AC3103 Seminar 1
The book value of equity is defined as total assets less total liabilities as recorded in the
balance sheet.
In its balance sheet as at 31st December 2019, Raffles Medical Group Limited reported a book
value of equity of $840.893 million (or $0.46 per share). However, at the final bell, the
company’s stock closed at $1.00 per share, leading to a market value of equity of about
$1,828 million.
The book value of equity hardly reflects the market value of equity. Two main factors that
resulted in this discrepancy are:
(1) Assets/Liabilities recorded at historical costs instead of market value; and
(2) Other economic assets/liabilities omitted from the balance sheet.
Required:
Obtain a copy of the annual report of Old Chang Kee Limited for the financial year ended 31
March 2020, either from the company’s website or http://www.sgx.com.
(i) Determine the book value per share and the market value per share of Old Chang Kee
as at 31 March 2020.
Book value per share
Book value = Total Assets – Total Liabilities
= (NA + CA) – (NL + CL)
= ($47,047,000 + $20,712,000) – ($18,211,000 +
$23,154,000)
= $26,394,000
Book value per share =$26,394,000 / 121,374,700
= $0.22
Note: Must include treasure shares held by company
Market value per share
Market value per share = $0.58 → find in website
(ii) Provide one example as evidence from Old Chang Kee’s financial statements with
regard to the first reason (1) mentioned above for the discrepancy between Old Chang
Kee’s book value and market value of equity.
Pg90
●Look at notes to account →Accounting policy →Recorded at historical cost / fair value?
oAll PPE recorded at cost, only freehold land and buildings recorded at fair value
oNote: All PPE are initially recorded at costs so cannot use the first paragraph to
conclude anything
●Although freehold land adopts revaluation model but it is only revalued on 31 March 2013
oAlthough reported at FV, but it is not at FV as at 31 March 2016
●Value in use is more useful for investors, but hard to determine. Likely historical cost will
understate value in use.
(iii) With reference to the second reason (2) mentioned above for the discrepancy between
the book value and market value of equity, identify one asset that you think Old
Chang Kee possesses but is not reported on its balance sheet. Explain (a) why you
believe the company possesses such asset and (b) why the company did not report this
asset on its balance sheet.
Internally generated asset that create value for company
●E.g. Brand name, patent, trademark, customer relationship →e.g. realize higher sales
growth (future benefit) / earnings growth
oPage 10 – on awards for brand name
•Awarded “Singapore Promising Brand Award (SPBA)” by the ASME and Lianhe
–