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Hello sir I’m having a little trouble with this question.
On 1jan 2004 Plastik acquired 80% of the equity share capital of Subtrack. The consideration was satisfied by a share exchange of 2shares in Plastik for every 3 acquired shares in Subtrack. At that date of acquisition, shares in plastik and Subtrak had a market value of $3 and $2.50 each respectively. Plastik will also pay cash consideration of 27.5cents on 1jan 2005 for each acquired shares in subtrak. Plastik has a cost of capital of 10% per annum. None of this consideration has been recorded by plastik.
How do you know there is a share premium in this??
If you look at the equity share capital line on the face of the SFP of the parent then you will be able to see the par value of the parent’s shares, which is likely to be $1.
If the shares are issued at a price above this then the excess over the $1 will go to the share premium account.