Honolulu star-bulletin. [volume] (Honolulu [Oahu, Hawaii]) 1912-2010, 1917-01-20

rartment in regard TO the Capital
| Stock Act Of September s. 1916. These
are rulings made by the commissioner.
it was issued December 30 and is as
! follows,
!. The following instructions have
been made regarding the method Of
estimating the fair value Of stock I'M
! der Case III. Item 6. on Form 707:
tal Where the capital stock Of a
COrpOr?t!Cn is worth 500 per share.
PAR value. and the corporation reports
ll,G0U shares. having a total value Of
81 ,00O.mu. and also reports a surplus
Of 100000, and undivided profits Of
0.0G0, the book value Of such stock
would be S1.550,000 This should be
taken as the basis of the approximate
value Of the stock per share t$Ij5)
unless by reason of earning capacity
the real value is in excess of the book
value, or unless for any reason the
book value is fictitious and is shown
by over-eStimating the value OF as
sets
90 If the average profits per
share earned during the preceding
five years indicate an estimated
earning capacity" in excess of the
book value, the fair value of the cap
ital stock may be based upon a rea-
sonable return on capital invested, de-
pendent upon the hazards Of the bust
ness and what prices the stock Of
corporations engaged in similar
character Of business brings in the
open market.
n 10
and is shown by over-estimating the
capital assets. this fact should be fully
explained, either on the return or on a
statement attached thereto, and may
be given allowance in determining the
fair value of stock where the average
profits per share earned during pre-
ceding five years" and earning ca
pacity' are exceedingly low.
(d) The average dividends per
share paid during preceding five
years" are stated merely for the in
formation of this office in case where
corporation shows an earning capac-
ity but states no surplus OF undivided
profits.
(e) One return submitted by q
lumber company for examination
showed a surplus of $257,700, but
stated that it was not earned" In
view Of the fact that the total profits
of this company for the last four
years Of operation only amounted to
$22, 709.19. and 1t had paid no divi-
bends within the last five years, and
its earning capacity was practically
nothing, the corporation was advised
nIaf INT
the surplus was acquired, and If It
was real or fictitious owing to the
inflated valuation of assets on the
books. The fair value of the stock
Of this company, which was esti-
mated on the return as par, 500 per
share, would largely depend upon the
value of its assets, especially the sur
plus Of $257,700, and the undivided
profits of $22.708.19, were divided UP
at the present time, would the cor.
poration pay 1852 per share to each
Of the stockholders, that being ap-
proximately the book value.
0D A return filed by a cotton yarn
manufacturing corporation showing
average profits for the last five years
of $15,949.45 on capital stock of $780,
600. stated an estimated value under
Case III of $40 per share An in
dustrial corporation of this character
stating the fair value of its stock at
$40 upon a return showing an earn
ing capacity of from seven to eight
per cent, is considered fair, in view
Of the speculative character Of the
business.
mn lyn Nto
tons at the foot of special lists, Form
23c, Of any exceptional case in which
specific rulings of the department are
desired. and II 1t is necessary for this
office to make an examination Of the
return, statements, or affidavits of Of
ficers of the corporation, the col
lectOrs will be asked to forward them
for that purpose.
(h) Where a holding company holds
all the stock OF several subsidiary
corporations which is not listed on
any exchange or which has not been
sold in the last fiscal year, it has
been held that the fair value o. the
stock of such subsidiary companies
may be estimated from the market
value Of the total capital stock of the
holding company 1.-THE parent corpora
tom by apportionment of the fair
value Of the total capital stock OF the
holding corporations among the sub
sidiary companies. This does not, of
course, relieve the holding company
from its liability to the special excise
tax, the average fair value Of the
stock of which can probably be COM
puted under Case or II.
2. Corporations estimating the fair
value of their stock under Case II,
Item s. on Form TOT, will comply
strictly with the provisions in the
regulations by taking the average
price at which sales were made during
the preceding fiscal year" and not the
average selling price per share Thus,
If 10 shares were sold at 500 and
1000 shares were sold at $40, the
average price at which sales were
made" would be $85. The average
selling price in such a case would be
5000. but this price will not be &C
cepted as an average fair value. Cor.
porations protesting against the COM
Dutation Of the value of stock on this
basis may file a statement with the
return on form 707 setting forth the