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merging of two companies

two companies owned by holding co

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Please be kind - back from hols today and head is already aching

A holding company owns shares in two companies, both of which it purchased from separate individuals in the past - so let's say it paid £100k for the shares in company A and £50k for the shares in company B.

Holding co now wants to merge the two companies for efficiency purposes.

If the assets and liabilities of company B are transferred into company A and then B is struck off, does the original cost of the shares in the company B become a capital loss for the holding co or how does that work?  That seems too easy somehow...

Do we have to account for goodwill in the transfer (which is currently not recognised in any of the accounts)?  Presumably we could treat this as a group gain anyway so no atx on this amount even if we do.

Thank you for your help.

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By paul.benny
10th May 2021 16:48

I think you may be getting befuddled by mixing up entries in subsids, parent, and if you prepare them, consolidated accounts.

Start with A buying assets from B. Use the proceeds to settle the external liabilities in B. Then see what you're left with in B and find a way to clear those remaining balances - repay parent debt, pay dividends. That lets you see the residual value of your investment. You may have a loss which offsets the dividends

Goodwill only arises on consolidation. If you don't consolidate, you don't have goodwill in the balance sheet of parent.

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