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Share for share exchange - Accounting Entries

Share for share exchange - Accounting Entries

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I have a question regarding the following scenario. Much obliged if there are some Accounting Gurus out there that can confirm my double entries..

Scenario:

Company A = 100 shares of £1each fully paid up.

Shares were held by the following individuals

50 ord shares – Mr Y

50 ord shares – Mr Z

Mr Y died and company was valued at £300k.

Mr Z formed Newco H (Holding company was formed) 2 shares issued of £1 each.

Holding company acquire shares in company A:

£150k to estate of Mr Y (interest free loan over a period of 2 years) for his entire 50 shares

Mr Z – share for share exchange - 50 shares in Company A for 98 shares in Holding company.

What are the accounting entries in Holding company please?

My thoughts are:

Fixed asset investment £300k (debit)

Loan £150k (credit)

Share premium £150k less £98 (credit) £149,902

Share capital £100 (credit)

Cash £2 (debit)

Please note clearance has been given by HMRC for this transaction.

As the Holding company will be a micro company (FRS 105),  I believe that ;

Fixed asset investment can be held at cost (less impairment)

Interest free loan – no need to recognise at “present value of the future payments”

Any help would be greatly appreciated.

Michael

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By paul.benny
29th Jul 2019 09:19

The double entry looks right to me.

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