Nominal Code for Purchase of another company

Accounting
1

Hi Guys,

I have recently purchased clients from another company based on 3 months NET profit that the clients generate minus the running costs for these clients, can anyone possibly advise how I log this?

I have an invoice from the company so have created a purchase for the agreed amount but I’m not sure what category I should assign the purchase to.

Regards
Donna

2

I’ve just been thinking, as I didn’t actually purchase any assets as such, all I did was take on the customers (who pay a monthly retainer) and the associated costs I.e subscriptions for those clients, would this be classed as a Goodwill payment?

3

Hi @sitewideuk

I feel that this is something that will be better answered by an accountant, but I will try to help so your post doesn’t go unanswered.

As part of you taking on the clients, would I be right to assume they pay you the retainer, and you pay the original business a percentage or similar?

4

Thank you,

I have paid the company 3 x the monthly Net profit for the clients, there fore the monthly retainer for each client now comes directly to me without having to pay the other company.

Regards
D

5

It sounds to me like goodwill but I’d still check with a real accountant (or wait for the likes of @FaradayKeynes or @SQKaccountancy to comment on here :wink:).

2 Likes
6

I would say it is simple case of intangible asset not goodwill as no other assets/liabilities and premium involved for the whole business. Record initial payment as intangible asset and then rest business as usual

1 Like
7

I would say there is a goodwill element here. The new standard defines goodwill as:

“goodwill is the excess of the cost of a business combination over the acquirer’s interest in the net amount of the identifiable assets, liabilities and contingent liabilities recognised.”

Assuming this counts as a business combination, as you have purchased a business, then you should have goodwill.

It sounds like you have got no other assets from this ie cash or trade debtors etc, so the payment should be logged as goodwill.

Then the sales and costs of running the clients should be treated as normal.

I hope this helps.

Kind regards,
Chris