000 120,000 140,000 180,000
Less: Depreciation (70,000) (82,000) (95,000) (109,000)
Net fixed Assets 30,000 38,000 45,000 71,000
Stock in Trade 16,000 17,000 18,500 21,000
Sundry Debtors 21,000 24,000 26,000 28,000
Cash in hand &at Bank32,000 11,000 28,000 13,200
Prepaid Expenses 1000 500 2000 1000
Total Assets 100,000 90,500 119,500 134,200
Equity capital 50,000 50,000 70,000 70,000
Share premium - - 5000 5000
General reserves 16,000 24,000 26,000 42,000
Debentures 20,000 - - -
Sundry creditors 11,000 13,000 14,000 14,000
Accrued exp 3000 3500 4500 3200
Total liability 100,000 95,500 119,500 134,200
S ltd wishes the offer to be based upon trading cash flow rather than book profits. Trading cashflow is the cash received from debtors less cash paid to creditors and for business expenses
(excluding depreciation), together with an allowance for average annual expenditure on fixed assets of Rs 15,000 per year. The cost of capital is 12.5 %. The actual expenditure on fixed assets is to be ignored and also any cash received or paid out on the issue or redemption of shares or debenture.
S Ltd wishes the trading cash flow to be calculated for the years 2011, 2012, 2013 and for these to be combined using weights of 30% for 2011, 20% for 2012 and 50% for 2013 to given an
average annual trading cash flow.
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