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Dividend in specie

Dividend in specie

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Company A has an investment in a subsidiary, B Ltd, stated at cost of £100 in its accounts. B Ltd has net assets of £500,000. If A Ltd distributes that investment to C Ltd as a dividend in specie, what would be the value of the consideration under current UK GAAP? In other words, would the dividend be £100 or £500,000 (with £499,900 being a profit on disposal in A's accounts, effectively putting £499,900 distributable reserves into C Ltd)? 

FRS102 seems to say the latter (fair value), but I can't find anything in current UK GAAP.

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By Justin Bryant
26th Feb 2015 11:17

If you have at least £100 of distributable reserves

Then I understand that it can be distributed at its £100 book value and then presumably the accounting treatment would follow that, but you should check that with a good company & commercial lawyer.

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Replying to Nefertiti:
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By Portia Nina Levin
25th Apr 2015 17:15

(No subject)

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By TerryD
26th Feb 2015 11:27

Thanks, Justin. Yes CA 2006 s. 845 certainly indicates there is no legal problem either way: so long as the consideration is at least £100, it counts as zero for establishing the lawfulness of the distribution. I was wondering whether the accounting could follow that or, as seems to be the case with FRS102, fair value (£500,000) would have to be substituted for the "actual" consideration.

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By Justin Bryant
26th Feb 2015 11:45

Portia
Just for your benefit, see link below for a classic case of an accountant not checking with a company lawyer re dividend law.

http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02242.html

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By Portia Nina Levin
25th Apr 2015 17:15

(No subject)

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By Justin Bryant
26th Feb 2015 12:04

Yes
Good tax lawyers often check things like this with good company lawyers. Again, for your benefit, there is lots of case law on accountants being sued for not checking things like this with a specialist.

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By TerryD
26th Feb 2015 14:48

Thanks guys,

but does anybody have any further views on the question?

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