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FO 18: When amalgamating companies are parties to financial arrangement
or “Financial arrangements when companies merge”
You could also call this:

“How to calculate money owed on financial arrangements when companies merge”

When a company joins with another company, they need to figure out how much money is still owed on their financial arrangements. This is called the outstanding accrued balance. Here’s how you calculate it:

You start with the money paid to the joining company for the financial arrangement. Then you add the money the company spent on the arrangement in past years, minus any income they got from it. You also add the money spent on the arrangement in the current year up to the day the companies join. From this total, you subtract the income earned from the arrangement in the current year and any money already paid for the arrangement.

The money spent and earned in the current year is worked out using a method the company has been using before, or a new method they choose. This new method must be one they could have used if the year had ended just before the companies joined.

This calculation helps make sure everything is fair when companies join together.

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Next up: FO 20: Calculation of outstanding accrued balance: amounts remitted

or “How to calculate the remaining balance when amounts are forgiven during a business merger”
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Part F Recharacterisation of certain transactions
Amalgamation of companies

FO 19Calculation of outstanding accrued balance: consideration for discharge

  1. In section FO 18(2)(a), the outstanding accrued balance is calculated using the formula—

    consideration + prior expenditure + expenditure accrued in year − income accrued in year − consideration paid.

    Where:

    • In the formula,—

    • consideration is the consideration paid to the amalgamating company under the financial arrangement:
      1. prior expenditure is the expenditure that the amalgamating company incurs less the income that it derives from the financial arrangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
        1. expenditure accrued in year is the expenditure that the amalgamating company accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
          1. if the amalgamating company was party to the financial arrangement in an earlier income year, using the spreading method it used to calculate income and expenditure under the financial arrangement in the income year; or
            1. using a spreading method that the amalgamating company chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
            2. income accrued in year is the income that the amalgamating company accrues from the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
              1. consideration paid is the consideration that the amalgamating company pays for the financial arrangement before the date of the amalgamation.

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