Friends, Romans, countrymen lend me your ears.
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.