Thank you for the breakdown John and Goodwill reasoning does make sense.
After thinking I was done with this, I am now confused about the sale of the trade and assets for £1. As it states they have bought them for £1 rather than them being hived up to the parent, so I believe I should dispose of these to the profit & loss and hive up the remainder of the balance sheet.
Thanks for your reply John. That's what I was trying to do, but struggling mainly on the issue of the share exchange for the sale of 100 shares of Company B in exchange for the 69,391 shares in company A. I have sought tax advice on this, to which they explained that the disposal/sale of the 100 shares would not be treated as a disposal but instead treated as being acquired at the same time Company B shares were originally acquired, for the same cost.
In Company A I have the following in mind:
Dr Investment 450,000
Cr Share capital 69,391
Cr share premium 380,609
Dr Net assets of Company B
Cr Interco
Then suggest capital reduction in Company B and dividend up the reserves clearing the inter-company accounts in both sets of books.
Company B is then worthless, so Company A should write down the carrying value of the investment to Nil in the P&L.
I would then do another capital reduction in Company A to release the high share premium account.
My answers
Thank you for the breakdown John and Goodwill reasoning does make sense.
After thinking I was done with this, I am now confused about the sale of the trade and assets for £1. As it states they have bought them for £1 rather than them being hived up to the parent, so I believe I should dispose of these to the profit & loss and hive up the remainder of the balance sheet.
Is this correct?
Thanks for your reply John. That's what I was trying to do, but struggling mainly on the issue of the share exchange for the sale of 100 shares of Company B in exchange for the 69,391 shares in company A. I have sought tax advice on this, to which they explained that the disposal/sale of the 100 shares would not be treated as a disposal but instead treated as being acquired at the same time Company B shares were originally acquired, for the same cost.
In Company A I have the following in mind:
Dr Investment 450,000
Cr Share capital 69,391
Cr share premium 380,609
Dr Net assets of Company B
Cr Interco
Then suggest capital reduction in Company B and dividend up the reserves clearing the inter-company accounts in both sets of books.
Company B is then worthless, so Company A should write down the carrying value of the investment to Nil in the P&L.
I would then do another capital reduction in Company A to release the high share premium account.
Is this correct or am I missing anything?