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How should one account for intercompany balance when there is a merger by acquisition at nill consideration? The company that is being merged only has a receivable from the acquirer in it’s balance sheet. Thus, how should this be accounted for in the acquirer’s financial statements at acquisition date?
It can no longer be shown as payable, as the company being acquired no longer exists. Moreover, there is no consolidation accounting, as it is just one entity with no group structure.Hi,
If we have control of the subsidiary then the intracompany balance will be eliminated as normal by removing the intracompany receivable and payable.
Thanks
But if there is a merger by acquisation, there is no subsidiary, as the company no longer exists after merger.
Example, company A acquires all assets and liabilities of company B. Upon the said merger becoming into effect, company B will be struck off from the registry and it will no longer exist. The consideration for this merger by acquisition is nil.
No consolidation accounting was previously being done as both companies do not have any investment in subsidiaries and also they are both limited companies. As as the merger date, company B only had a receivable from company A in it’s balance sheet. Thus, the only entries in company B’s balance sheet were:
Dr receivable (from company A)
Cr Odrinary Shares
Cr retained earnings.After acquisition date, this need to be recorded in the single entity (individual accounts) of company A (to account for the merger).
Before any adjustment entries for the merger are made, company A has a payable to company B. Post merger, what should the double entry be in the separate accounts of company A? Debit the payable (as the supplier no longer exist) and where should the credit entry be?
Should it be that inrercompany balances are eliminated, i.e. Dr payable, cr receivable, and the reserves of the company that is being merged going to the merger reserve?
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