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How to account a reduction in goodwill value.


Three years ago a soletrader transferred his business to his company with a goodwill of £300,000 and it has been amortised over 10 year period in the company's accounts. Now HMRC agreed only £100,000. How to account for the £200,000 reduction and reverse the amortisation for the past two years?


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By johnt27
07th Dec 2017 15:15

Hi Thiagu I assume you haven't consulted the relevant FRS? The reverse amortisation comments leads me to suspect not.

Anyway if my maths is right (I didn't bother to pick up my calculator for this) your goodwill in the accounts is £210,000 (£300k - 3*30k).

So have HMRC agreed the goodwill is worth £100k now or £100k back then? If it's £100k back then, then you'd assumed it should have been amortised for 3 years as well.

After that the double entry is fairly simple - you've been doing for 3 years already.

Of course, you then have the conundrum of what to do with the DLA that was no doubt created as I bet HMRC are fishing for a write-down in the hope that your plucky director has rinsed the DLA and will now have to pay s455 tax.

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By Thiagu
to johnt27
07th Dec 2017 18:19

Hi John, Thanks for your reply. Business was transferred three years ago and a journal entry was passed debiting goodwill and crediting directors loan account. Only last week HMRC agreed the lower amount and it has to reflect in the (first FRS102 small company) account for the year ended 31st March 17. I suspect prior year adjustments have to made to reverse the reduction in value as well as the amount amortised.

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By Slim
08th Dec 2017 08:20

Edit. Sorry misread.

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