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L plc has investment of 100 shares in C plc, Total cost of investment for 100 shares is $100. C plc issued 50 bonus shares to L plc. How L plc will record this transaction?
What is there to record? Where has L recorded the NUMBER of shares held in C plc?
In the event of a bonus issue, the number of shares held will increase but the cost remains the same. And, crucially, the percentage holding in the subsidiary also remains the same
So what entry are you looking to make?I think value of investment will increase for L plc,
L was holding 100 shares but now it has 150 shares, Will there be no impact on value of investment?
And dear sir
What if L sells 75 shares, then what will be the consequences?Another question, if L plc marks it as AFS ( Available for sale) then it will have to mark to the market, so Investment will increase in that case or not?
Your co operation is always appreciated 🙂
If we had 100 shares and the company has a bonus issue of say 1 for 2, then now we have 150 shares.
What do you imagine happens to the share price when bonus shares are given away?
Put very simply, if the share price BEFORE the bonus issue had been $3, then we held an investment worth 100 x $3 = $300
AFTER the bonus issue, the share price will fall (in theory) to $2. So now we have an investment of 150 shares x $2 = $300
The net assets of the company haven’t changed and there’s no new money / resources coming into the company
Is that bit clearer? The earnings per share topic touches on this – try reading the chapter on EPS
“Will there be no impact on value of investment?” – no, just explained that
“What if L sells 75 shares, then what will be the consequences?
The consequences are that they will dispose of half of their investment which cost them half of the amount paid for the original 100 shares
“if L plc marks it as AFS” – when an asset is classified as available for sale, it should be revalued to fair value. (Never ever seen this in a P2 exam!)
OK?
Thanks allllottt…
More clear now, I was having problem in my real audit assignment, so was confuse where to post, thats why I did two posts..
Thanks a lot again , Mike you are great 🙂
Regards
Hey! I might be great but have I just been used as an unpaid consultant for a real live audit problem? !!!!!
My invoice is in the post!
🙂
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