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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
Updated
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Intangible assets: FA15 and F2A 2015 rules for goodwill and relevant assets: FA15 - computational examples

Examples

The following examples show how to calculate trading and non-trading debits where a company disposes of a relevant asset that includes third party acquisition costs. 

In the first example the asset acquired is not subject to a tax cost adjustment.  The second example includes a tax cost adjustment e.g. a market value adjustment because the accounting value of the goodwill recognised exceeds the market value.

Example 1 - loss on disposal

Accounting cost of goodwill (CE) 280000            
               
Tax adjusted cost of Goodwill (E/ECEA) 280000            
Third party acquisition value (RAVTPA) 70000            
AM = RAVTPA/CEA 0.25            
               
          Year end balances    
  Accounting debit Unrestricted debit S849C(2) debit   Accounting Value Notional TWDV Actual TWDV
Year 1 28000 28000 7000   252000 252000 273000
Year 2 56000 56000 14000   196000 196000 259000
Year 3 56000 56000 14000   140000 140000 245000
               
               
               
               
Relief under Chapter 4 for disposal in year 4       S849C(4)   S849C(5)  
               
               
Sale proceeds 80000            
Accounting loss (sale proceeds (£80,000) less AV (£140,000) = £60,000) 60000            
    D=          
Trading Debit (D x AM); where D is calculated using notional TWDV   60000   15000      
Non Trading Debit (D - TD); where D is calculated using actual TWDV   165000       150000  

 

Example 2 - loss on disposal with adjusted tax cost

 

Accounting cost of goodwill (CE) 400000            
               
Tax adjusted cost of Goodwill (E/CEA) 200000            
Third party acquisition value (RAVTPA) 50000            
AM = RAVTPA/CEA 0.25            
               
          Year end balances    
  Accounting debit Unrestricted debit S849C(2) debit   Accounting Value Notional TWDV Actual TWDV
Year 1 80000 40000 10000   320000 160000 190000
Year 2 80000 40000 10000   240000 120000 180000
Year 3 80000 40000 10000   160000 80000 170000
               
               
               
               
Relief under Chapter 4 for disposal in year 4       S849C(4)   S849C(5)  
               
               
Sale proceeds 60000            
Accounting loss (sale proceeds (£60,000) less AV (£160,000) = £100,000) 100000            
    D=          
Trading Debit (D x AM); where D is calculated using notional TWDV   20000   5000      
Non Trading Debit (D - TD); where D is calculated using actual TWDV   110000       105000