Domain Name Sale / Purchase - Asset Query

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Hi guys,

I have a corporate client that purchased a domain name in June 2020 for a nominal cost (around £80). In their books it looks to have been expensed as IT costs, whereas I believe although it's such a small amount it should have been allocated as an intangible asset. 
They've then sold the domain name in December 2020 for $15,000 through an American brokerage and used the proceeds towards paying $22,000 for a new domain name ($20,000 + $2,000 brokerage fee). This was all done through the director's US bank account as he wanted to avoid currency conversion charges.
My thinking is that firstly I need to amend the initial £80 purchase to intangibles and then create an entry for the £ equivalant at the sale date (but i'm struggling on what the entry would be?) that would write off the intangible and show the profit on it's sale. 
At that point I just need to add the $20,000 new domain as a new intangible which i'm fine with (and decide on a depreciation method for it). 

I feel like i'm missing something ...

Any advice would be much appreciated!
Thanks, Jack

 

Replies (9)

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By SteveHa
21st Jan 2021 13:36

Can't give a genuine reply - I'm a tax guy, not an accounts guy, but I would post it under "Ripped off".

I've never paid more than £7.50 for a domain name.

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By paul.benny
21st Jan 2021 14:34

The first purchase is so immaterial that there is no point in adjusting the original entries. The entire sale proceeds would appear to be profit

I rather wonder about the funds flowing through the director's personal bank account. Are they truly company transactions? You might want to check using whois.com to find the registered owner of the new domain name. Not sure whether you can view prior owners.

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Replying to paul.benny:
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By Gone Sailing
21st Jan 2021 14:45

That's the thing - most domain accounts are in a personal name.

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Replying to paul.benny:
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By jack-2102
21st Jan 2021 15:47

Thanks for the response - much appreciated!

I have checked that with the director and he insists the transactions (including the initial purchase) were in the company name. The invoices / statements from the brokerage regarding the sale and subsequent purchase are all made out to the company also.

If it's agreed that the transactions are company transactions I'd just need to create a P&L account to credit: (for example) Gain on intangible asset / Debit: DLA.
Would that be reasonable?

Thanks again.

Jack

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Replying to jack-2102:
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By paul.benny
22nd Jan 2021 07:58

Yes, for stat accounts, you have a $20k gain with with debit to DLA and then a $25k asset purchase with credit to DLA.

Don't forget that you'll need an accounting policy for FX.

On the limited number of transactions to date, it looks like your client may be trading in domain names rather than using them as part of their business. Are there active websites at those urls? Do the names relate to any other trade/activity?

You might want to consider whether they are more correctly described as stock.

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Replying to paul.benny:
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By jack-2102
22nd Jan 2021 08:25

Thanks so much for the advice!

The domain both sold and purchased related to the company name. The website is still in development as the company hasn't started trading yet (they just finished a funding round in November and have started to spend money relating to start-up costs and product development now). I don't doubt the new domain purchase is to use rather than to sell on.

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By lionofludesch
21st Jan 2021 23:10

Are we talking here about the possible incorrect accounting and taxation of £80?

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Replying to lionofludesch:
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By jack-2102
22nd Jan 2021 08:29

Hi, thanks for the response.

No, rather how to account for the sale of the domain for $15,000 that wasn't included as an asset to begin with.
I hadn't dealt with anything that significant in regards to intangible assets before and wanted to make sure I got it right.

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Replying to jack-2102:
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By lionofludesch
22nd Jan 2021 08:55

Yes - but it's either profits of $15,000 or profits of $14,920, being $15,000 less the original $80.

So it's tax on $80 we're talking about. About a tenner.

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