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Thread: Change-over from Sole Prop to Close Corp - Pastel ExpressV14

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    Smile Change-over from Sole Prop to Close Corp - Pastel ExpressV14

    Hi
    After struggling now for weeks, with wrong decisions taken, I have now captured again all Supplier and Customer INV and CN and the Bank up to 28 Feb 2015 (In a Dummy company I copied from the SP and restored to mid Feb.2015).
    The CC was registered in March (year end 28 Feb 2016), year end Sole Prop: 28 Feb 2015.
    Unfortunately I cannot close the Sole Prop completely as we have contracts running and we are not able to change these.
    The next stupid decision I have taken: I asked the Bank to change/convert the existing Bank account to the CC. My accountant said this is not possible and legal, well, they did.
    I sent all Credit Applications out with the existing Bank Account as well as all Customer Invoices indicating the "old" Bank Account no.
    Then the Receiver requested another Bank Account number for the VAT and VAT Import Registration. (Which I thought I can use as "private" account for my husband, as the
    "old" one would be for the CC)
    I now decided to ask the Accountant ( reason: I am not sure how to process opening balances (1 March 2014) and I am sure there are a lot of allocation errors, not to talk about the Tax (VAT and VAT Import)
    to process my year-end for the Sole Prop and continue for the contracts (customers) and supplier invoices made out to the SP VAT number, which I will revert and book into the CC again. Question: How? by making out Credit Notes? Or for each Supplier Invoice I make out an identical Customer Invoice to the CC and vice versa?
    Can I do this also for the balances on 28 Feb. 2015 of the Suppliers and Customers of the SP, to balance the payments and deposits from the bank with the Customers and Suppliers and use the bank(s) with opening balances as from 28 Feb. 2015? This seems to be the most logical option for me, but I am neither an account nor very fly with Pastel, I might oversee something?

    Some advice would be highly appreciated, as I said in my introduction, the accountant either don't want, or doesn't have time to help me solving my problems.
    This might sound as if something is wrong with me: She is the third account in a year, after we decided after 18 years to use someone more professional than the accountant of the past 17 years. I cannot make a change again, I simply don't have the time. Those who've been through this (with CC's of which we have four now) will understand.

    This is too much information, but it's already the shortest explanation of the whole story...

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    Hi Maryke1

    It seems you are muddling the mechanisms of the accounting package with the legalities of the conversion. I suggest you try to grasp the legalities first then select the appropriate mechanisms to give effect the legal and tax position.

    The conversion is actually a sale and purchase. In effect, the CC has purchased the operation from the SP as a going concern, at book value. If you use the registration date of the CC as the effective date of this transaction, then your process is actually quite simple.
    1. Prepare the SP books up to the date of registration of the CC. Make very sure that everything is captured and correct.
    2. Make a copy or backup and restore the same data as the new CC.

    In the books of the CC, on the effective date, you now need to process entries that effectively removes the effect of historic entries prior to effective date. These are:

    3. Fixed assets: Debit the accumulated depreciation and credit the cost account with the balance of accumulated depreciation. What remains is cost in the CC equal to carrying value in SP.
    4. Debit the sales account with the amount of sales between 1 March and the effective date and credit the members loan account. Sales on effective date are now nil.
    5. Credit each of the expense accounts and debit the loan account in the same manner.
    6. Debit the retained income account with the balance on effective date and debit the loan account.
    7. Confirm that the Trial Balance on the effective date is nil for all income statement items, retained income is nil, and accumulated depreciation is nil.
    8. There might be provisions and or accruals, as well as personal assets in the SP setup that are not part of the CC; if that is the case just take them out to the loan account. Ones that come to mind is vat liability, tax asset or liability, and payroll liabilities; because these cannot be sold.

    That should be it. The advantage of doing it this way is that your debtors and creditors accounts still reflect the open items making up the balance and (if you ignore your journal entries as above) you still have a fair degree of history at your fingertips. Also, the balance of the loan account now actually represents the proceeds of the disposal, which equates the base cost which means nil capital gains.

    The trial balance will still reflect prior year balances, which is of course nonsense, but it really has no impact on anything as the effect has been removed in 6 above.

    If you do discover omitted entries down the line that effect debtors or creditors, enter them as normal and then remember to do steps 4 and 5 for them as well.

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    Thank you Clive! Muddling is correct!
    I checked the registration date of the CC: 12/02/2015. VAT registration effective date (indicated on the certificate) is however 01/03/2015. Can I work on this date?
    I have started invoicing my customers from 1/3/2015 from the CC, but invoiced also some (for the contracts mentioned) from the SP and I need to do this until these contracts are complete (Completion ?months plus Retention time: 12 months). If I carry on with the new entity in Pastel from the SP, will this still be possible (Invoicing as ...t/a....?) The SP Income tax will carry on, only the VAT, VAT Import, once these contracts are done (or is there another way?) and PAYE (sorted) can be "stopped".
    I have more questions, but if you could help me with these uncertainties (Maybe I did not get your point 100% with the conversion/restoring of the SP to CC) this will hopefully clarify the other questions. I can only say: Thank you! again.

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    I'd say the dates work out perfectly.

    Generally (this is a bookkeeping concern only) you have two choices:
    1. Start new books and bring in what needs to be brought in.
    2. Copy the old books and take out what needs to be taken out.

    The 2nd option will generally work out easier, because you retain the debtors and creditors open item information.

    Your contract sales however seem to be a glitch in that plan though.

    Commercially speaking, it is a conversion. But from a tax angle it is a disposal because the SP and CC are separate tax entities. However, there is nothing amiss with a disposal of an interest in contracts. The question is how will this sit with the customers? It is probably also too late to be thinking of that now, I suppose.

    Forgive me I am rambling somewhat ... Under the circumstances you might have to continue with those contracts as you are, and exclude them from the "disposal".

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