FRS6 - Definition of acquired business

FRS6 - Definition of acquired business

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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?

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By JazzySasha
14th Jul 2014 10:32

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?

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By TerryD
14th Jul 2014 11:14

Thanks

The workforce were TUPE'd across, but I don't yet know about the VAT. What does IAS 3 say?  (I don't use IAS's so don't have a copy to hand).

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By Jeremy.t
14th Jul 2014 11:28

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.

 

 

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By JazzySasha
14th Jul 2014 11:33

Workforce
If the workforce came across as well, then that's more than a collection of assets.

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By TerryD
14th Jul 2014 11:41

Existing contracts are specifically excluded from the assets transferred. There is no mention of trading arrangements/agreements - but the employees transferred are purely manufacturing and include no salesmen, etc.

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By Jeremy.t
14th Jul 2014 11:49

going concern?

Doesn't sound like the transfer of a going concern? I would be tempted to treat as an asset purchase.

 

 

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By TerryD
14th Jul 2014 16:26

Thanks to you all for taking the time to think about this.

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