Buy/Sell agreement accounting

S-corp client entered into a buy sell agreement with his key employees. I don't do his accounting but his bookkeeper asked me how to record this on his personal (not S-corp) balance sheet. I think this is strictly an off balance sheet transaction with nothing at all recorded on either his or the corp's balance sheet, correct?

What is he selling? His stock in the S Corp, or is the corporation selling its assets?

He isn't currently selling. It's more like a will. If he dies or decides later to retire his key employees have first right of refusal to purchase his company for a price they have agreed to. I expect the price may be adjusted over time.

He wants to have this on his personal BS as it is his major asset but his current BS is the typical historic, not mark to market values. I don't use his personal BS for tax prep so it doesn't really matter to me but I'm not sure how an accountant would record this or record it at all.

It sounds to me like the terms of a future transaction have been agreed upon. There is no current transaction to record.

Disclose, don't record.

BTW, why does he even need a personal balance sheet?

Thanks...I couldn't see any BS entries for this either.

Why does he have a personal BS? I don't really know....he uses his business's accounting firm and QB to keep track of his finances. As I said earlier, I don't use his BS for tax prep.

If he is doing his personal net worth statement this is an asset to be recorded there, but it was an asset before the agreement and maybe the amounts have changed.

jon, if I read you correctly, your point is that the asset before the agreement, namely the shares of the company, has a FMV. After the agreement, that value may be different. All true, but, subject to knowing the exact agreement, I'd say that's way too contingent to record as actual FMV. We don't know whether or when he will retire, or when he will die, or what the terms are of the agreement, or even whether the employees (if they even are still there) will exercise their rights.

It's been a while since I've done a personal financial statement, but I seem to remember they are presented on a FMV basis rather than a cost basis like a business would be. This results in a ton of disclosures around how FMV is determined, if full disclosure. While value may be affected, I still maintain there is no transaction to record.

Me too. Or is it me neither?

If you are doing a NET WORTH statement for the owner, you would not put a value on the practice??? It could be the biggest asset he has. How valued is a question, but it definitely belongs on the statement.??

If you are doing a NET WORTH statement for the owner, you would not put a value on the practice??? Where did you see that?

So if you are doing the owner's net worth of an auto dealership, oil wells, a bakery, and he is the 100% owner of all maybe sole stockholder, single member LLC, or just proprietor you value his business interest as 0 in calculating his NET WORTH!

I have seen it 1000 times. Do you not include his minority investments in stocks and partnerships also?? YES, A PERSONAL NET WORTH STATEMENT SHOULD BE AT FAIR MARKET VALUE... All values are noted how it was arrived at.

When I said Where did you see that?, I thought I was completely clear in my meaning, but apparently not to you.

The sequence went: If you are doing a NET WORTH statement for the owner, you would not put a value on the practice??? (from you) and Where did you see that? from me. Meaning, obviously to me, that I never said that and to this very moment that is not my position. Of course a personal net worth statement can, and usually does, use fair market values for such assets as you describe. I have not said otherwise.

I think everyone is in agreement that a personal financial statement should show FMVs of the assets held by the individual. The only thing I've suggested omitting is a 'transaction' because I don't feel one has occurred.

ASC 274 Personal Financial Statements uses the term "estimated current value." ASC 274-10-55-4 provides examples of methods for valuing closely held businesses in personal financial statements. ASC 274-10-55-5 indicates that a buy-sell may influence the estimate of value but is not determinative on its own. ASC 274-10-55-11 provides an example of a footnote that describes the method used to value a closely held corporation in such statements.