BIM33701 | Business successions: introduction

The guidance in this chapter refers to FRS 102 Section 19 Business Combinations and Goodwill.

Related standards under other frameworks are:

FRS 105 Section 14 Business Combinations and Goodwill

IAS: IFRS 3 Business Combinations; IAS 38 Intangible Assets

Old UK GAAP: FRS 7 Fair Values in Acquisition Accounting; FRS 10 Goodwill and Intangible Assets

FRS 102 Section 19 applies when separate entities or businesses are brought together into one entity, often by one entity purchasing another. The business is bought as an overall deal. Sometimes, but not always, the sale agreement apportions the sale proceeds between different parts of the business being sold.

The purchaser then values all the assets and liabilities and brings them into their accounts at their fair value. The difference between the net asset value and the consideration paid is goodwill. This can be either positive or negative.

The purchase is on capital account for accounting and most tax purposes. All adjustments are balance sheet adjustments for accountancy purposes. The tax treatment follows the accounting treatment for all assets and liabilities within the ‘trading regime’ except stock. For assets within the capital gains, capital allowances regimes or within the Corporation Tax loan relationship, derivative contracts or intangible assets regimes, other factors may need to be considered. For guidance on the Corporation Tax regimes, see the Corporate Finance and Corporate Intangibles Research and Development Manuals.