I have a client who has failed to process the completion journals for an M&A transaction where a 3rd party acquired my client, buying out the prior owner in full.
One journal has me confused; conterporaneous with completion a property asset was to be carved out of the balance sheet (to be held gfwd in a newco started by the vendor). The agreement was that the property would be transfered out at book value and paid for by the vendor out of proceeds from the sale. This was a non-cash transaction as the price of the acqusition was effectivley inflated to cover the property carve out i.e buyer agreed to pay the higher price but equity value/cash paid unchanged as vendor owed the business the same amount he was due to pay.
The incumbent accountant (12m later) has taken the property out of fixed assets but created a debtor from the buyer. In my opinion this is incorrect as the buyer doesnt owe the company, the vendor does. Because this comes down to the equity value of the completion balance sheet being reduced by the property transfer I propose to reduce reserves and credit the incorrect debtor. The balance effectivley being moved to buyer goodwill.
Can anyone advise if this is correct or if there are alternate ways the vendor/buyer should have accounted for the property transfer out of the company?