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accounting for share swap

accounting for share swap

An individual - Fred - owns company A Ltd. Fred swaps his shares in A Ltd for shares in B Ltd. B Ltd in turn becomes the owner of the shares in A ltd. No other consideration was involved.

I'm struggling to work out the accounting in B Ltd's balance sheet for the shareholding in A Ltd. Do I bring in the shares at NV or at MV, presumably with the other side of the entry to Fred? Or no double entry but just a note?

Having a bit of a brain freeze.

The companies are small.


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22nd Feb 2016 16:08

How can it be just a note when you have an issue of new shares and the acquisition of a new wholly owned subsidiary to account for?  And why would you credit Fred with anything in B's books?

You obviously account for the issue and acquisition at the issue price of the shares and the agreed purchase price of the shares in A Ltd (which two figures should of course be the same).  

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22nd Feb 2016 17:50

Have new shares been issued?

If not, then I'd say there are no accounting entries at the transaction date. You will have to consider consolidated financial statements though.

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22nd Feb 2016 17:52

We are told that there was a share for exchange so of course shares must have been issued!

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23rd Feb 2016 12:01

@ Red Leader [OP]

Whilst by no means certain, I assume that the only new Shares being issued are in Company B.

Perhaps an example [with assumptions as stated below] will explain the accounting entries.

Company A has an Issued Share Capital of £100, and a Profit and Loss Account balance of £900    [and thus £1,000 of Net Assets].
Company B has an Issued Share Capital of £100, and a Profit and Loss Account balance of £1,900 [and thus £2,000 of Net Assets].
Fred owns all the shares in Company A and [presumably also in] Company B.
Fred then sells his 100 Shares in Company A, to Company B, for the Net Assets figure of £1,000 [the consideration being met by Fred's being issued with £1,000 of Shares in Company B].

My "answers" would thus be:-

[1] Company A.
In the Accounts, there are no Accounting entries required [the 100 Shares previously held by Fred now simply being owned by Company B].
A Disclosure/Disclosures will presumably be required, in the Accounts, re the Share Sale.

[2] Company B.
Dr. Investment Shares [in Company A] - £1,000
Cr. Issued Share Capital -                       £1,000.
  The Company B "debits and credits" are effectively a consolidation of two transfers, ie:-

 [i] Dr. Investment Shares -   £1,000
    Cr. DLA [Fred]               -   £1,000.
 [ii] Dr. DLA [Fred]             -    £1,000
      Cr. Issued Share Capital - £1,000.
Again, a Disclosure/Disclosures will be required.

Given that the Investment Shares figures above is the Cost, then consideration is required to be given to the possibility of impairment.

One has to ask what the purpose of the proposed transactions is, of course.

​If I understand the second paragraph of JohnG's first post correctly, he interprets the question as implying that the proposed transaction will include a new issue of Shares not in Company B, but instead in Company A  - if John's interpretation is correct, then my example/assumptions will probably be rendered invalid, and my "answers" thus rendered incorrect.


EDIT. My closing paragraph above should be disregarded. Upon reading JohnG's post below, I have indeed misinterpreted  [I apologise for this] the second paragraph of JohnG's first post.  

For completeness, I thought it might be useful to the OP to set out my views of the position re Company A, even though the OP's question did indeed relate only to Company B. 

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23rd Feb 2016 08:43

The question is about the accounting in company B and my answer was solely directed to that end. I do  not understand why Basil thinks I believe that A is issuing new shares. 

I agree with Basil's entries, which are a no doubt helpful illustration of what I said should happen more succinctly in the second sentence of my first post.

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