Company A provides a service to company B. When payment is due B has insufficient funds to pay in full and so A agrees to accept part payment in shares in B. The shares have zero current value (B has negative net worth). Firstly, is the correct accounting treatment to recognise the face value of the shares in P&L as a sale and in the BS as an intangible asset and then to write down the asset to zero? Secondly, is the resulting impact on corporation tax zero?
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From what you say the issue price of the shares received by B was the value of the debt waived - but you don't mention what that was. To square the circle check that that was what was B's return of allotments said. A's purchase cost is obviously the same figure.
In A's books the shares are an investment, not an intangible asset. Yes you must make a provision for any diminution in value that has occurred.
The issue of the shares has no immediate corporation tax consequences. You don't mention what percentage of B's shares A is holding after this transaction. There may be corporation tax consequences in future of A's interest is a controlling one.
Sorry, but ...
I don't belive that the B shares have a 'zero current value'. Why would A accept the shares as settlement of its debt if they were? It would have been much simpler to write off the debt. If B is in such a bad state why has it not been placed in liquidation? The B shares must therefore have some 'hope' value.
Also are A and B connected in any way?
The question of the value of the shares is a distraction as it only arises when A's next accounts after the acquisition come to be prepared and its directors and accountants have to consider whether there has been a diminution in value that has to provided for.
Any provision for diminution in the value of the shares will not be an allowable deduction for CT purposes.
So as I said the issue of the shares will have no CT consequences, except that A will lose the opportunity to obtain a CT deduction by making a bed debt provision. The two companies account for the value of the sale when A invoices it. If A is VAT registered, and the supply is taxable, the debt will obviously include VAT.
Yes because it has chosen to take payment in kind (because presumably it considers that it is in its interest to do so) and find the cash to pay the tax (and VAT?) out of its other resources. It doesn't have to do this. It is exercising its choice to do so.