Share this content
19

purchase of company by share purchase

Company a buys company b for £450k But sellers want £60k out of post completion cash

Didn't find your answer?

Company a buys company b by share purchase agreed price is £450k. Agreement states the balance sheet will be £30k cash £50k drs £25k crs. At completion £100 still in bank account which the sellars take from the bank account post completion ££60k  as they agreed to only leave £30k in the bank. Should this be accounted for in the post completion accounts and if so what are the entries or should it be treated as a pre acquisition final dividend for the sellers?  The agreed price of £450 has been paid with the necessary stamp duty etc

Replies (19)

Please login or register to join the discussion.

By johngroganjga
26th Nov 2019 10:46

If the cash was in the bank at the date of the completion accounts then of course it must appear in the completion balance sheet.

If the cash was withdrawn before that date it will be treated as whatever it was at the time - likely to have been a dividend, as anything else, such as a loan, is likely to have defeated the object of taking it out in the first place.

Thanks (0)
Replying to johngroganjga:
avatar
By WhichTyler
26th Nov 2019 11:10

I could be wrong, but are they asking if they should show a creditor for the excess over the agreed amount to make total bs come to the agreed total?

Thanks (0)
Replying to johngroganjga:
avatar
By Cm15221
26th Nov 2019 11:11

Thanks for that. Could you tell me what the entries in company b will be please. The £60k has been taken by the sellers but was not part of the agreed purchase price they should not have left this cash in the bank at completion date as the agreement was to on my leave £39k in the bank

Thanks (0)
Replying to Cm15221:
avatar
By Cm15221
26th Nov 2019 11:12

Sorry I meant to say leave. £30k in the bank not £39k

Thanks (0)
Replying to Cm15221:
avatar
By WhichTyler
26th Nov 2019 12:01

So at the completion date was there a (legal/contractual/moral) obligation to pay the extra cash over to the vendors?

That should inform the accounting treatment at completion and subsequently...

Thanks (0)
avatar
By JDBENJAMIN
26th Nov 2019 12:05

I find your question incomprehensible. Write it in grammatical English.

Thanks (4)
Replying to JDBENJAMIN:
avatar
By Cm15221
26th Nov 2019 12:42

I suggest you take a course on good manners

Thanks (0)
By ireallyshouldknowthisbut
26th Nov 2019 12:27

Id suggest you wait until your boss gets back, and let them help you with it.

No-one should expect a junior to sort out this stuff.

Thanks (2)
Replying to ireallyshouldknowthisbut:
avatar
By Cm15221
26th Nov 2019 12:42

Another participator who needs to take a course on good manners

Thanks (0)
Replying to Cm15221:
By ireallyshouldknowthisbut
26th Nov 2019 14:04

Really? I thought it was reasonable advice. I certainly would be unimpressed if my assistant wasted time trying to figure something like this out rather than churning out routine stuff that is much the same as the last year.

If you are the boss............then I think you are the one who needs a few courses. I recommend Frank Wood volumes 1&2 for double entry bookkeeping skills, and i think it also touches on the legality of dividends and other foundation level aspects which seem to have passed you by....

Thanks (2)
Replying to ireallyshouldknowthisbut:
avatar
By Cm15221
26th Nov 2019 19:40

When another experienced accountant leads you completely down the wrong track as was the case in this situation, you begin to doubt your own reasoning, despite knowing the answer all along. I thought this was the point of accountingweb, a friendly place to seek reassurance from fellow professionals . This was my first post and will be my last if this is typical of the help you get

Thanks (0)
Replying to Cm15221:
Psycho
By Wilson Philips
26th Nov 2019 20:09

You say that you knew the answer all along. In cases like that it is helpful and courteous to say what that answer is and why.

In this case, as I have suggested below, no-one here will know what the correct answer is (and thus able to offer the reassurance that you seek) in absence of the relevant facts - namely, the detailed terms of the SPA.

Thanks (0)
Replying to Wilson Philips:
avatar
By Cm15221
26th Nov 2019 22:25

Well I stand corrected if I didn’t phrase my question correctly or in enough detail on my first pass. Sadly as is the case everywhere these days, the world is full of nasty people. I will not be bothering this community again if these are the types that frequent it

Thanks (0)
Replying to Cm15221:
Psycho
By Wilson Philips
26th Nov 2019 22:35

It’s no different from any other Internet forum, particularly those that cost nothing to participate in. But you will find that there are those that are willing to help, provided that the questioner takes on board constructive criticism and responds to requests for further information.

Thanks (0)
Psycho
By Wilson Philips
26th Nov 2019 12:37

The SPA said that purchase price would be £450k provided that the Completion balance sheet was as above? What you need to find out is what the SPA says would happen in the event that the Completion balance sheet is not as anticipated.

Thanks (0)
Replying to Wilson Philips:
avatar
By atleastisoundknowledgable...
27th Nov 2019 08:07

Wilson Philips wrote:

The SPA said that purchase price would be £450k provided that the Completion balance sheet was as above? What you need to find out is what the SPA says would happen in the event that the Completion balance sheet is not as anticipated.

I suspect it will say the extra £60k (not £100k-£30k=£70k?) should be paid to the sellers w/in 7-14 days. I would imagine that it also included within the definition of the ‘purchase price’.

Thanks (0)
Replying to atleastisoundknowledgable...:
Psycho
By Wilson Philips
27th Nov 2019 11:22

That’s certainly what one would expect, but I’ve seen some odd, and badly-drafted, SPAs over the years.

Thanks (0)
avatar
By Tax Dragon
27th Nov 2019 11:17

It's impressive that they could control debtors; you'd have thought that managing the cash would have been the easy bit!

This is an odd thread all round - especially since (as Wilson notes) the OP knew the answer all along but didn't provide enough info for anyone else to be able to confirm or deny that answer.

Thanks (1)
Replying to Tax Dragon:
avatar
By Cm15221
27th Nov 2019 12:48

Yes sorry it was a bit confusing. My first post I should have phrased it better. I should have said I think I knew the answer which was for the sellers to declare a dividend pre acquisition, as the SPA had already been agreed at £450k with no further payment. However the completion accounts still had the £100k in the bank and the sellers were pressing the buyer into somehow accounting for the £70k they wanted back post acquisition. I didn’t think this was possible but wanted to pose the question. Meanwhile the sellers relented and realised the only was was to declare a pre acquisition dividend. The deal was rushed at the end as all parties were tired of all the confusion and wanted things finished

Thanks (0)
Share this content