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Negative goodwill & customer database value

Can we assign a value to a customer database which will increase negative goodwill

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Background:
- Our company is newly formed and has purchased assets from 2 companies that are going to be wound up.
- 2 directors from those companies are now on our management team and have a small shareholding (there were other shareholders who are no longer involved with new company)
- The purchase price was £1 for each company in exchange for the new owner putting in a cash lump sum in the new company.
- The asset transfer agreements do not list specific assets/liabilities and assign no value to anything so I do not have a very clear picture of an opening balance.
- We will be preparing accounts under FRS 102.

From the limited information I have, I established that there is negative goodwill arising on transfer.
Included in the asset transfer was a customer database of approximately 85k subscribers who we have been able to market to since the transfer.

My question is, can we include the customer list as an asset (thus increasing the amount of negative goodwill arising). If so, how do we put a value on it? 

I would love to hear if anyone who has dealt with this situation before.
Many thanks,

 

Replies (6)

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By paul.benny
06th Jun 2020 10:01

It's not only that you can value the customer list but you should - see section 18 of FRS102.

I would value the customer list using average the expected contribution per customer over the next n years, with an allowance for attrition and also discounting future years. Without more information it's impossible to be more specific.

Valuing intangibles is far from straightforward and you should both your proposed method and the parameters with your auditors before you do a lot of work on it.

Turning to your other acquired assets, these should be fair valued. Don't forget to make good provision for difficult to collect receivables and unsaleable stock. You don't want to have to book bad debts on acquired receivables in Newco P&L.

You also mention liabilities: if it's a trade-and-assets deal (ie you haven't acquired the companies), the liabilities remain with the companies. That's trade creditors, tax, PAYE/NI, VAT, the lot. The one exception is for employees where TUPE means that all employee rights transfer with them. This may particularly important if you intend to make anyone redundant following acquisition.

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Replying to paul.benny:
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By Tax Dragon
06th Jun 2020 10:32

Trade and assets deal? Fair value? TUPE? Read the OP again, Paul. OldCo1 sold its assets, including a useful customer database, to NewCo for £1. OldCo2 likewise.

I may be misreading things (which I seem to be doing more often at the moment), but from here it looks like the taxman is not the only party being ripped off. Of course the other parties may be related and be happy to make gifts (though l doubt it). The taxman isn't. The OP should consider the position carefully.

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Replying to Tax Dragon:
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By paul.benny
06th Jun 2020 10:45

The OP is clear about the transaction being trade and assets but then refers to acquired liabilities. Fair value - required by FRS102 para 19.11; Are you saying that TUPE doesn't apply to the employees (if there were any)?

I agree that creditors, including HMRC may well be losing. I'm usually the one answering a question that wasn't asked.

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Replying to paul.benny:
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By Tax Dragon
06th Jun 2020 11:05

Sorry, Paul, I'm just a bit grumpy today. Happens fairly regularly.

Anyway I guess the taxman takes a slice of the action, as wouldn't each transaction amount to a taxable distribution? So maybe it's not all bad. (I know... that wasn't one of the questions either.)

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Replying to paul.benny:
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By thejho
06th Jun 2020 10:55

Thank you so much for such a detailed and extremely helpful reply :)

Sounds like I am on the right lines, I'll work out what information we have re the customer list to help us with a valuation.
I will definitely be running all of our proposed methods past our auditors.

I appreciate your time.

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By KKFlat
06th Jul 2020 17:53

Hello,
Slight tangent but why do you want to increase your negative goodwill value? I had thought (please correct me if I'm wrong) that this had to be written off on the day of transaction and therefore would become a taxable gain?

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