Assets Valuation for New Company

Accounting Entries 826 views 5 replies

Ashish Gupta

Financial Advisor

31 Points Posted on 10 February 2011

Background

ABC is a profit making entity have 800,000 USD as net worth and 1 million USD as healthy loan portfolio.

The new ltd Co name is being formed -XYZ with 100% ownership by ABC .

The Certified Valuer has indicated that conservative value of the net assets ( 800,000 $) of ABC is more than 2 times of net assets as it has profit making portfolio. The opinion is acceptable by both entity as

· board of both Co. Is same as on date and

· opinion has followed the market trend .

Questions are –

1. How XYZ , new company will take care of the premium payable to ABC which is certainly not through financial transaction

2. What will be paid up capital of XYZ after acquiring the net assets –

Option A . 1,600,000 USD or

Option B. 800,000 USD

Replies (5)

sivaram

Asst Mgr-Taxation

6918 Points Posted on 10 February 2011

Purchase consideration for ABC to be discharged by xyz will be on Fair value of the net Assets and in this case it should be 16,00,000 USD

sivaram

Asst Mgr-Taxation

6918 Points Posted on 10 February 2011

If Loan is a Liablity then Your Net Assets would be 15 Lacs USD and would be discharged by means of Equity Shares in XYZ for a consideration other than cash

Ashish Gupta

Financial Advisor

31 Points Posted on 10 February 2011

Originally posted by : sivaram
	Purchase consideration for ABC to be discharged by xyz will be on Fair value of the net Assets and in this case it should be 16,00,000 USD

Thanks for your reply but what will be the entries in the books of ABC and XYZ.

Please suggest...

Thanks in advance

sivaram

Asst Mgr-Taxation

6918 Points Posted on 10 February 2011

ABC Books will be closed and profit and loss is ascertained which will be transfered to Equity Shareholders

and XYZ incorporates the Purchase Consideration and the net Assets Taken over since only a part of the information is given i am not in a position to dictate Journal entries .If you so require I will Furnish You popular notes containing journal entries for the same