18 January 2011
Dear Sir, I have query relating to management change of PVT. LTD. CO. The case is as follows: A Pvt. Ltd. company is controlled by a family group say " x " by holding share capital, now this company is taken over by another family group say " y " by transfering all the shares in the name of y group and paid a purchase consideration to x group. In the terms of takeover y group not taken over the unsecured loans of x group and some creditors standing to the balance sheet. Now my question is, what entries to be passed in the books of accounts to wipe of unsecured loans and creditors. According to my knowledge the balance sheet should be talied by giving effect of Capital Reserve or Goodwill as the case may be after considering the Purchase consideration. ( as we do in the case of Amalgamation ). But i am not sure about this treatment because it is not amalgamation or absorption or combination. it is just a change of management. If it is the case then, wheather the Unsecured loans and creditors not taken over by the new management should write off to profit and loss account and to book the profit ? If there are earlier losses in the balance sheet then can we set off the profit arising from writting off the unsecured loans and creditors against this brought forward loss ? Wheather the brought forward loss will be allowed to new management as per Income Tax Act ? Please suggest suitable action. Rajesh Heda Aurangabad
20 January 2011
Dear Rajesh, First of all i would like to submit that it is not possible to takeover a company without any balance sheet line item. You also can not write off the same with any profit or reserves. Better is you must bifurcate purchase consideration as under:
Like total PC is 100 Lacs and UL are of 20 Lacs and Crs are of 45 Lacs then pay x group only 35 lacs as PC which is diffrence of trice. Then repay UL of x group of Rs. 20 lacs and Crs of 45 Lacs through company. by this way x group final got amount of deal which is decided and all liability will also squreoff from balance sheet. If u will not pay them payment of UL or Crs both have legal right against company to claim the same and after paying full consideration to x group have will have to pay UL and Crs also. to save your company from legal suits.
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