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Accounting Treatment for issuance of shares and warrants for purchase of goods

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Atul

Student

3 Points Posted on 02 July 2024

Company A (buyer) enters into agreement with Company B to buy certain goods worth $1M. Company A issues shares worth $1M and warrants worth $0.5M to Company B. The cash received by Company A by issuing shares and warrants to Company B are utilized to make payment to Company B to purchase tools to manufacture products to be sold to Company A.

Questions:

1. What should be the accounting entries in the books of Company A for issuance of shares and warrants and also for payment made to company B considering production has not started yet at the end of the financial year. 2. What should be price at which shares are recorded considering Company A is not listed?

Replies (2)

Quick Summary

This discussion explores the complex accounting treatment for Company A, which issued shares and warrants to Company B in exchange for goods. The core questions revolve around the correct accounting entries for the share and warrant issuance, and the subsequent payment made to Company B for tools, especially when production hasn't commenced by year-end. Guidance on valuing shares for an unlisted company is also sought.