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Goodwill. Parent and subsidiary

Accounting for goodwill in holding co

Friends, Romans,  countrymen lend me your ears.

Scenario

I wish to purchase a 40 year old going concern. Its legal entity is that of a going concern.  It's net balance sheet worth is  £800.000 constituted by extensive plant and machinery.  The vendor is selling the business for  £800.000 and is therefore not seeking a goodwill consideration element.  I wish to buy the shares and not an asset purchase as the business owners are very reputable people. In order to facilitate the business purchase my broker forms a limited dormant holding company the share capital being 100 £ shares assigned to me. I wish to borrow  £800.000 to pay for the business and I appoint auditors to prepare projected profits - accounts for the next 3 years. The auditors charge me  £30.000 for work executed and my solicitors charge me  £25000 for the contractual work transference of shares from the business on offer to the holding company. 

In the newly acquired going concern I treat the audit and legal fees as capital costs thus debiting goodwill account with  £55,000.

Since goodwill is no longer tax allowable as a deduction in the tax computations is it prudent not to write down the said goodwill after one years trading.  

On another point the holding company balance sheet will read    Dr. Investment  £800,000. Dr. Cash account  £100.   Liabilities. Share account. £100. Bank loan account cr. £800.000.  Net worth  £0.

My problem is I get the urge to want the Dr. Of ' investment in subsidiary to read  £855.000 but then it would not balance. Would my learned and highly respected friends here point out my misguided thinking. 

In 1996 I was financial controller in a business with Deloite n T the auditors and I was dealing with the holding / subsidiary situation well. My figures were accepted and not revised. 

I know you will have the answer.

 

 

 

 

 

 

Replies

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13th Feb 2018 18:04

SNOOPDOG wrote:

Its legal entity is that of a going concern.  


Error #1.

SNOOPDOG wrote:
In order to facilitate the business purchase my broker forms a limited dormant holding company the share capital being 100 £ shares assigned to me.

Why?

SNOOPDOG wrote:
The auditors charge me  £30.000 for work executed and my solicitors charge me  £25000 for the contractual work transference of shares from the business on offer to the holding company. 


They both saw you coming. Maybe they’d dealt with you previously. Or were smart enough to add the “I think this client will ask stupid questions” levy.

SNOOPDOG wrote:

In the newly acquired going concern I treat the audit and legal fees as capital costs thus debiting goodwill account with  £55,000.


Why? It’s not goodwill.

SNOOPDOG wrote:

Since goodwill is no longer tax allowable as a deduction in the tax computations is it prudent not to write down the said goodwill after one years trading.  


Gulp.

SNOOPDOG wrote:

My problem is I get the urge to want the Dr. Of ' investment in subsidiary to read  £855.000 but then it would not balance.


That’s not your only problem...see every post you’ve ever made on AWeb.

What you’ve asked isn’t totally relevant. But ask yourself how the holdco paid the £55k.

SNOOPDOG wrote:
... point out my misguided thinking. 


Done.
Thanks (1)
By Ruddles
13th Feb 2018 18:22

"point out my misguided thinking"

It's thinking that you're an accountant.

Thanks (2)
14th Feb 2018 08:27

"This forum provides amusement, in myriad forms".

Long may it continue. These are stressful times.

Thanks (1)
avatar
14th Feb 2018 10:00

If this was a real situation, you wouldn't be asking the question, as you would be well aware of how you had paid for 55kn of Legal and Accountancy fees, the answer to your question would then be obvious to you.

Thanks (0)
By DJKL
14th Feb 2018 10:11

"O judgment! thou art fled to brutish beasts,
And men have lost their reason. "

Thanks (0)
avatar
to DJKL
14th Feb 2018 11:44

DJKL wrote:

"O judgment! thou art fled to brutish beasts,
And men have lost their reason. "

Edward Kendal Sheridan Lionheart?

Thanks (0)
By DJKL
to Hugh Simpson
14th Feb 2018 12:12

Its by Oor Wullie, him that wrote Snoop's quote bout friends en that . The guy who also wrote that bit about yon cartoon dog, Spot, in the one bout thae witches.

Its later in the ears speech where Brutus is honourable, the bit wease was telt to learn cos it would like turn up in the exam.

Thanks (0)
avatar
to Hugh Simpson
14th Feb 2018 12:12

Julius Caesar

Thanks (0)
By DJKL
to atleastisoundknowledgable...
14th Feb 2018 12:29

He thinks too much. Such men are dangerous.

Thanks (0)
14th Feb 2018 12:33

Assuming the £55k is capital costs, and paid by Sub, the correct entry was:

In Sub:
DR Intercompany with Parent £55k
CR Bank £55k

In Parent:
CR Intercompany with Sub £55k
DR Cost of Investment £55k

How hard is that?

Thanks (0)
By Ruddles
to thevaliant
14th Feb 2018 12:48

Too hard for someone of limited intellect, obviously.

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