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Limited company shares acquired but no cash changed hands?

Limited company shares acquired but no cash...

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I'm a little confused, so hope you can help.

If limited company 'A' acquired 1000 shares from another limited company for, say £50,000.00, but no cash changed hands, would limited company 'A' have to show that £50,000.00 as an Investement within their Balance Sheet?  If so, considering the fact that 'no cash changed hands' what exactly would be the credit entry?

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Euan's picture
By Euan MacLennan
29th Aug 2012 14:47

It is not confusing

Obviously, it would be CR "another limited company" £50,000 to match the DR "Investement" £50,000.

Or have I not understood your question?

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Replying to blok:
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By james burton
29th Aug 2012 15:59

Whilst further details have been requested, it currently appears that the shares were given as 'a favour', for advice, mere 'influence' in obtaining business deals and personal support given by director of company A to the director of the other company over several years.  Hence why no cash exchanged hands for the shares to company A (which are likely to be sold at a considerable profit in the near future).

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By blok
29th Aug 2012 17:00

.

credit entry might be turnover if that is the case.

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Replying to Casie:
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By The Limey
29th Aug 2012 17:24

NO!

blok wrote:

credit entry might be turnover if that is the case.

 

No. No. And again, No.

 

If nothing was paid for them, then they have no cost on the balance sheet.

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By blok
29th Aug 2012 20:22

.
Ok. Ok. And ok again.

Please enlighten me, im here to listen.

Say i agree to prepare accouts for compay A, i agree a fee of 5000.

Say then company A cant or wont pay. But instead offer 10 shares in their company.

What is my accounting entries for the work done and the acquisition of the shares?

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Replying to Chris Mann:
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By The Limey
30th Aug 2012 08:27

Different circumstances

blok wrote:
Ok. Ok. And ok again. Please enlighten me, im here to listen. Say i agree to prepare accouts for compay A, i agree a fee of 5000. Say then company A cant or wont pay. But instead offer 10 shares in their company. What is my accounting entries for the work done and the acquisition of the shares?

 

Assuming from the fact pattern described then Revenue would be OK (as you had provided your normal goods or services) in exchange for the right to receive consideration. Your right was to receive £5,000 which you gave up to receive the shares and is therefore the cost of the shares (note you'd have to have charged output VAT on those services...). The Companies Act requires all assets to be initially recognised at cost, so recognise them at £5,000. However, if the company can't pay you I'd suggest there is grounds to impair.

 

 

But that's not the circumstances desribed by the OP! They were received as a "favour" and no right to receive consideration was given up. There is no cost, and therefore should not be entered at a cost. I do note however that somebody must have paid the share capital on those shares.

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By blok
30th Aug 2012 09:30

.

sorry I dont see a big difference between my example and the OP.

"if the company can't pay you I'd suggest there is grounds to impair".

I dont get that, its contradictory to the suggestion that we recognise the income and the asset.

The consideration given for the work/favour was shares as opposed to cash. 

The fact that someone paid for the shares originally is also not relevant.

 

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