Goodwill for companies and year end accounts

Goodwill for companies and year end accounts

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Hi I am struggling with year-end accounts..... I hope there is somebody who can help me...

Apportioning the price paid for a Business Transferred as a Going Concern

My question is about Goodwill and tangible assets. The business is a limited company with two shareholders... I am the director and half shareholder... my partner is second half shareholder... The business was bought as a going concern...is a coffee shop....the lease is on both of ours name... was purchased for life of 15 years and £15000. The market value of fixtures and fittings and machineries are about £7000... So according to this information...

Do I have to include goodwill in to my accounts?

The lease is on our name and we paid for... not the company... but the accounts are for company... How this will effect?

Is this is correct?... tangible assets £7000 goodwill £8000

Do I have to amortise goodwill?

I am waiting for your expert opinions your opinions can help me a lot. Thanks in advance for your comments

Replies (10)

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By eastangliantaxadvisor
19th Oct 2012 19:19

Broadly, yes, the excess is goodwill.

 

This should be written off over it's useful life.  that is for you to decide.

 

As it is a limited company, the goodwill write off will qualify for relief against profits.

 

You did not say when the deal took place, but I assume that you have agreed and made the nesscesry claim with the buyer to fix the price between fixture and fittings?

 

 

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Replying to bernard michael:
By ZEYNA-44
19th Oct 2012 19:48

The deal (purchasing the lease) took place before the company was set it up... Thanks Arthur but I didn't get your last paragraf...

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Replying to mabzden:
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By The Black Knight
01st Nov 2012 15:43

ah

ZEYNA-44 wrote:
The deal (purchasing the lease) took place before the company was set it up... Thanks Arthur but I didn't get your last paragraf...

 

Business and lease cannot be in the companies name.

year end accounts indicate trading for more than a year? did the business start trading before the company was formed. Was the business ever transferred to the company. Was a company bank account set up?

Are we now reselling at M.V. to the company? There are/ were tax advantages to holding off for a while particulary if you sustain losses in the early years of trade.

Am I right in assuming you were told in the pub by a non accountant that Ltd companies are easy and save you tax?

There is a lot more to it than that and a bit of real advice could have saved you an awful lot. Sounds like a right pickle.

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By eastangliantaxadvisor
19th Oct 2012 20:01

The contract should have split the prceeds between the various elements, and you may need to consider an election to agree this with the buyer / seller depending on the circumstances.

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By compliant
19th Oct 2012 21:51

Dear Zeyna

No you do not have any goodwill

Goodwill is the residual on a purchase that can not be allocated to any identifiable asset. From what you have mentioned you have two assets

1. fixtures and fittings whose value is what you paid for it i.e. £7000

2. A leasehold asset aka the lease premium whose value is again what you have paid for it i.e. £8000 and which will be amortised over the lease period.

As accountants we are too quick to reach for the goodwill treatment. We need to remember that we now live in an IFRS world where goodwill is exceedingly rare. 

In most purchasing transactions you are actually paying for something that has value and which often meets the description of an asset...intangible or otherwise. Nobody in their right mind pays something for nothing so its our duty to find out what that thing is and not be so quick to call it "Goodwill".

Goodwill should be treated as a swear word to the modern accountant!

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Replying to Paul Scholes:
By ZEYNA-44
19th Oct 2012 23:34

Thanks Compliant for your reply... If I not take lease purchase ( fixture and fitting, equipments, goodwill what ever its include in purchase) into my COmpany's account will I do something against statues? Because I paid for the purchase not the company.. i think if I take this purchase into company's accounts it will be company's assets, which the company has not paid for...am I correct.. What is the correct?

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By The Black Knight
01st Nov 2012 12:34

I think you need to go and see an accountant

Sounds as if there is more to this than first appears.

I am sure all will become clear once an accountant has seen the paperwork.

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By User deleted
01st Nov 2012 15:10

I take your point, Compliant

But I don't see how you can say that the lease was worth £8k because that's what was paid for it. All that we know is that £15k was paid for a business, two (though not necessarily all) of the assets of which were  fixtures and an interest in the lease. We are told that the market value of the fixed assets was £7k, which does indeed leave £8k to be attributed elsewhere. What if we learn that the market value of the lease was only £4k - what do you do with the other £4k? Arthur's advice is correct - a properly worded contract would have been helpful. If it had explicitly said that the only assets transferred were the assets and lease, then the £4k overpayment on the lease would be just that - a bad bargain. If on the other hand the agreement specified assets, lease and goodwill (but without attributing values) it would be reasonable to conclude - having established market values for 2 of the 3 - that the difference reflected the price paid for the 3rd - in this case, goodwill.

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By The Black Knight
01st Nov 2012 15:28

And

Has the company bought the business or an individual now transferring the business to a company? Or is the lease still outside the company? etc etc etc. Is a limited company the best option given the low value of goodwill? Did this goodwill have any value? (had a valuation had been carried out? suspect not)......So many questions leading on.......that's why the poster needs to go and see someone who can see the full picture.

 

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By blok
01st Nov 2012 15:45

.

it appears that the two individuals have agreed to enter ito the lease and paid a premium (of some sorts) to the vendor.

i struggle to see at this point on the information provided that the company has bought anything.

we need to jump to the assumption that a sublease has been granted by the individual leasholders to the company or the individuals acted as nominees for the company.

if we can assume that then I tend to agree with compliant (to the horror of most accountants).  I see goodwill as a balancing figure when the total consideration/price has been allocated to all the identifiable assets.

this begs the question - what is the value of the lease?  which is, I think, the conclusion that bkd has arived at.

answers on a postcard?

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