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The formula used for net worth calculation is as follows:Net worth = Equity Capital + Reserves and Surpluses. Aside from share capital and share application money CRISIL considers as quasi-equity certain debt instruments which are expected to be converted into equity at a pre-specified date. Examples of such instruments are fully convertible debentures(converted within months), cumulative convertible preference shares, etc.Reserves and surpluses comprise of capital reserve including cash and non-cash items such as capital subsidy, amalgamation reserve, share premium reserve,general reserve and other free reserves.The sum of equity and reserves are set off against intangible assets of the company such as miscellaneous expenditure, goodwill account, etc. Also excluded from the net worth calculation by CRISIL is the revaluation reserve since the reserve does not signify any actual increase in tangible asset of the company.
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Simply it is calculated that what is realizable worth of Company so, tangible amount which can be realizable in case of bankruptcy.