Incorporation - £1 consideration vs MV

Accounting for incorporation

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Hi guys,

Sole trader sells business for MV (£100,000) to new limited company. Consideration is split, £1 for assets (MV ~£5,000) to enable balancing allowance for capital gains, £99,999 for goodwill (being the balance of the £100k).

It is understood that the TWDV for the assets will be £1, but for the limited company accounting, should the company book assets and goodwill at MV rather than the actual consideration split? My concern for the latter is that the MV is the sole trader's "rough guess". It would take him too long and too much money to get each asset valued. 

Thanks

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By Manchester_man
23rd Apr 2018 13:09

I wouldn't accept a rough guess.
I would at least want to know exactly what these assets consist of.

I would possibly record at cost initially and then revalue, but only if a value can be ascertained beyond the client's rough guess.

Is the client being lazy?

What is the nbv in the sole trade accounts?

5k is not a lot. Surely not that difficult to ascertain mv?

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Replying to Manchester_man:
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By Harrison88
23rd Apr 2018 13:18

Apologies, the numbers are more rounded than are actually the case and mainly for demonstration.

It's mainly lots of small pieces of furniture. The client suggests 50% of cost would be the correct resale value and with it not being particularly high, I'm fairly inclined to agree. It has been depreciated at 20% pa so far so NBV isn't far off.

I suppose my question can be summarised is; book the cost to the company or the MV for the accounts?

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By Justin Bryant
30th Apr 2018 13:25

The case in the link below suggests that if (in a composite transaction at least) you value things artificially (high or low) for a tax advantage they will be valued "realistically" at MV instead.

http://www.bailii.org/uk/cases/UKUT/TCC/2015/164.html

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