Thank you for your response. I am expecting to get the $30k back from the business once it generates income. What would be the journal entry for the business purchase? The other owner puts in $15K as revolving funds and i booked this as a loans payable to him. Is that correct?My understand is 20K is due to be paid back to you eventually, therefore “loan payable” of the business should be 20K (not 30K according to your above entries). So that 10K is the money you have input as the capital and buying the Goodwill (for becoming one of the owners of the business). Not sure whether you can find the existing owner’s capital amount on the business balance sheet?
I understand you have paid 20K+10K, the other owner has put 15K, have all of these money been put into the business bank account? If the answer is no, how much has been paid into the business account, and where’s the rest of the money? We can decide the debit side of “Cash” then.
As a corporated (Limited) company, the share capital under your name must be as same as the other owner’s, to achieve 50-50 control / ownership of the business. This is the reason why I was asking you to find out his(her) capital amount on the balance sheet of the existing business. There are journal entries to be done about this.
Also you need to make clear (for the 30K you paid) how much you want to use to invest into the business (for buying the license and become the shareholder of the business)—-for this part you will get paid through dividends in the future if the company becomes profitable; how much you want to lend to the business—-this is a loan that the business owes you, will pay back you. Please be aware that dividends you receive must be included into your personal taxable income for the purpose of income tax calculations, but not loan. Therefore when you say you will get paid 30K, you will need to make sure through which channel.
I was reading the above accounting free-for-all. So I want to join in hoping I can help.
Question for you : if you bought into the business for $20K and then hope to only get back $20K, where is the profit for you to repay you for putting $20K at risk? Or is it that after you get back $20K you still get to keep your 60% ownership?
If you want to discuss the acctg entries with me, I'll send you a private message. Sign in to the forum then click on the envelope at the top.
Hi Chun,$10k (from myself) and $15k (from the other owner) have been deposited to the business account as revolving fund and booked as loans payable. For the other $20k, these funds were used to purchase the business from the old owner. The business wasn't operating yet when I bought it.
Dr Cash—45000.00 (10K+15K+20K)
Cr Loan (you)—30000.00
Cr Loan (other owner)—15000.00
Dr Intangible assets—20000.00
This intangible assets (License) will be amortised over 2 years period through the straight line method.
The 60/40 ownership
Cr Capital (under you)—60.00
Cr Capital (under the other owner)—40.00
Both of you will need to put a couple of dollars into the business for setting up the business.
The loan payable to you
The above entries achieve that you can actually get back the money (30K) you loan to the business once it starts to make profits without any income tax implication.
I hope this can help you to resolve the problems.
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