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.