Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows:
$\begin{array} { l l }
\text { } & \$000s \
\text { Paid up capital (5 million shares) } & 4000 \
\text { Retained profits } & 1000 \
\text { General reserve } & 1000
\end{array}$
Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held.
-What is the change in consolidation goodwill recognised in Cool Ltd's consolidated balance sheet as a result of this bonus issue?
A)Nil
B)$1.5 million
C)$1.25 million
D)$1.125 million

Question

Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows:
$\begin{array} { l l } 
  \text {  } & \$000s \
\text { Paid up capital (5 million shares) } & 4000 \
\text { Retained profits } & 1000 \
\text { General reserve } & 1000
\end{array}$
Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held.
-What is the change in consolidation goodwill recognised in Cool Ltd's consolidated balance sheet as a result of this bonus issue?
A)Nil
B)$1.5 million
C)$1.25 million
D)$1.125 million

Quizplus · Accepted Answer

The issuance of bonus shares does not affect the consolidation goodwill because it is merely a capitalization of reserves and does not change the overall net assets or the fair value of the acquired entity.

Cool Ltd Acquired 4 Cool Ltd Paid $6