share buy back using sub + cash as payment

Holding company performed share but back using subsidiary (property investor) + cash as payment.

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Holding company performed a share buy back by disposing of a subsidiary and part cash. I need assistance with the accounting treatment in the holding company and consolidated accounts relating to capital reserves and the gain on disposal. The consideration for the shares was at a premium. 

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By paul.benny
05th May 2021 13:20

We need rather more information to provide detailed help with this. Essentially, though, the entries are
- credit cash
- debit share capital/share premium with the original issue price of the shares;
- credit capital redemption reserve
- debit retained earnings

I'm sure also that you consulted Part18 of the Companies Act to ensure the legality of the transaction.

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Replying to paul.benny:
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By Tax Dragon
05th May 2021 16:33

paul.benny wrote:

I'm sure also that you consulted Part18 of the Companies Act to ensure the legality of the transaction.

It's a worry isn't it? Hopefully the OP has misdescribed the transactions to some extent (or maybe that I have, as usual, misunderstood). If not... separate reminder: a return may be needed under s1046 CTA 2010.

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Replying to Tax Dragon:
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By paul.benny
07th May 2021 07:56

Looks like the OP has been too busy to come back and explain further.

Or perhaps s/he has solved it without our assistance.

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John Toon
By John Toon
05th May 2021 18:22

Sounds more like a demerger, in which case the accounting may be complicated and lots more info is required.

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Psycho
By Wilson Philips
07th May 2021 08:24

No-one has ever been able to confirm whether this is the legal position, but HMRC’s view is that a buyback must be wholly paid for in cash. Pretty safe to assume that they would not give clearance where there is a non-cash element. (But perhaps they did in this case - it would be interesting to know, but then again we don’t know the status of the seller.)

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