- October 30, 2022 at 11:21 am #670305
How should one account for intercompany balance when there is a merger by acquisition at zero cost? 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?October 30, 2022 at 11:22 pm #670331
In terms of last question, in what would be acquirer’s accounts, it would be shown as a payable to the acquired organisation. One thing that sometimes confuses people is that individual accounts for entities still exist as well as consolidated group accounts.October 31, 2022 at 6:31 am #670351
But how can it be still show as payable to the acquired organisation if the acquired organisation no longer exists due to merger?. There is no consolidation as it is only one entity, being the company of the acquirer. Thus, how would such thing be accounted for in the accounts of the acquirer (no consolidation).October 31, 2022 at 10:18 am #670403
Can you give more details of nature of acquisition. There used to be accounting processes for merger but these were replaced long ago. My guess in the absence of other information is that payable and receivable would just be cancelled after control is established.October 31, 2022 at 1:00 pm #670411
So there is a merger by acquisation. 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?October 31, 2022 at 2:56 pm #670417
I would think the corresponding credit would be in the profit and loss.October 31, 2022 at 3:03 pm #670418
My reasoning would be a liability has been extinguished as a result of the acquisition merger.
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