XYZ Enterprises bought ABC Enterprises by issuing 30,000 ordinary shares of N1 each at a discount of 5%. The assets of ABC Enterprises are stock N18,000. De...
Question 1 Report
XYZ Enterprises bought ABC Enterprises by issuing 30,000 ordinary shares of N1 each at a discount of 5%. The assets of ABC Enterprises are stock N18,000. Debtors N11,000. Capital reserve was
Answer Details
Since XYZ Enterprises acquired ABC Enterprises by issuing 30,000 ordinary shares of N1 each at a discount of 5%, we can calculate the total value of the shares issued as follows:
30,000 shares x N1 per share x (1 - 5%) = N28,500
This means that the value of the shares issued is N28,500. We also know the assets of ABC Enterprises are stock N18,000 and debtors N11,000. Therefore, the total value of the assets is:
N18,000 + N11,000 = N29,000
Since the value of the assets (N29,000) is greater than the value of the shares issued (N28,500), there is a capital reserve. The amount of the capital reserve is the difference between the value of the assets and the value of the shares issued:
N29,000 - N28,500 = N500
Therefore, the capital reserve is N500.
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