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Morning Mike,
This is from open tuition notes chapter 9 page55.
A very famous example Ausra and Danute.
Ausra bought 75% of Danute 50c equity shares.–the calculation for share capital.
the question says “For every 3 shares acquired Ausra issued 1 new share”
the value of Ausra $1 equity shares on doa is $4.30for share capital calculation: 75% x 40,000 x 3/1 x 4.30
for every 3 shares ausra issued 1 share so : 3/1But answer says it 75% x 40000 x 3/2 x 4.30
Please can you explain why is it worked this way.
Thanks
“For every 3 acquired, Ausra issued 2” means that Ausra issued 75% x $40,000 (worth of 50 cent shares) divided by 3
But because they’re 50 cent shares we need to multiply $40,000 by 2 to find the number of shares
So now the calculation becomes 75% x $40,000 x 2 x 1/3
And that becomes 75% x 40,000 x 2/3
Note! An issue of “for every 3 Ausra issues 1” means DIVIDE by 3 and multiply by 1 (and NOT as you have written “multiply by 3 and divide by1”)
Then, finally, we need to multiply by the market value of the Ausra shares giving us the line:
75% x 40,000 x 2/3 x $4.30
OK?
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