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Amalgamation and shareholder's worth
Accountancy
Sir while studying amalgamation we have understood that equity or shareholder's worth is calculated by subtracting liabilities from assets, which denotes the amount shareholders earned throughtout they year and deserve while exiting the company. Now doubt is, when we listen that shareholder's worth has increased for whatever reason (like share prices in stock market have increased or profits have increased or both or for any other reason) the lia.side of balance sheet will increase but when SH's worth increase, how do they increase the corresponding assets in real life? Let's say stock prices have risen manifold and gone from ₹10 to ₹80, now how will asset side increase? Cash won't increase ofcourse BCz money won't come in bank by increase in share prices in stock market, so how exactly assets will increase? Video Details ------------- P1 - Advanced Accounting - Without AS Amalgamation of Companies #6. Illustration 1 X Ltd Part 1
Answers (3)
Say you hold shares in a company and the price has gone up from 10 to 80. The value of your investments go up or your wealth grows up. This is the market value of the company. This has nothing to do with the balance sheet of the company. When company earns profit, the book value or net worth of the company goes up. This may have an impact on share price but it may not have a perfect correlation. Just to give you a perspective - A company holds only one asset i.e land at a cost of 1,00,000. The value of land currently is 10,00,000. ENtire 1,00,000 is funded by equity shares. The market will put a value fo 10,00,000 on the company where as the balance sheet will show only 1,00,000.
CA Suraj Lakhotia Admin
Say you hold shares in a company and the price has gone up from 10 to 80. The value of your investments go up or your wealth grows up. This is the market value of the company. This has nothing to do with the balance sheet of the company. When company earns profit, the book value or net worth of the company goes up. This may have an impact on share price but it may not have a perfect correlation. Just to give you a perspective - A company holds only one asset i.e land at a cost of 1,00,000. The value of land currently is 10,00,000. ENtire 1,00,000 is funded by equity shares. The market will put a value fo 10,00,000 on the company where as the balance sheet will show only 1,00,000.
Okay sir, continuing the same doubt, when we see in shark tank that company's net worth has increased and let's say it has come from $20,000 to $50,000, and we know net worth of companies means Assets - liabilities, that is the amount payable to shareholders or we can say their stake in company (plz correct me in this if I'm wrong BCz I'm not very sure abt this net worth thing) Now when net worth has increased by $30,000 ,does this mean that Asset side of balance sheet of that company has increased (or lia side has decreased) BCz then only the portion belonging to shareholders will increase, this increasing valuation or net worth of that company? If yes, how will assets increase in such a case (when company performs good and it's valuation increases...bcz if it performs good, means revenue will increase n so profits, but how will asset increase in such a case)?
Thread Starter
Garima BhargavaOkay sir, continuing the same doubt, when we see in shark tank that company's net worth has increased and let's say it has come from $20,000 to $50,000, and we know net worth of companies means Assets - liabilities, that is the amount payable to shareholders or we can say their stake in company (plz correct me in this if I'm wrong BCz I'm not very sure abt this net worth thing) Now when net worth has increased by $30,000 ,does this mean that Asset side of balance sheet of that company has increased (or lia side has decreased) BCz then only the portion belonging to shareholders will increase, this increasing valuation or net worth of that company? If yes, how will assets increase in such a case (when company performs good and it's valuation increases...bcz if it performs good, means revenue will increase n so profits, but how will asset increase in such a case)?
When you refer shark tank, the increase is in valuation of the company. Valuation is from market point of view. Net worth is from balance sheet point of view.
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