Assets v Goodwill

[alig31]

Hi all,

As a purchaser of a business, am I correct in saying that it is more beneficial for me to have the asking price for the business apportioned as the maximum value for the Assets and the minimum for Goodwill, and this the opposite for the seller.
I understand that goodwill is an intangible asset but cant be measured for business value as such. So should I be negotiating the highest Asset Value and the least goodwill for the apportionment in the sale the Purchase Agreement.

regards

Al G

 

[elaine@cheapaccounting]

You should negotiate to what the assets and goodwill are worth

 

[alig31]

Thanks Elaine, but should I be negotiating for the best price for the assets so long as they are greater than the value to the business or does it not matter what is goodwill and what is assets for amortisation and depreciation.

regards
Al

 

[cws accounting]

Usually the value of the assets is fairly easy as either the written down value is used, or a market value if this is higher (for property for example). Goodwill is much more subjective and so is much harder to calculate. This is usually the one where you will end up negotiating on as the asset values are usually easily agreed. You will want the goodwill to be as low as possible, the seller will want the goodwill to be as high as possible, as this will determine the ultimate price you pay for the business.

 

[alig31]

ok thanks, I thought that was the case. We have agreed a purchase price but need to apportion the agreed price to assets and goodwill.

Regards

Al

 

[David Griffiths]

The answer will to a certain extent depend on whether you are buying the business as a sole trader or through a limited company, information which isn't provided.

 

[alig31]

My Limited Company is buying the business, but is buying the assets of the current business not the company.

regards

Allan G

 

[qul]

from your point of view as a purchaser, the future tax deduction from assets, such as capital allowances or cost of inventories, is likely be far quicker than for goodwill which only gets 4% straight line tax deduction.

HMRC may challenge if they consider that the allocation isn't justified on a commercial basis.

 

[qul]

sorry, just realised I was thinking in IFRS mode where goodwill isn't normally amortised. as the tax treatment on goodwill follows the accounting treatment, if amortise over 5-10 yrs in UK GAAP, get 20%-10% deduction etc.