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Dear Professor, pls don’t get put off by the lengthy nature of the question. This question is very important for my understanding.
“Aron held 3% holding of the shares in Smart, a public limited company. The investment was designated upon recognition as fair value through other comprehensive income and as at 31 May 20X7 was fair valued at $5 million. The cumulative gain recognised in equity relating to this investment was $400,000. On the same day, the whole of the share capital of Smart was acquired by Given, a public limited company, and as a result, Aron received shares in Given with a fair value of $5.5 million in exchange for its holding in Smart.
The company wishes to know how the exchange of shares in Smart for the shares in Given should be accounted for in its financial records.”
Professor the answer in my study text is complicated. Can you explain where exactly should the gain of $0.5m be recoded and why?
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