Disposal of a sub purchased in share for share

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Hello all,

A holding company acquired a subsidiary via a share for share acquisition. Entries at the time Dr investments, cr share capital nominal value of shares and cr share premium balancing figure.

 

Due to a group restructuring, the net assets of the sub have now been transferred up to the hold co. Once a capital reduction is complete on the sub it will be wound up.

 

The investment in the sub must now be impaired. Is it appropriate to cr the investment and Dr the share premium created on the acquisition?

Or  does this need to go through profit and loss as I assume? In which case I understand a solvency statement will be required to transfer the share premium to p&l reserves?

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By nrw2
25th Mar 2023 09:19

Sub is an asset on parent's BS.

An impairment of sub is a charge to parent's P&L and does not touch the share capital on parent's BS.

If you also wish to transfer parent's share premium to distributable reserves this is a separate, unrelated transaction.

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By Ruddles
25th Mar 2023 09:32

What else is on sub’s balance sheet?

How were the assets transferred?

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John Toon
By John Toon
27th Mar 2023 10:11

If the trade and assets of the sub were hived up to the parent where's your goodwill? It's unlikely the investment is impaired but your accounting is wrong and you haven't transferred the goodwill balance from investments. Happens 99.99% of the time on hive ups

Once you've dealt with the above there may be some impairment to account for, but what is more likely is that this will be recognised once the capital reduction has occurred and subsequent reserves voted up to the parent. So P&L impact will be nil (assuming hive up was accounted for correctly)

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