I/C payables to acquired business

I/C payables to acquired business

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All within a group of companies:

Company A had Eur 100 payable outstanding  to company B at 31 Jan 2020 (intercompany)

At 01 Feb company B acquired the business trading assets and liabilities of company A for Eur 800

How would you treat the Eur payable 

would you settle it against the purchase price I.e. let's say net assets in company A are Eur 300 

would the accounting be 

In company A:

Dr 100 payable to B 
Cr 400 BS 

Dr 800 Bank

Cr gain on sale 500

in company B

Cr 100 receivable to A
Dr 400 BS 

Cr 800 Bank

Dr loss on sale 500

in A 

many thanks

Replies (7)

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Psycho
By Wilson Philips
17th Jun 2020 21:41

If company B is making a purchase how can it have a loss on sale?

Exam question?

Thanks (0)
paddle steamer
By DJKL
17th Jun 2020 22:21

In company B I would have

Dr Goodwill 500
Dr Net Assets acquired 400
Cr Debtors ( to a/c Co A) 100
Cr Bank 800

I then net the debtor I originally have against the credit to my SLCA (self) I acquired within my new sales Ledger

Thanks (1)
Replying to DJKL:
Psycho
By Wilson Philips
17th Jun 2020 22:42

There’s a presumption that the fair value of A’s net assets approximates to the carrying value in the accounts. What if they’re actually worth 800?

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Replying to Wilson Philips:
paddle steamer
By DJKL
17th Jun 2020 22:54

I relied upon "lets say". Given the initial suggestions from the OP I suspect a less nuanced answer may more assist them rather than a discussion surrounding the £300.

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Replying to DJKL:
avatar
By qwertyqwerty05
18th Jun 2020 07:52

Ah yes, of course, offset goodwill. Thanks. Are the Companies A entries ok? The key point I wanted to check if whether I can/should use the consideration price to offset the payable / receivable balances when recording the acquisition accounting entries. Thanks

Thanks (0)
Replying to qwertyqwerty05:
paddle steamer
By DJKL
18th Jun 2020 11:54

Selling company has:

Dr Bank 800
Cr Net assets sold 300
Cr Disposal proceeds( re what is probably goodwill )500

Thanks (1)
Replying to DJKL:
avatar
By qwertyqwerty05
18th Jun 2020 15:20

Would/can the selling company then consider the payable they had with company B the day before the sale (the Eur 100 payable), is now considered settled on date of the sale? Thanks , and no further transfer of cash is required? (In principle ?)

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