Company conversion features
If the formation costs are to be bourne by the company then the profit or loss on realization will be the same as the company then the new company (being the difference between purchase consideration and the net assets acquired)
If the conversion takes place partway during the year, then it is important to update the partner’s capital and current accounts before closing off the books of the partnership. This means that the trading profit and loss account for the year should be split between the two periods i.e. when the business was run as a partnership and when the business was run as a company.
The trading profit and loss account relating to the partnership period will include the profit and loss appropriation account showing how profits have been shared between the partners.
The trading profit and loss account for the company will also have the profit and loss appropriation but this time it will only be for dividends and retained profits that will be taken to the balance sheet.
The amounts due to the partners according to the balances in their capital accounts after making adjustments for profit or loss on conversion will be satisfied by payments made from the company in form of shares (ordinary or preference) and loan stock. The shares and loan stock will be shared between partners according to the some agreed ratio and the balance may be by way of paying or being paid cash.
However different approaches may also be use to close off the books of the partnership and preparing the opening balance sheet of the company.