Accounting entries for an incomplete acquisition

Didn't find your answer?

Hi..,

I recently joined a small manufacturing firm. They have two companies (Company A and B) with the same directors (2 directors). 

Company A was established about 10 years ago. What has happened was, the 2 directors have formed Company B to acquire Company A when they heard that the Company A is going to be sold by its former owners. So they have equally pumped in the money they want to buy company A into company B as share capital and then have bought 100% shares of company A through company B. This transaction has happened in the middle of the accounting year (01/09/2017). They haven't wind up company B, instead, it also continues as an active business entity.   

Since the date Company B (new company) bought Company A (old company), they have started to issue invoices from company B and asked the customers to pay into Company B's bank account. Similarly, all the payments have been done by Company B's bank account since the acquisition date. However, they haven't transferred the assets and liabilities from company A to company B. So up until 31/08/2017 all the revenue, expenses, assets and liabilities were recorded in company A, but since 01/09/2017 expenses and revenues have been recorded in company B, but assets still belong to company A. 

The directors want to continue with company A (old company) as it owns another foreign subsidiary. 

I think the best option is to transfer the assets of Company A to company B at book value as at 01/09/2017 (acquisition date). Could you please advice on the legal aspect of this and the best way to split Company A and B since the date of acquisition? From Companies House and HMRC point of view, I think both companies have to file accounts for this financial period as both businesses are ongoing. 

 

Thanks!

Sam

 

   

Replies (4)

Please login or register to join the discussion.

By johngroganjga
06th Aug 2018 16:54

If the assets haven’t yet been transferred, why are you considering preparing accounts on the basis of a fiction that they were transferred over 11 months ago. Accounts should be based on what occurred.

If there is to be a transfer of assets from the subsidiary to its parent, it will help anyone who wants to comment on the steps to be taken if you will detail the type of assets concerned. Do they include land or other assets that can’t be transferred by delivery? There must be at least one of those - A’s shareholding in its subsidiary.

Thanks (1)
Replying to johngroganjga:
avatar
By Sam Wije
06th Aug 2018 22:46

Thanks John,

A land, Building, machineries, furniture & equipment, stocks, debtors, creditors are the assets.

I think I need to make some entries between A & B to reflect the cost of sales in B correctly. Since company B has started invoicing and making payments since the date of acquisition while the inventories, debtors and creditors are still in Company A, company B does not show the correct cost of sales values.

In other words, company B started trading as a new company but selling and purchasing from the same customers and suppliers inherited from company A whereas the balances as at the date of acquisition are still in the book of company A. Also the production is done by the assets belong to Company A. So how do I get the cost of sales correct company B? That's why I thought to transfer assets and liabilities of company A to B. Is there a better way of doing this?

Thanks,
sam

Thanks (0)
Replying to Sam Wije:
By johngroganjga
07th Aug 2018 10:08

Surely after 11 months the debtors will all have paid and the stock will all have been sold?

Thanks (0)
avatar
By ols
23rd Aug 2018 17:07

Hi Sam
Have you considered raising invoices by A to B for the use of A land, Building, machineries, furniture & equipment etc.?

Thanks (0)