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Advise required re business purchase

Accounting for a business purchase by a limited company.

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Limited company is purchasing a business and the property the business currently operating from . The business is purchased and operated from A LTD  and the properties will be registered under a separate limited company ( lets call this P Ltd). P Ltd will lease the property for A Ltd for a rent.  The purchase is funded through a bank loan and the bank loan is agreement is with P Ltd .

The purchase consideration paid includes price for the property and the business ( Goodwill part). The bank says they will send the full loan amount to the bank account of P Ltd. 

How should this be accounted. Will P Ltd after receiving the full amount of the bank loan give a loan to A Ltd for the share of the price for the Business/goodwill. ? The value of the property will be the assets under P Ltd and the price paid for Goodwill should be accounted under A Ltd and amortised? 



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By Tax Dragon
26th Jan 2021 06:45

.Anon (as we say in here).

As I understand it, accounts should reflect the actuality. You've told us half the story and asked how to account for the other half.

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By paul.benny
26th Jan 2021 07:37

This sort of stuff can be fairly complicated for those who don't know what they're doing.

You should consult the accountant who advised on the deal.
You did take professional advice, didn't you?

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Jason Croke
By Jason Croke
26th Jan 2021 07:51

SDLT considerations.... acquiring a property into a Ltd

VAT considerations.....has the target business opted to tax the property? If not, do you want to opt to tax the property going forwards? Is the transaction being done as a Transfer of Going Concern and if so, on the whole deal or just the trade/goodwill part? If not a Transfer of a Going Concern, is VAT being charged on the property element of the deal or the whole price?

Lots to consider here, lots to go wrong, as others have posted, seek advice.

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By paulwakefield1
26th Jan 2021 08:27

I am rather unclear as to the exact structure of the transaction. Is A Ltd buying the business and P Ltd buying the property or is A buying everything and selling the property to P Ltd? I suspect the former. I assume this is a business (goodwill and assets) being bought and not a share purchase. I imagine A and P have common ownership and are not in a group.

I cannot really understand why the bank would supply a loan for the full acquisition to one entity when a substantial part of the acquisition is in another entity. Is this really 100% loan funded or is the loan quite small with a large element of equity funding in some form?

So with that raft of assumptions and queries, I could in broad terms agree with your accounting thoughts but it depends. Whether P gives A a loan is something that needs to be decided although A is going to be in a bit of a pickle if P doesn't pass money across in some form or other.

As others have said, tax, legal and commercial advice is strongly recommended if this has not already happened.

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Replying to paulwakefield1:
By Kmad143A
26th Jan 2021 14:24

Thank you. yes it is a business being purchased and not a share purchase. And A & P ltd under common ownership.
I agree lots to consider and will seeking advise, just having some initial thoughts I wanted to run past.

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