Financial Reporting and Ethics - The Institute of Chartered ...

FINANCIAL REPORTING AND ETHICSWhere liabilities are taken over, they form part of the purchase consideration.Such liabilities are debited to the liabilities account and credited to the newcompany’s account.3.6.1 Components of the purchase consideration accountLedger accounts are opened for each of the components of purchaseconsideration treated in paragraph 3.6 above.On settlement of the purchase consideration as agreed, the account ofeach of the components of the purchase consideration is debited whilethe new company’s account is credited.On distribution to the owners of discontinuing businesses, the sundrymembers account is debited and the account of each of the componentsof the purchase consideration is credited.The accounting entries necessary to close the book of discontinuingbusinesses being liquidated are summarized below.Dr. Realisation AccountCr. Individual Asset’s AccountS/No.Events Account to be DebitedAccount to be Credited1. Book value of the asset Realisation Account Individual Asset Accounttaken over by the companyat the date of cessation.2. Liabilities taken over by Individual Liability Account New Company Accountthe new company at thedate of cessation, (if partof purchase consideration).3. Agreed purchase New Company’s Account Realisation Accountconsideration (includingliabilities taken over).4. Realisation expenses Realisation Account Realisation expensespayable/creditors forpayable account/realisation expenses.creditors account forrealisation expenses.5. Portion of the realisation Liquidation expenses Bank Accountexpenses paid by the existingcompany being discontinued.6. Portion of the realisation Included in the purchase Realisation Accountexpenses to be paid by the consideration recorded innew company. (3) above. OR NewCompany’s Account7. Discount received from Creditors account Realisation Accountcreditors.8. Profit on realisation (this is Realisation account Sundry shareholders andto be derived)debenture holders account26