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Could somebody please explain to me how do we account for purchase consideration by a way of share exchange. Why do we sometimes record this as an increase in share capital of the parent entity and sometimes not ? How can I make the difference ?
e.g How and why do we record this : ABC acquired 30 milion shares in XYZ in excange for 75 iof its own ? Price of ABC shares is 1.6$, the same as nominal.HI,
I THINK ITS A BIT LATE NOW , ANYHOW I WILL TRY 2 EXPLAIN THIS,
THE IMPORTANT THING 2 CONSIDER HERE IS THE NOMINAL VALUE OF PARENTSS SHARE.
NORMALLY EACH SHAARE IS WORTH $ 1 BUT SOMETIMES ITS 25 CENTS & SOMETIMES 50 CENTS, YOU WILL HAVE 2 CHECK IT IN THE DRAFT STATEMENT OF FINANCIAL POSITION GIVEN.
APART FROM THAT PARENTS SHARE PRICE AT THE DATE OF ACQUISATION WILL ALSO BE GIVEN.
SAY ITS $4.50 WHILE THE NOMINAL VALUE OF PARENTS SHARES IS $1.
THEN EEVEERY ONE DOLLAR WILL INCREASE TH SHARE CAPITAL & REMAINING $ 3.5 WILL INCREASE THE SHARE PREMIUM OF THE PARENT.
IN YOUR EXAMPLE THE CONSIDERATION GIVEN BY ABC IS $1.6*75m = 120 m.
$ 1 * 75 m = 75 m WILL GO TO THE SHARE CAPITAL &
THE REMAININ $0.6 * 75 m = 45 WILL GO TO THE SHARE PREMIUM.
I HAVE ASSUMED THAT THE NOMINAL VALUE OF ABC SHARE IS $ 1.
I HOPE IT WILL BE HELPFULL 4 U.
REGARDS,
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