We are in the process of negotiating the purchase of an accountancy practice. However we are not sure on the best way to go forward, either to buy the limited company as a going concern ie purchase the shares, or my preferred method would be to buy the goodwill and trading assets. However the seller is keen to do a share sale to save on there tax bill.
What is the best way?
If we are buying the practice deferring the payments on a three year basis, how is this entered into our accounts to begin with, as we are not sure on the exact value the seller will get (clawback basis).
Any suggestions?
Replies (3)
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Goodwill is total price
The unpaid element remains as a creditor and goodwill is reduced each time there is a clawback.
As accountants that is surely all you need to know.
Do as you would advise your clients to do
If you buy a company, you buy all of its assets and liabilities (known or unknown), you are therefore on the hook for any issues that emerge after your purchase. This requires a detailed contract of sale, with comprehensive warranties from the vendor. On the other hand, if you purchase the goodwill of the business, you leave behind all of the liabilities which you do not want (including unknown liabilities). It then becomes a commercial matter for you and the vendor as to which way you go and whether the price payable is adjusted accordingly.
Mark Buffery
Thanks
Hi, thanks for the confirmation...that is what i thought, however as i never had to enter a clawback transaction in anyones accounts, i just wanted to make sure.