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Share for share exchange

Accounting for Share for share exchange transactions

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Company A owns 70% of company B (Cost £4.2m). Company C owns 30% of Company B (Cost £1m). Company A owns 100% of Company C (Cost £6m). Company A therefore holds 100% of Company B indirectly and 70% directly. Company A is desirous of acquiring the 30% of shares held by Company C in Company B by way of share for share exchange for shares held by Company A in Company C. Thereafter Company C will be struck off.

What would be the accounting entries in the books of the three companies.

 

 

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By The Dullard
18th Nov 2019 14:30

Clue 1: There are no book entries in Company B.
Clue 2: The current value of a 30% interest in Company B is needed.
Clue 3: It isn't a share for share exchange. It's a dividend!

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Replying to The Dullard:
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By Fatbrain
18th Nov 2019 14:44

Thank you. The current value of the 30% is £5.9m

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Replying to Fatbrain:
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By The Dullard
18th Nov 2019 14:55

So, something like:

Company C:
Dr Dividends paid £5.9m
Cr Investments £1m
Cr Profit on realisation of investments £4.9m

Company A
Dr Investments £5.9m
Cr Dividends received £5.9m

I think (gut feeling) the £4.9m profit (that hasn't really been realised) should be made undistributable in Company A in someway.

NB: For CGT* purposes, Company A takes the 30% at Company C's £1 million, plus indexation to 12/17.

* CGT is short-form for corporation tax on chargeable gains pedants.

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Replying to The Dullard:
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By Fatbrain
18th Nov 2019 15:33

The idea for 'share for share exchange' was not to have CGT liabilities crystalising currently. Any thoughts?

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By The Dullard
18th Nov 2019 16:06

My thoughts are that A, B and C are members of a gains group and A is not leaving the group after the transfer of shares. Assuming that A, B and C are all UK resident?

Edit: If you're going to persist with this "share for share exchange" nonsense, you're going to need to elaborate, because it either doesn't work or doesn't do anything useful, depending on the detail in the elaboration.

SSE might also be in point if A is not, in fact, UK resident as I had originally assumed.

Is C a trading company?

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By johngroganjga
18th Nov 2019 14:31

Why are you making it so complicated? Why does C not just dividend up its shares in B?

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Replying to johngroganjga:
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By The Dullard
18th Nov 2019 14:37

It can't actually do anything else. C will end up with shares in its parent company which would both:
- be unlawful at the point of issue, and
- then make striking C off rather stupid.

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Replying to The Dullard:
By johngroganjga
18th Nov 2019 14:47

I think the plan is actually a share buy back by C of some of its shares held by A. Note the words “for shares held by Company A in Company C”. That seems to be the consideration envisaged to be given. Not new shares in A to be issued to C.

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Replying to johngroganjga:
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By The Dullard
18th Nov 2019 15:04

I think less thought has been given to the plan than the desired outcome to be perfectly honest.

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