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accounting for purchase of business net assets by new legal entity

Hello,

I am trying to make sense of a situation which i have come into at the back end whereby some of the the business assets of one legal entity have been sold to a newly created legal entity as part of a group wide restructuring activity. No consideration was transferred by the new entity because it was decided that it would be waived through an intercompany agreement which would wipe out any i/c debtors and creditors. However, a fair market valuation was obtained in order to arrive at a purchase price of $30M so that the gain could be recorded in the seller's books. My question is how do i go about recording the purchase of the net assets - presumably i cannot allocate the $30M against the FV of the NA at acquisition and book goodwill? i am confused as in my studies there is always a parent co buying a sub and the treatment of the purchase is clearer.

Thanks

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01st Aug 2012 12:19

This is complicated and you need to consider specialist advice

This looks like you have a FV of $30M paid by Newco to Oldco via inter co loan.

Then Loan is w/o in the books of who? Newco or Oldco or both. There are tax considerations surrounding forgiveness of debt and Newco could be in line for a considerable tax bill, (group relief not withstanding) and the fact that USD seems to be the currency are there other cross border tax issues.

Hopefully you will get more detailed responses for other AWeb members more conversant with this.

 

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