Accounting entries to close of a company

Firstly, you need to consider the assets and liabilities the company has at the selling date (or close date). Sale price will be used to compare with the goodwill amount and any other assets included in the purchase agreement to work out the gain or loss on sale.

In New Zealand, there is no capital gain tax. Thus, gain or loss from sale of a business is a capital in nature and therefore, no tax to be paid on the gain and no loss to carry forward for loss.

There are three situations that could arise depending on the amount of good will (if any):

Goodwill amounts equal sales consideration

Dr Assets (if any)

Dr Bank (proceeds received, if any)

                Cr Goodwill

Goodwill amounts is more than the sales consideration

DR Assets (if any)

Dr Bank (proceeds received, if any)

Dr Loss on sales               

             Cr Goodwill

Goodwill amounts is less than the sales consideration

DR Assets (if any)

Dr Bank (proceeds received, if any)

             Cr Gain on sales  

             Cr Goodwill

Finally, you dispose of any assets, liabilities or any equity in the balance sheet.

Note: unless the business is sold as a going concern, you need to make some adjustment for GST when disposing of assets. 

Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.

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