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Hi,
I did BPP exam kit and it not seems clear to me how to calculate share premium.
It’s the example 307 Paradigm.So they purchased shares in sub for 2 to 5 exchange.
subs share capital is 20mil 1$ each.
75% purchased – 15mil shares purchased.
15/5*2 exchange = 6mil of parent shares
2$ is market value of P shares
so total consideration is 12mil
share premium is 12mil less 6 mil shares*1$ per share which is 6mil.Initial share capital for parent is 40mil
share premium is 6mil
but the answer states that consolidated share capital is 46mil and 6mil share premium.
Where did extra share capital of 6mil came from?Should this 2 to 5 exchange be treated as new share issue and extra 6mil shares comes from that?
Hi,
Yes, the additional $6 million to share capital is because the parent has issued its own shares as part of the acquisition. In issuing $12 million worth of shares the following entry would be recognised in the books of the parent:
DR Investment $12 million
CR Share capital ($1) $6 million
CR Share premium (balancing figure ) $6 millionHope that clears it up for you.
Thanks
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