Hi,
Any help on the below would be much appreciated.
Trading Company A was “acquired” by a new Holding Company B in a share for share exchange (1 ordinary share).
The value of Trading Company A can be reliably set at £200k
The question is: How should this be recorded in the holding companies accounts?
My thoughts are:
Option one:
DR Investment in subsidiaries - Additions £1
CR Share capital - Shares Issued £1
DR Investment in subsidiaries - Revaluation £199,999
CR P&L on revaluation of investments £199,999 (this unrealised gain would be deducted from the taxable profit for the CT600)
Option two:
DR Investment in subsidiaries - Additions £200k
CR Share capital - Shares Issued £1
CR Revaluation reserve on the balance sheet which would be named “Merger relief reserve” £199,999
Thank you for any help and opinions.
Archie.
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Replies (4)
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Option 2. But with the amendment that the £199,999 credit should go to share premium account.
Thank you for the reply. I wondered if it should go to Share premium but then I read the article at this ICAEW link which said it should not:
https://www.icaew.com/technical/practice-resources/running-your-practice...
Any thoughts very welcome.
I wasn't actually aware of the guidance you link to, so thank you for broadening my knowledge.
My response stands, though if you choose not to use the merger relief in Option 2.
As for your option 1, FRS102 para9.26 provides a number of options for accounting for the investment in the subsid. Be aware that if you chose a revaluation model, you'll have do that for all (present/future) subsids. And revisit periodically.
Ultimately, I see very little practical impact: the 'gain' is unrealised and I don't believe it become distributable on any presentation. You should consider whether there is any present or future tax impact for any of the parties. (Can't see why there would be, but it's not my expertise).