simple one...capitalisation of legal fees on purchase of business

simple one...capitalisation of legal fees on...

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Client (Ltd Co) has bought a business, unrelated parties etc.  Cost 13,500 of which 12k is goodwill, rest is fixed assets and stock.  

Legal fees incurred of approx 3k relating directly to the purchase of the business (lease agreement fees dealt with separately), where would you put these on the BS? separate between fixed assets and goodwill?  Seems wrong to capitalise as part of goodwill...but they are double the fixed asset price, so also seems wrong?

Thanks 

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By pawncob
29th Jul 2014 21:25

part of

The legal fees are part of the cost of the asset, so capitalise.

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By Taxhurts
29th Jul 2014 22:06

capitalise where?

Would you capitalise to goodwill? or apportion between goodwill and fixed assets?

Thanks!

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By johngroganjga
29th Jul 2014 22:46

As part of goodwill. Think about it. Would they have been incurred if he had only bought fixed assets?

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By Taxhurts
30th Jul 2014 06:52

Once again I'm over thinking things, thanks John good point!

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By Steve Kesby
30th Jul 2014 09:21

You could...

... then immediately impair the goodwill down to the £12K that it's actually worth, thus obtaining relief for the capitalised legal fees. :)

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By Taxhurts
30th Jul 2014 13:41

Steve

very good point, I was just going to amortise the 15k over 5 years inline with FRS102 so no complications next year (seems a reasonable length of time for a hairdressers, assets will all be replaced by then and client base likely to have changed by that point)  but yes writing down the legal fees element immediately would give more relief this year.  

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