My client was a Sole Trader. They incorporated on day 6/4/12.
The business was independently valued and the good will value was £106k
The Sole Trader closing balances were as follows, Cash (£33k Dr), Stock (£5k Dr), F& F (£5k Dr), Creditors (£26k Cr). These were all transferred to the Ltd company.
The opening balances on the Balance Sheet on the 6/4/12 are as follows:
Cash £33k Dr
Stock £5k Dr
F&F £5k Dr
Goodwill £106k Dr
AP £26k Cr
DCA £106k Cr
Is the above treatment correct?
Secondly as a result of the above goodwill the client has had a capital gain £106k. Is this liable to CGT and can Entrepreneur Relief be used.
If Incorporation relief is used how does the above change?
Your help in this matter is appreciated, I though I was clear on this but read something which just confused me.
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Replies (2)
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The opening balances on your company balance sheet are out of balance because you have credited the DCA only with the sale price of the goodwill and not with the book value of the other assets transferred (i.e. £17k). If you increase the balance on the DCA to £123,000 you will balance. There must be some share capital there somewhere too, but perhaps that is lost in the rounding.
Incorporation relief is only available when business assets are sold for shares, not when the proceeds of sale are credited to a loan account.
Provided the conditions are satisfied, entrepreneur's relief should be available on the disposal of the goodwill.
Thanks
Yes you are correct on the DCA, the share capital is minimal hence I excluded from the above detail.
Thank you for your concise answer.