ACON lTD ACQUIRES THE ASSETS AND ASSUMES THE LIABILITIES OF BIRD LTD WHICH HAVE OPEN MARKET VALUES OF A
Assets $120,000 Liabilities $15,000
Acorn is to issue a debenture of $50,000 and 10,000 $1 Ordinary shares for the balance of consideration.
What will be the credit to the share
premium account in the books of Accorn LTD.
A$45000 B $55000 C $60000 D $95000
To determine the credit to the share premium account in the books of Acorn LTD, we need to calculate the value of the debenture and the ordinary shares issued as part of the consideration.
First, let's calculate the value of the debenture:
Value of debenture = $50,000
Next, let's calculate the value of the ordinary shares:
Value of ordinary shares = Number of shares * Par value per share
= 10,000 * $1
= $10,000
Now, let's calculate the total consideration in the form of the debenture and the ordinary shares:
Total consideration = Value of debenture + Value of ordinary shares
= $50,000 + $10,000
= $60,000
The credit to the share premium account will be the difference between the total consideration and the open market value of the assets acquired:
Credit to share premium account = Total consideration - Open market value of assets
= $60,000 - $120,000
= -$60,000
Since the credit to the share premium account is negative, the correct answer to the question is:
D. $95000
Please note that it seems there might be an error in the given information or calculation because the credit to the share premium account cannot be negative.