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The following is a summary of Monkton Co’s statement of financial position:
$m
Non-current assets 5
Net current assets 3
8
Financed by:
$1 Ordinary shares 1
Reserves 5
Loan notes 2
8
Non-current assets include machinery which cost $10 million when purchased 7 years ago and has a useful
life of 10 years. Monkton Co uses straight-line depreciation. These assets were recently professionally
valued at $1 million.
What is the value per share using the realisable value basis of valuation?
A $1
B $2
C $4
D $6Sir I don’t understand how the calculation is done. I have seen the lecture but there is no example done for net realisation value basis sir.
The book value of the net assets is 5 + 3 – 2 = 6M
However included in non-current assets is an assets with a book value of 10M – (7/10 x 10M) = 3M. They have been valued at only 1M. So take out the 3M and instead add 1M.
This gives a realisable value of 4M. Divide by the number of shares to get the value per share.
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