A manufacturing company client has bought a business from another company (not shares, just one operation of many run by that other company). The consideration is the agreed values of tangible fixed assets, intangibles (IP and the brand name), goodwill (at a nominal £1), and stock. No debtors or creditors are transferred, but the lease on the factory is and so are all the employees. My question is: does this constitute a "business" for FRS6 purposes, in which case we have to fair value the assets (the fair value of the stock is £1million more than the agreed price)? The term "business" is not really defined in FRS6, but it is in FRS102 which suggests that the existence or otherwise of goodwill is a potential clincher. Here the only goodwill is the nominal £1. So could we say that this is simply the purchase of a block of assets and account for them at cost, with no negative goodwill?
Replies (7)
Please login or register to join the discussion.
Business
Sounds to me like a business was acquired i.e. more than just a collection of assets.
Does the definition of business in IAS 3 help you decide?
I assume the workforce was TUPE'd across? Was the acquisition a TOGC for VAT purposes?
trade relationships
Do the trading relationships transfer , i.e. the right to the existing customer relationships / customer trade agreements? Is this what the £1 is for? (note this is nothing to do with past liabilities (debtors/creditors). If not the maybe this is just the purchase of a block of assets.
Workforce
If the workforce came across as well, then that's more than a collection of assets.
going concern?
Doesn't sound like the transfer of a going concern? I would be tempted to treat as an asset purchase.