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Double Entries on sale of trade & assets

Double Entries on sale of trade & assets

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A client of mine ran a shop through a limited company.  They have now sold the business.  The purchaser would not simply buy the share capital and insisted on buying the trade and assets (fair enough as this removes them from any unknown liabilities of the company).

The deal was that the purchaser would pay £50k plus the value of the stock (lower of cost or NRV - in this case cost).  The stock was valued at £8k.  In addition the NBV of fixed assets was £10k.  So we have proceeds of £58k, fixed assets of £10k and stock of £8k - giving a profit of £40k.

We just want to make sure we disclose the profit on sale of £40k correctly in the P&L submitted alongside the CT600 (company files abbreviated accounts so irrelevant for stat accounts).

I assume that double entries would be:

Dr Cash £58k

Cr Fixed Assets £10k

Cr Stock £10k

Cr Other Income (profit on sale of business) £40k

Or do we treat the fixed assets as ordinary disposals at NBV (thus generating a profit/loss on disposal of nil - obv we need to think about balancing allowances/charges but this will be nil as the NBV = TWDV).  Then simply have proceeds on sale of £48k, offset by the value of the stock.

Surely we don't treat the sale of the stock as part of the business sale as turnover?

Thanks in advance

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By johnt27
29th Feb 2012 13:11

Double entry right

Your double entry is correct.

The company will need to disclose in it's accounts the sale of it's trade and assets and highlight this on the stat P&L.

Tax treatment will follow the allocation of the consideration per the sale agreement ie goodwill, fixed assets etc.

If the client wants to get any reserves out as a capital distribution then unless you work a miracle you will have to do a formal liquidation of the company as the deadline for ESC C16 applications is today!

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By eberry
12th Apr 2016 12:12

In regards to the sale of trade, would you classify it as other operating income ?

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