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.

Question

Quizplus · Accepted Answer

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.

In August 20X6,Caesar Ltd Acquired the Issued Ordinary Shares of Alesia