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Bargain Purchase of a Business

Facts

A company purchased a trading business. The business was performing badly and because of surrounding circumstances the company acquired the trade and its assets for much less than the value of its net assets.

Our Advice

As the company traded on with the business it realised the net book value for most of the assets that it acquired and therefore made a gain.

We reviewed the situation and relevant accounting guidance and established that the discount achieved for the purchase should be reported as “negative goodwill” in the company’s accounts.

Outcome / Savings

The gain that is described as negative goodwill in the accounts is subject to a beneficial tax treatment, saving the company thousands of pounds.