Convertible loan converted

How would you treat a convertible loan stock already converted to shares of an acquiring company

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How would you treat a convertible loan stock already converted to shares of an acquiring company before the year end of an entity, which is winding up, please? 

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By paul.benny
25th Oct 2023 11:48

I think you need to be a bit clearer with the question: which company's accounts; which company is winding up, etc.

And if one of the companies is winding up, presumably you're not preparing financial statements on a going concern basis?

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Replying to paul.benny:
John Toon
By John Toon
25th Oct 2023 11:57

All good points, but to answer the OP, simply in accordance with the accounting framework adopted by the holder of said notes

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Replying to paul.benny:
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By Fum
25th Oct 2023 16:16

Thank you all.

What has happened is that the original CLN was between the Company A and individual lenders and then when Company B acquired A there was a separate agreement (out of the ordinary) whereby they settled the loan on behalf of A by issuing shares to the individual CLN lenders.

So its not just the maturity or conversion of the CLN in the usual sense.

So my question is what journals to post to eliminate the convertible loan notes in the accounts to reflect the above transactions. If the company A is not to wind up, it would mean company A is now owing B, moving it to other creditors but at year end there shouldn't be any debtors or creditors in the accounts if all settled within the year. Or should the loan now be an investment from B in A in the form of shares or capital contribution ?

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Replying to Fum:
By Ruddles
25th Oct 2023 16:28

Why should it be more complicated than intercompany debt?

Company A:

Dr convertible loan £x
Cr Intercompany £x

Company B:

Dr Intercompany £x
Cr Share capital/premium £x

Job done

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Replying to Ruddles:
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By Fum
25th Oct 2023 17:22

Thanks, the entities are not related nor neither in a group, i think other creditors will be ideal for the intercompany above. Also as A is now winding up, further journals might be needed to clear the creditors? If partly settled in cash and shares

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Replying to Fum:
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By paul.benny
26th Oct 2023 07:13

Whilst you may not be preparing consolidated accounts, if B acquired A, why is it not a group?

You mention the loan notes being settled by issue of shares - is that shares in A or B?

What do the relevant agreements say? It would appear there is one agreement for acquisition of A by B and a second agreement for settlement of the loan notes.

Given that you're preparing the financial statements of A on a basis other than going concern, I suggest you prepare a balance sheet based on the actual/estimated realisible values of assets and liabilities and work backwards to determine the entries. And then see whether they make sense.

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Replying to paul.benny:
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By Fum
25th Oct 2023 16:18

No the financial statements are on non going concern basis

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By nrw2
25th Oct 2023 13:21

If it's already converted then it's now a straightforward shareholding rather than a convertible loan?

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Replying to nrw2:
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By Fum
25th Oct 2023 16:20

agreed, it would have been straightforward if it was in the same company shares but now its in a 3rd party company shares

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