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Treatment of fixed assets on acquisition.

How to treat fixed assets on acquisition of a going concern.

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Sorry for opening Thursdays Stupid Question Session but..

If you buy a business from another company (but not the legal entity itself) including the revenue streams, assets and liabilities etc, how do you treat the fixed assets purchased in your business?

Do you record them at their book value on the date of  acquisition and depreciate them at the rate you would normally depreciate an asset of that type, or

Do you record them at cost, record the acc dep to date and depreciate them over their remaining useful life?

e.g.

Laptop cost £1,000 and acc dep to the date of acquisition is £500. Useful life 4 years / SL dep 25%

Is it:

Dr Fixed assets £500

Cr Acquisition account £500 (don’t worry about this account please)

Annual depreciation is £125 for four years. (£500 / 4)

or is it;

Dr Fixed assets £1,000

Cr Acc Dep         £500

Cr Acquisition account £500 (don’t worry about this account please)

Annual depreciation is £250 for two years

At the date of acquisition, there was no market value analysis of the assets. They are not material to the transaction as such.

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By paul.benny
08th Apr 2021 13:48

Not a stupid question at all.
FRS105 gives a simplified version of FRS102. Essentially, you should fair value the assets acquired, and for fixed assets, depreciate over their remaining useful life.

For fixed assets, NBV at acquisition is a reasonable proxy for fair value, especially if the assets are not material. If there are any, I'd look at the values of land and buildings and not be too concerned about the rest

Any other fair value adjustments are prudence/window dressing: the other side of an increased stock provision on acquisition is goodwill and ditto any other write downs. A more pessimistic/prudent approach now gives future P&L upside possibilities and protects against future negatives.

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By johnt27
08th Apr 2021 14:06

The business purchase agreement may well detail what the fixed assets are worth and what you are paying for them so I would start there. The price agreed between two 3rd parties is as close to FV as you'll ever get!

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By The Dullard
08th Apr 2021 16:00

This used to have its own accounting standard, with goodwill (which could be negative) being the difference between the fair value of the consideration and the fair value of the identifiable net assets acquired.

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