Opening Stock

[Flower]

Can anybody help...

If a new company, bought a company and all its stock. The value of the opening stock is (according to the solicitors purchase documents £70k) but only £30k if you go on the price paid for the company.

I have found out i can use the £70k value but what journal do i use to post the difference of £40k into the aco****s??:rolleyes:

[Homshaw]

If the stock is only worth £30K why are you paying £70K for it?

The valuation of goodwill is important as it can be written off against the profits of a company

You also need to watch out for the valuation of integral features if you are buying a building as the value can be used against your Annual investment allowance

If your'e going to buy a business you need to see an accountant or you could be disadvantaged

[Zeno]

You can't use the £70k. Stock must be valued at the lower of cost and net realisable value. Not sure at all why stock with a supposed value of £70k would be sold for £30k but I daresay they had their reasons an is probably someones idea of tax planning.

[Flower]

Hi Zeno,

thanks for that, i dont think i've explained properly.

the comapny was bought for £75k, the fixed assets were valued at £45k leaving £30k in the purchases price to allocate to stock. the actual value of the stock as per the purchases agreement was £70k which i have clarified i can use as set out in section icta88/s100.

The 70K is the cost not nrv therefore i can allocate the remaining 40k but i dont know if its just an opening bal equity and opeong stock journal??

please help :)

[Zeno]

Was the sale of the company to you from a connected party?

[Flower]

no not a connected party... :|. the company was just purchased as a going concern.

[elainec100@cheapaccounting]

What was the cost to you / the limited company of the stock?

[elainec100@cheapaccounting]

The price received for the stock is the amount that was realised on sale, or the value of the consideration given for the transfer, ICTA88/S100 (1A)(a),

[Flower]

the cost to me was £30k but the hmrc have confirmed i can use the £70k value as per section 100

[Zeno]

the cost to me was £30k but the hmrc have confirmed i can use the £70k value as per section 100

As I understand it, they would only have said this if the sale was at anything other than arms length - to a connected party.

[Flower]

please explain the 'arms lengh' comment?? :rolleyes:

[Zeno]

please explain the 'arms lengh' comment?? :rolleyes:

Arm's length is a term used to describe a transaction between two independant parties who have no relationship to each other than making the transaction in question.

If you go to a shop and buy a tin of coke that transaction is it arms length. If you go into your brothers shop and buy a tin of coke for £0.01 then that transaction is at less than arms length.

As you obtained £45K worth of assets and £70k worth of stock for £75k excluding any goodwill etc then it would seem to suggest that there was more to the deal.

[Flower]

ok thanks, the only reason we had it cheap was because the old owner had debts to pay and needed to get rid of the company quickly.

therefore we negotiated a good deal... the revenue said as long as the actual value of stock (70k) is stated in the purchase agreement compiled by the solicitor then taht figure can be used. if nothing is specified in the purchase agreement then the price paid has to be used.

im very confused :eek: hee hee

[elainec100@cheapaccounting]

A word of warning - unless you have the advise form HMRC in writing then is really isn't worth the 'paper' it is written on.

Take the matter up with your accountant for the business and get them to advise on it.

[Flower]

ok thanks for you help :)