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How to record the purchase of shares in A by B?

Only require the 'Accounting treatment' of the purchase of shares of A by B, please, nothing else?

There are 2 companies A and B. Both are property management and property sales companies, i.e. estate agents and letting agents.

Company A has 1 director X and Company B has 3 directors X,Y and Z, X being the director in both companies.

Both companies have been operating from the same address, only difference being A dealt with property sales and B dealt with property lettings.

X has 100% shareholding in A and X, Y and Z own 1/3 shares in B.

On 31st May 2016, the following transactions happened;

*             Y bought the 1/3 shareholding of X in B for £1.50, and X resigned as the director.

*             B bought 100% shareholding of A from X in exchange for £80,000, payable to X over 3 years.

*             £20,000 cash was paid upfront to X by B through the bank, then 36 monthly instalments of £1111.11 are being paid also through the bank and £20,000 payable to X by B in May 2020 only if the lease of the shop is extended.

*             At the date of acquisition A had no assets and around £17,000 in liabilities (other creditors) and had a loss in the last trading period.

Questions are ;

1.            How do I treat the investment in A by B of £80,000 in B's final accounts?

2.            How do I treat the money paid to X by B until now?

3.            How do I treat the money that will be paid in the next year (creditors < 1year) and in the coming years (creditors > 1 year).

4.            Since the acquisition of A by B, B is now a dormant company. Dormant company accounts have been filed for the year ended 31.03.2017. Do I have to produce consolidated accounts for B even though A is a dormant company?

My assumptions are;

1.            A is a subsidiary of B.

2.            Investment of B in A will be shown as an asset in the form of either 'Investment in participating interest' or 'Shares in group undertaking. I am not 100% sure though or whether this needs to be treated as Goodwill?

3.            Originally the £80,000 payable to X in exchange for all the shares in A will be treated as creditor. £20,000 initial payment and all the subsequent payments of £1111.11 will be credit bank and debit creditor up until all the amount is settled.

4.            Pro-rata the amount payable over the next year as creditor < 1 year and the remaining as creditor > 1 year in the balance sheet.

Not looking for tax implications for the shareholders/directors, just the accounting treatment.

Please advise.



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23rd Sep 2017 12:04

Another anonymous question.

How is B dormant in the year to 31 March 2017 when all this took place on 31 May 2016?

B is - at best - a microentity.

Thanks (0)
By easetax
to lionofludesch
23rd Sep 2017 13:31

Apologies, error on my part.

Thank you for pointing it out.

A is dormant company since the acquisition by B. B is trading.

A previously made accounts up to 31st May but since the acquisition the accounting period has been changed in line with B, which is now 31st March.

My question is mainly, how the purchase of A's shares will be treated in B's Balance Sheet? &
How will the amount payable to X be treated in B's Balance Sheet.

Thanks (1)
23rd Sep 2017 13:34

1. The shares in Company A purchased by Company B will be in investments in Company B's balance sheet. Why is that not obvious?

2. As a reduction of Company B's liability to X in respect of its purchase of his shares in Company A. Why is that not obvious?

3. Yes of course Company B's unpaid liability to X will be in creditors.

4. You need to check the size criteria for the requirement to prepare group accounts, but all the indications from what you say are that the group will be exempt on grounds of its size. Company B was plainly not dormant in the year ended 31 March 2017.

Thanks (1)
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