INTRODUCTION

The valuation of the shares of a company involves use of judgment, experience and knowledge.
The accountant undertaking this work should possess knowledge of the analysis and
interpretation of financial statements backed by a practical appreciation of business affairs and
investments. A valuation based on quantitative information alone will not be adequate for a real
valuation. It should also be recognised that the method of valuation of shares would vary,
depending on the purpose for which it is to be used.
A clear understanding of the purpose of valuation is undoubtedly important, but an equally
important imperative is to have a full appreciation of the value emanating from common
principles. This general purpose value may be suitably modified for the special purpose for
which the valuation is done. The factors affecting that value with reference to the special purpose
must be judged and brought into final assessment in a sound and reasonable manner.
The following is an illustrative list of the circumstances which call for a value to be placed upon
shares in companies:

Sale of shares by a person to another.

Merger of two or more companies or the absorption of one company by another or in a

capital restructuring exercise.

Tax purposes
Acquisition/ transfer of shares in an Indian company by a non-resident.
Ascertainment of the premium at which shares are to be issued.
Acquisition or transfer of shares by certain bodies corporate under Sections 108A &
108B of the Companies Act, 1956

Value of a share means the money value attached to the share. It may be the book value (value
written in the books of account), or the price at which it can be sold or purchased.
The value of a share is first stated in the Articles of Association of the Company. It is also stated
in the Balance sheet of all companies. The value, stated in the Balance Sheet (or in the books of
account and Articles of Association) is called book-value of a share. The value of a share (the
price) at which it can be sold or purchased is market value which may be more or less than the
book-value.