Hi All,
I'm having a rather dim day I'm afraid.
Sole trader incorporating business. Incorporation relief is being used so we are transferreing all assets and liabilities to the Ltd company except cash. So any cash that goes in will be Dr bank Cr DLA as it's a personal investment, but what's the balancing entry on the rest?
Two shares have already been issued in the Ltd Co on formation (nearly a year ago but dormant since then), one to sole trader one to his wife.
So obviously I Dr the assets and Cr the liabilities. Can the transfer be in return for the share the sole trader already has or do I need to issue some (or one) more? If the net asset value is £5000 and the share is a £1 share does the £4999 go to share premium? Or do I have to issue another £5000 shares - I'd like to stick with just the two we have to avoid having to transfer the shares from husband to wife (so as to even out the shareholding). I'm sure I should know the answer to this but for some reason just can't work it out today.
Thanks in advance for your help.
BG
Replies (5)
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DLA
Hi
The value of the fixed assets are sold by the sole trader to the company. So you would debit the fixed assets on the balance sheet at market value and the credit goes to the directors loan account.
Hope that helps.
Kind regards
Dave
Hi, I am in a similar situation and I have got as far as you have. I was thinking along the lines of a share premium account as this seems to be logical. If it goes to the DLA as a credit he is effectively receiving cash.
However I was thinking about a combination of the two, say £10k to DLA to take advantage of the CGT annual allowance plus the rest to share premium? This would mean in my head that £10k of the gain is being realized now.
I assume there are no issues with creating a minimal amount of goodwill to take advantage of the CGT AA as the rules seems to be more focused on people inflating goodwill to claim additional relief by w/o the goodwill (if created after Mar 2002).
However I am also not 100% as all the practices I have worked in have simply DR assets etc CR DLA!
Some thoughts would be much appreciated!
First response (DLA)
Applies only where business not transferred wholly in exchange for shares.
Existing shares (particularly where held for some time) cannot be said to have been issued in exchange for the business (how can you issue to yourself something that you already hold?). Any excess of value of shares issued over nominal value will go to share premium.