Share this content
4

Company Acquisition of Shares

Company Acquisition of Shares

Didn't find your answer?

I am currently preparing year end accounts for a parent company who acquired a subsidiary share capital for around £400k during the year. In addition to the £400k paid out plus stamp duty and legals the parent company also paid out a 'cash consideration' of the bank balances plus debtors less all identifiable creditors including trade, PAYE & VAT corporation tax and accruals to the vendor of the subsidiary at the completion date of around £80k.

What figure should be going into share asset investment of the parent company for the subsidiary acquisition. I presumed it was the £400k paid for the shares with the cash consideration being shown as intercompany loan account. The parent company took possession of the bank balances and collected in the completion date debtors and paid out completion date creditors as they fell due.

I presume legal costs and stamp duty should be capitalised as well with the share capital value above.

Conversely please advise what the accounting treatment would be for the subsidiary company also.

All help gratefully appreciated.

 

Replies (4)

Please login or register to join the discussion.

avatar
By BKD
17th Mar 2014 12:15

The whole £480k ...

... should be shown as cost of investment. Any 'collection' of cash/ debtors and payment of creditors should then be taken to loan account (mirrored in the subsidiary).

Thanks (2)
By johngroganjga
17th Mar 2014 12:20

Yes legal costs and stamp duty should be capitalised as part of the cost of the investment.

The cost of the investment before adding the above is clearly £480,000 as that is what you say the purchaser paid to the vendor.  The fact that £80,000 was variable with the net current assets (as defined) of the subsidiary at completion does not affect its nature.  The £80,000 would only be a loan to the subsidiary if it is was paid to the subsidiary, but you say it was paid to the vendor.

The only entries the subsidiary needs to make are in its register of members.  There are no entries required in its accounting records. 

 

Thanks (2)
avatar
By TerryD
17th Mar 2014 12:27

Agree

If the £80k is paid to the previous shareholder as opposed to the company itself, then I agree with BKD, but if it is paid to the company, rather than its shareholders, then the cost of the investment is £400k (plus legals and stamp duty), and the other £80k is for the hive-up of the net assets and so its credit cash, debit/credit the various assets/liabilities.

Thanks (1)
Replying to andy.partridge:
avatar
By DavidThrelfall
17th Mar 2014 12:33

Hi TerryD £80k was paid to

Hi TerryD £80k was paid to previous shareholders not the company.

Thanks (0)
Share this content

Related posts