The correct answer is: A. Direct effect on the consolidated balance sheet
Bonus shares are shares issued by a company to its existing shareholders without any additional payment. The number of shares held by each shareholder increases, but the total value of their shareholding remains the same.
When bonus shares are issued out of pre-acquisition profit, the consolidated balance sheet will be affected directly. This is because the pre-acquisition profit will be used to increase the share capital of the company, which will in turn increase the total assets and liabilities of the company.
The consolidated net profit will not be affected by the issue of bonus shares, as the total revenue and expenses of the company will remain the same.
Here is a brief explanation of each option:
- Option A: Direct effect on the consolidated balance sheet. This is the correct answer, as explained above.
- Option B: No effect on the consolidated balance sheet. This is incorrect, as the consolidated balance sheet will be affected directly by the issue of bonus shares.
- Option C: No effect on net profit. This is incorrect, as the consolidated net profit will not be affected by the issue of bonus shares.
- Option D: None of the above. This is incorrect, as option A is the correct answer.