M Ltd. acquired assets worth Rs. 4,50,000 from N Ltd. by issue of shares of Rs. 10 at a premium of 20%. In this case, how many shares shall be issued by M Ltd. to settle the purcha... M Ltd. acquired assets worth Rs. 4,50,000 from N Ltd. by issue of shares of Rs. 10 at a premium of 20%. In this case, how many shares shall be issued by M Ltd. to settle the purchase consideration?
Understand the Problem
The question is asking how many shares M Ltd. needs to issue to settle the purchase consideration of Rs. 4,50,000, given that each share has a face value of Rs. 10 and is issued at a premium of 20%. This requires calculating the effective issue price per share and then determining the number of shares based on the total value of assets acquired.
Answer
M Ltd. shall issue 37,500 shares.
Answer for screen readers
M Ltd. shall issue 37,500 shares.
Steps to Solve
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Calculate the Premium Amount
The premium on each share is 20% of the face value of Rs. 10.
[ \text{Premium} = 20%\ \text{of}\ 10 = 0.20 \times 10 = 2\ Rs. ] -
Determine the Effective Issue Price
The effective issue price per share is the sum of the face value and the premium.
[ \text{Effective Issue Price} = \text{Face Value} + \text{Premium} = 10 + 2 = 12\ Rs. ] -
Calculate the Number of Shares Needed
To find the number of shares to issue, divide the total purchase consideration by the effective issue price.
[ \text{Number of Shares} = \frac{\text{Total Purchase Consideration}}{\text{Effective Issue Price}} = \frac{450000}{12} = 37500 ]
M Ltd. shall issue 37,500 shares.
More Information
The calculation for the number of shares issued is essential in corporate finance, especially when settling large transactions like asset purchases. By issuing shares, companies can leverage their equity instead of using cash reserves.
Tips
- Miscalculating the premium or effective issue price can lead to incorrect results.
- Forgetting to convert percentage values into decimals when doing calculations.
- Not ensuring the total asset value is correctly divided by the effective issue price.
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