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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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.
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.
Looks like the OP has been too busy to come back and explain further.
Or perhaps s/he has solved it without our assistance.
Sounds more like a demerger, in which case the accounting may be complicated and lots more info is required.
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.)