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Hopefully, not a silly question......

Hello board members,

I'm helping a friend with his limited company accounts. I passed my AAT exams over 10 years ago and although I've always worked in finance (now in the public sector), i'm somewhat rusty on the chartered side of things.
I've tried to find an answer to my question, but at the moment i'm still stuck. Please can someone help me?!

The scenario:

My friend has purchased a business off someone he knew, however he did not purchase the limited company (XXXXX LTD) but instead continued the trading of that limited company and incorporated under a new name ( XXXXX EVENTS LTD). The purchase of the business has been agreed to be paid in instalments, which are now coming out of the XXXXX EVENTS LTD business bank account.

What is the correct accounting procedure for these instalments? Has my friend purchased IP i.e an intangible asset? Is it goodwill? Would the original down-payment be treated as an investment in XXXXX EVENTS LTD and future payments be taken from retained earnings? I'm just a little confused by it all.

I hope this has been explained correctly and someone can offer some advice.

Many thanks, guys.

Comments

  • phoenixdphoenixd LondonRegistered Posts: 50
    Can you clarify what was bought? Have you looked through the contract? Were shares or assets bought? Were the debtors, funds in the bank, etc transferred? If fixed assets were acquired, they'll need to be recorded as FA, obviously. If the company wasn't sold as a going concern, why not? Was there a change of name on sale? Is the xxxxx ltd still trading? You can't record goodwill if the original company is still trading and never sold. What was actually sold/transferred? Was it at arm's length? Does the bank know? Do the suppliers know? Have you looked through the 'pre-sale' and 'post-sale' balance sheets of xxxx ltd? Please study the formal 'sale' contract for a complete breakdown of costs. This transaction is unusual... and that's an understatement.
    MarieNoelle
  • bcasolutionsbcasolutions Registered Posts: 3
    Thanks for the reply.

    After further discussions today i'm now aware that the actual sale was for the mailing list, paypal contacts and essentially, the brand.

    He's sending me the contract asap, but from what I am told, the contract is just confirmation of what i've already seen in an email from the previous owner - the options of whether to pay £xx amount upfront or pay £xx per month over instalments, which is what was finally agreed.

    All sales are through paypal for event tickets and an agreed paypal balance was paid over to the current business account less the first two instalments, after incorporation, with a small amount of customer payments being received before that date.

    I don't believe the original company is still trading. After searching Companies House for the previous company name, I can see that no accounts have been filed and that company is up for dissolution in a few weeks. I asked today why didn't he just purchase the previous company, rather than incorporating under a similar name. I wasn't given an overly conclusive answer to that, but I think it was through ignorance of the fact that would of been easier, rather than anything untoward.

    Thank you for your kind input and help with this.

    Kind regards,

    Ben









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