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  • 1.  Purchase Acquisition and Book Entry

    Posted 12-09-2023 06:48 PM
    Hi,
    I have a client who purchased a company at the start of 2023. It was an asset-only purchase, so the liabilities of the previous company were not transferred over. However, the previous bookkeeper recorded the asset purchase AND the liabilities to clear the books as a "goodwill" transaction. Again, the liabilities should not have been recorded, and the new company was starting at a zero balance. Can anyone share how to correct, and/or, what should have taken place at the time of acquisition?

    Thanks,
    Ida





  • 2.  RE: Purchase Acquisition and Book Entry

    Posted 12-10-2023 09:29 AM
    Basically, debit assets and credit: cash, payables, debt and goodwill (to pick up market value gain).  Details will be more involved.

    Sledge
    Douglas A. Sledge, CPA Management Accountant
    Douglas A. Sledge, CPA, CGMA. CMA. MBA
    Certified Advanced QBO QuickBooks ProAdvisor
    256-443-1624

    Plan, Organize, Implement, Control.






  • 3.  RE: Purchase Acquisition and Book Entry

    Posted 12-11-2023 07:44 AM

    Hi Ida

    If the selling company did not want to transfer any liability, they should have cleaned up their balance sheet before the transaction and pass on to the buyer the zero liabilities balance sheet.

    You still have 90 days after the transaction date to correct it as per IFRS 2 and seller must accept these corrections. I am not sure how it is treated in US GAAP  though..

    If in doubt, you can hire a small audit firm which will review the case and give you detailed instructions how to book it properly. 

    Hope it helps 

    Thank you

    Regards

    Gulshat 



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    Gulshat Uspanova CMA
    Director/Manager
    Prague
    Czech Republic
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  • 4.  RE: Purchase Acquisition and Book Entry

    Posted 12-12-2023 07:55 AM
    I don't understand the company was purchased, only assets.
    Selling company should debit cash and credit assets (w depreciation), pay off liabilities and close company.

    Sledge
    Douglas A. Sledge, CPA Management Accountant
    Douglas A. Sledge, CPA, CGMA. CMA. MBA
    Certified Advanced QBO QuickBooks ProAdvisor
    256-443-1624

    Plan, Organize, Implement, Control.






  • 5.  RE: Purchase Acquisition and Book Entry

    Posted 12-12-2023 11:29 AM

    Idea, in my experience, in an asset purchase the current assets except for cash, long-term assets, and current liabilities are assumed and recorded.  Long-term liabilities are generally the responsibility of the seller, often paid off at the time of sale so that liens can be released and the underlying collateral transferred to the buyer.  In the asset purchase agreement, there could be exceptions that would override the normal accounting.  For instance, certain fixed assets may be personal in nature and therefore not included in the sale.  



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    Charles Langenhop CMA, CPA
    Chief Financial Officer
    Plano TX
    United States
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  • 6.  RE: Purchase Acquisition and Book Entry

    Posted 12-13-2023 02:50 PM

    IRS Form 8594 should have been completed at sale and incorporated into the PSA for both parties to use to close and set up books, has to be filed on tax return for year of sale/purchase



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    Laura Chalfant CMA, CCIFP
    President
    Conroe TX
    United States
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  • 7.  RE: Purchase Acquisition and Book Entry

    Posted 12-17-2023 10:13 PM

    Looks to me this is a Liquidation of a company, not an acquisition. So, the buyer of the assets only recieve and record the assets in his/her new company. The selling company is responsible for the liquidation process including settlements for the liabilites.



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    Best regards,
    Hadeel
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  • 8.  RE: Purchase Acquisition and Book Entry

    Posted 01-03-2024 11:42 AM

    Hi Ida,

    I realize that your question was posted nearly a month ago and see that some of the responses are not quite covering the question that you asked.  There are some nuances depending on the details of the transaction, but in general -------    At the time of acquisition on the acquiring companies side, the acquired assets are recorded at fair market value (presumably a market value assessment was performed in preparation for the sale).  The difference between the purchase price (which would equal your credit to cash and to any liability vehicle used to finance the purchase) and the total asset value would become goodwill unless it could specifically be allocated to intangible assets such as customer lists.  I believe if the purchase price is less than the value of the assets either the assets are adjusted down or equity is recorded but you would have to look that up based on the type of assets you are acquiring. 



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    Kelly Tomlin CMA, CPA
    Chief Financial Officer - Admiral Valve
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  • 9.  RE: Purchase Acquisition and Book Entry

    Posted 27 days ago

    Hi Ida,

    I know I'm late and I'm guessing that you have this handled, but feel free to contact me if you have any questions. I am a business valuation analyst, and I teach a class at a local university that has an introductory section on fair value for financial reporting. I'd be happy to answer your questions.

    Good luck.

    Ron



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    Ronald DiMattia CMA, CPA
    Executive Officer
    Corporate Value Partners Inc
    Cleveland OH
    United States
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