Asked by DIVYNE PERRIN on Apr 24, 2024
Verified
In August 20X6,Caesar Ltd acquired the issued ordinary shares of Alesia Ltd in a one-for-one share exchange.Immediately prior to the acquisition,the shares of Caesar Ltd and Alesia Ltd were being traded on the ASX for $12 and $10 per share respectively.Immediately following the offer to purchase the shares,the shares in Alesia Ltd were being traded at $13 per share.From this information,the cost of acquisition would be recorded at:
A) $12 per share since this is the market assessment of the fair value of the shares issued by Caesar Ltd.
B) $10 per share since this is the fair value of the shares of Alesia Ltd and thus a reliable measure of the fair value of the shares issued by Caesar Ltd.
C) $13 per share since the shareholders of Alesia Ltd have a choice between accepting the offer of Caesar Ltd or selling their shares in the market, and $13 per share is the most objective measure of the fair value of the shares in Caesar Ltd.
D) none of the above.
Share Exchange
A transaction where companies trade shares with each other to form a strategic partnership or complete an acquisition or merger.
ASX
The Australian Securities Exchange, the primary stock exchange in Australia.
Cost of Acquisition
The total expenses incurred when acquiring an asset, including the purchase price and any other costs associated with the acquisition.
- Acquire knowledge on the treatment of subsidiary investments in accounting and their influence on the parent company's financial disclosures.
Verified Answer
JM
Jolene MaciasMay 02, 2024
Final Answer :
A
Explanation :
CThe cost of acquisition should reflect the fair value of what is given up to acquire the new asset. In this case, Caesar Ltd issued shares valued at $12 each to acquire Alesia Ltd, which is a direct measure of the cost to Caesar Ltd. Additionally, the increase in Alesia Ltd's share price to $13 following the offer indicates the market's reassessment of Alesia's value based on the acquisition terms, suggesting that $13 per share could also represent the fair value of the shares in Caesar Ltd from the perspective of Alesia's shareholders.
Learning Objectives
- Acquire knowledge on the treatment of subsidiary investments in accounting and their influence on the parent company's financial disclosures.