Being thick - transfer of stock on incorporation

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Gem7321
Gem7321 Registered Posts: 1,438 Beyond epic contributor 🧙‍♂️
in General accounting discussion
Hello all

I think I'm overthinking this. Sole trader is incorporating and taking closing stock to the new company. I understand joint s.178 election to be made to transfer the stock at cost.

But I'm struggling to get my head around the accounting double entry. Do I leave the closing stock value on the sole trade cessation accounts (so sole trade taxable profit is up - but tax relief received by co. and therefore tax neutral) or do I remove the closing stock from the sole trade? It seems if I do this the tax relief will be received twice?

Speak slowly please! It's been a long day :#

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  • Gem7321
    Gem7321 Registered Posts: 1,438 Beyond epic contributor 🧙‍♂️
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    Anyone? Thank you!
  • MarieNoelle
    MarieNoelle Registered, Moderator Posts: 1,368
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    Hi Gem
    I'd say that the purpose of the election is that no profit arises on stock in the sole trader's accounts at cessation. So you recognise the transfer at cost in the cessation accounts (there is no tax relief as such but the transfer is neutral).
    The company acquires stock at cost which may be lower than market value, hence a potentially higher profit when selling the stock (taxed at the 20% CT rate as opposed to possibly higher rate of income tax for the sole trader).

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