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Correct double entry for acquisition

Group accounting - acquisition

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I wonder if anyone can help me with this - its been a while since I've dealt with consolidation accounting!

My boss wants me to map out a company acquisition whereby we buy the trade of another company by taking on their assets and liabilities in return for...

  • £300K in consideration of exiting partners 
  • £200K in shares issued to transitioned partners

I'm assuming the shares issued are in the group company - would the double entry be Dr. Investments and Cr. Share Capital ?

Would the £300K be written off or classed as part of the investment?

What are the necessary adjustments on consolidation?




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10th May 2018 13:33

The debits don’t go to investments. You are not buying an investment - only assets.
What consolidation?
Tell your boss that if you buy a company’s assets you will be paying the company for them, not its shareholders.

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to johngroganjga
10th May 2018 14:12

...more information needed I guess.

It's a group of four companies - one holding and three subs. The shareholders own the holding company and the holding company own the subs.

The holding company is looking to merge with a separate company (that will become 'Sub4') by paying off exiting shareholders of Sub4. The remaining shareholders of Sub4 will be issued shares from the holding company.

I'm trying to map out the double entry. Presumably, all of the pre-merger shareholders in Sub4 will have their shares bought from them and the remaining shareholders will buy shares in the holding company?
...on that basis, I guess its - Dr. bank, Cr. Share Cap in the holding company and Sub4 is consolidated with no share capital?

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to Numberwang
10th May 2018 15:20


The more I look at this the confused I get!

The merger will occur between the external company and Sub1.
The holding company will then issue new shares to the value of £200K to the new shareholders (presumably the shareholders are paid £200k and they then buy the shares).
in addition to this Sub1 will have paid out £300k to the exiting share holders of the pre-merged company and will have incurred £77K in related legal costs etc.
How are these costs accounted for?

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to Numberwang
10th May 2018 15:39

Unless I have missed something in your two latest posts you have not retracted your original assertion that the acquiring company is buying assets not shares. If that is still the case my last response still applies.

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to johngroganjga
10th May 2018 15:51

What's happened previously is that the net assets of a company are merged with Sub1 and then the old shareholders of the merged company buy shares in the group company...presumably with the consideration paid to them from Sub1.

...somehow there appears to be goodwill arising on this within Sub1.
I'm not understanding how the goodwill gets there and whether or not the goodwll arises on the whole amount £577K or just parts of it?

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to Numberwang
10th May 2018 16:11

Let’s take this a stage at a time. Step 1 is that an existing subsidiary acquires the trade and assets of an unrelated company. Is that right? If so what consideration does it provide in return for what it acquires?

Then - what is Step 2?

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