Question

For a corporation reporting under ifrs, when shares are issued for a non-cash consideration and are a ready market for the shares exists, they are recorded at:

a)zero
b)the fair value of shares
c)the fair value of the assets acquired
d) the average of the fair value of the shares and the fair value of the assets acquired

Answer 1

For a corporation reporting under IFRS, shares issued for non-cash consideration with a ready market are recorded at the fair value of the shares. The shares are not recorded at the fair value of the assets acquired nor at any average value.

Step-by-step explanation:

Recording Shares Issued for Non-cash Consideration

When a corporation issues shares in exchange for non-cash consideration under International Financial Reporting Standards (IFRS), and there is a ready market for the shares, the shares are recorded at the fair value of the shares. This is supported by IFRS 2, Share-based Payment, which requires transactions where shares are exchanged for goods or services to be measured at the fair value of the goods or services received if this can be reliably measured. If not, then the shares are measured at their fair value. In the case of a ready market existing, determining the fair value of the shares can indeed be reliable.

For example, if a corporation were to issue shares valued at $5,000 in a ready market in exchange for equipment, the journal entry would debit the asset account (equipment) for the fair value of the shares, which is $5,000, and credit the equity account (share capital) for the same amount.