Illustration No. 13
Sun Ltd., and its subsidiary Moon Ltd., get their supply of some essential raw material from
Star Lid. To coordinate their production on a more profitable basis Sun Ltd. and Moon Ltd., agree
between themselves each to acquire a quarter of shares in other Authorized Capital by means of
exchange of shares. The terms are as follows.
Sun Ltd., shares are quoted in stock exchange at Rs. 10. The value to be taken for this
purpose was either the quoted price or on the basis of balance sheet valuation, whichever
is higher
b) Star Ltd., shares which are not quoted in stock exchange are to be considered on the
yield basis or balance sheet basis, whichever is higher.
c) The future profits of Star Ltd., estimated at Rs. 2,10,000 subject to one third to be
retained for the development purpose.
d) The shares of similar company yield 8%.
e) Freehold property of Star Ltd., are to be valued at Rs. 8,60,000.
The summarized Balance Sheets of the companies at the relevant date stood as follows.
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