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Selling a part of a business

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Hi

If a ecommerce company sells its Amazon store which is just a part of a business not the whole. Will it be operating profit(ER not available bcz its company)? Anyone with more details please

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31st May 2019 09:14

It depends what is being sold. Is just a brand name and reputation. Or is there also stock? Are people transferring with the sold business. What will happen to liabilities of the sold business - eg dealing with returns or warranty claims (if any).

Are you asking about reporting in management accounts, statutory accounts or for tax purposes?

Your accountant should be able to advise on most of these. You also need a legal agreement to ensure that there is a clear documentation of pre- and post-sale obligations on both parties. Without that you have the risk of unwelcome (=costly) surprises and falling out with the buyer.

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31st May 2019 10:14

Is it a company that buys and sells businesses? Because otherwise it's not really trading, is it?

Perhaps some of the sale proceeds will fall under operating profit, perhaps it'll all be chargeable gains, it's hard to say because of all the detail you've not provided.

Why not get a handle on the broad strokes and if there's specific points you're stuck with ask about them. If you can't get that far, maybe best to hand over to someone else.

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By Accaols
31st May 2019 11:05

Hi

Thanks for such a detailed replies. The company is not in business of selling or buying businesses. It has sold the amazon merchant account, brand, processes, inventory. Company is still trading . This is for tax point of view

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31st May 2019 11:30

So it's not a hypothetical "if..." as per the OP. You've done the deal and the question is about the tax treatment of the gain. Personally, as I'm not a tax specialist, I would have got advice before doing the deal. My starting assumption would be that the gain/loss justifies separate disclosure but is otherwise taxable as part of operating profit.

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31st May 2019 13:27

The sale of stock is a trading item. The rest are intangibles, and you would appear to have a intangibles trade credit, with the effect that the whole fuching lot is taxable as trading income.

I think for accounts purposes it gets recored as part of the trade profit (sales and profit on disposal of intangibles) and there are no adjustments to be made for tax purposes.

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