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+--- Thread: Purchase of a new company (/showthread.php?tid=2556)
Purchase of a new company - Jacquie - 10-14-2005
My company has been purchased and the General Ledger has been reset to zero. Then the GL starting numbers were set with the assets and Liabilities and the loans taken to pay for the business was entered.
My question is how do you post in the GL the purchase price of the company and the payments made to the seller? Granted the loans were used to pay the seller how our books do not show a payment for the purchase?
How should this have been entered correctly?
Jacquie !!)
- CBPian - 10-14-2005
It is a basic accountancy question
In company's books, you cannot show the purchase transaction as the transaction relates to the owner or holding company not the (purchased) company. The books of the company show the share capital of the company at all times. So you are incorrect, in so far, as to say that the GL is zero as there will be assets and liabilities at all times however small. (e.g. cash and corresponding owner's equity/share capital).
In the books of the buyer which is let's say holding company, you will have the purchase price of the company as the investment balanced by corresponding payment. If there is a different between the fair value of the net assets of the company and the purchase price paid, it will be treated as goodwill... although its altogether a separate discussion.
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