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Hello,
please could you see the following example:On 1 January 20X1 Branch purchase 75% of Leaf’s 80 mln shares. At this date Leaf’s retained earnings were $60 mln. The consideration given for Leaf was 2 Branch shares for every 3 Leaf shares purchased, plus a cash payment of $1 per purchase share. At the date of acquisition, the value of Branch share was $2.5 and the value of a Leaf share was $1.8
Net asset is solved by adding 80 000 share capital and 60 000 retained earnings.
I see in the example that 80 000 share cost $1.8, not $1 . Is this is mistake ?
Hi,
S’s share capital is 80 million at the par value of $1 each, and so this is used to calculate the net assets of S at acquisition by adding it to the retained earnings, i.e. 80,000 plus 60,000.
P’s share capital will change due to the P shares issued on acquisition of S. It will issue 40 million more shares (80 million x 75% x 2/3) at their market value of $2.5 each. So 40 million at par of $1 will go to share capital with the remainder going to share premium.
Hope that clears up the question.
Thanks
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