Is Lease paid shown on balance sheet

Is Lease paid shown on balance sheet

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Hi

Hoping if someone could just clarify the following. 

If a  business owner has paid in full £30,000  for the purchase of a fast food business on  lease. Would  the purchase of the lease  be shown on the balance sheet along with the other assets such as equipment,vehicles etc and a credit to the capital account to represent the owners £30,000 investment.

Kind regards

Roko

Replies (3)

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By johngroganjga
12th Aug 2014 10:54

Yes that would be the starting point.  You would then start to amortise the lease premium and depreciate the equipment and vehicles through the P& L.

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paddle steamer
By DJKL
12th Aug 2014 11:12

Has he even paid for the lease?

Is there a breakdown in the sale agreement to describe what is being purchased for the £30,000 and how the price of £30,000 is allocated amongst the vehicles, equipment etc?

Has the tenant paid the sum to the Landlord or to existing tenant?

If the lease has been assigned by the existing tenant, and a payment made by the new tenant to the old tenant for the lease ,then I would expect it to be documented and the quantum agreed between the parties as part of the agreement. If there is a premium on a new lease from the landlord then again I would expect the quantum to be documented.

In the absence of documentation then it more looks like the purchaser may have paid for goodwill rather than for the lease.

If the documentation does support the fact that part of  the payment is for the lease then I would post agreed sums for the lease, equipment, vehicles and goodwill , as documented,with the credit to capital introduced. Thereafter I would consider policy re writing down the assets over appropriate periods of time. 

From a tax planning point of view,  for the purchaser ascribing part of the price to a lease assignment ( if that is what it is) it will likely mean no relief for the cost until/if the lease is later sold, if ever.

From a tax planning point of view, for the purchaser ascribing part of the price to a lease premium (New lease) there may be scope for some of the payment to be offset against profits as short lease premium relief. Devil here is in the detail re the calculation.

I will say lease premiums are not my strongest suit so I suspect someone may be able to come along and post corrections/clarifications to the above, I am only posting as nobody else has.

 

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By DMGbus
12th Aug 2014 13:43

Goodwill

The stated price could include Goodwill as well as Lease and Equipment.

Each category of assets has a different tax treatment (generally lease is the worst from a tax relief viewpoint and Equipment best).

It is therefore crucial to establish what value was attributed to which individual heading.

Some amateurish business purchase contracts that I have seen omit any split of the consideration between the necessary headings, in which case use a fair and equitable split.

It could also have included stock, prepaid rent.

Then again, it could possibly be purchase of shares in Ltd Co operating the existing business which is a further fourth situation to consider from a tax viewpoint.

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