Discussion:Transfer of Assets Between Related Corporations
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Discussion Forum Index --> Accounting Questions --> Transfer of Assets Between Related Corporations
| 15 March 2008 | |
| Hello, I would like some help with acconting for the following issue. I have a client that is a corporation and they do computer programing consulting and sell computer software,which is internally developed. They started a new coporation to separate the service portion of their business from the product software portion of their business. Note the shareholders of both corporations are the same and so are their interest. I believe to account for this properly I would identify the assets, which are being sold to the new company and report in the new company the following entry Debit Assets Credit Common Stock. The old corporation, I would Credit the assets and I believe Debit investment in New Company. Note the new company is not going to transfer cash to old company for payment. In additon the old company does not have sufficient equity, so we cannot transfer their equity interest by a distribution. I believe the sale should be recorded at FMV, but the shareholders do not want to show a gain, and since all shareholders are the same we would like to transfer at book value the assets. My understanding this will have no tax cosequences in the end. | |
| March 16, 2008 | |
| ?? I don't follow why you are touching the equity accounts. | |
| 16 March 2008 | |
| I am touching the equity account in the new company as I am Debiting Assets, what would be my offsetting credt if not equity? If they purchased the company you would record the assets as debits and credit equity. What is the entry you are suggesting? | |
| March 16, 2008 | |
| Note the shareholders of both corporations are the same - this tells me that you are talking about brother-sister corporations. In that case I would expect one company to debit A/R and credit revenue and the other to debit expense (or fixed assets) and credit A/P. | |
| 16 March 2008 | |
| I agree with Natalie. Should be Debit to Assets Credit to Due to Co. A and then on the other set of books Debit Due from Co. B and Credit Revenue. | |
| 16 March 2008 | |
| So unless the new company was purchasing the assets with cash then it would be a Debit to Assets and credit to Equity (Common Stock) on the new books. Note the revenue on the old books will be a gain on that companies books and I believe it should be recorded as other income below all operating income as gain on sale of assets. Please confirm this correct. I am now concerned that this is a taxable transaction. Any additional thoughts. | |
| 16 March 2008 | |
| No, if it was purchasing the assets with cash you would debit Assets and credit Cash. | |
| March 17, 2008 | |
| Paula, I think it would be helpful if you outlined your question a little more. Use Company A and Company B, etc.
You should not be touching the equity accounts. If the assets being sold/purchased by one company to the other involve any kind of markup, then yes, you will have a taxable transaction on one side and some kind of expense on the other. | |
| 18 March 2008 | |
| I spoke with the AICPA regarding the transfer of assets between entities with common shareholders and they told me FAS 141 section D covered this issue. Note FAS 141 is for pooling and purchase of companies. The AICPA told me that between common owners the transfer will be transfered at book value and handled like a pooling. They instructed me to record the following on the old books Debit Due from new company (long term Asset) credit Assets and the New Company record Debit Assets and credit Due to old company (long term liability). Note the AICPA also told me I could record as follows if I did not record as above: Old company Debit Distributions (Equity) and Credit Assets and New Company Debit Assets and Credit Contributions (Equity). I opted for the first set of entries with the due to/due from accts as the old company did not have sufficient equity to take a distribution and transfer the equity as most assets were purchased by liabilities. I was instructed it could still be done, but you would have a negative equity position on the books of one company, which would not look good. | |
| March 18, 2008 | |
| I'm sure you explained your situation in a lot more detail to the AICPA than you have here. I'm glad you got an answer. | |
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