CIRD44650 - 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): £280,000
  • Tax adjusted cost of Goodwill (E/ECEA): £280,000
  • Third party acquisition value (RAVTPA): £70,000
  • AM = RAVTPA/CEA: 0.25
Year Accounting debit Unrestricted debit S849C(2) debit Year end accounting value Year end notional TWDV Year end actual TWDV
Year 1 £28,000 £28,000 £7,000 £252,000 £252,000 £273,000
Year 2 £56,000 £56,000 £14,000 £196,000 £196,000 £259,000
Year 3 £56,000 £56,000 £14,000 £140,000 £140,000 £245,000

Relief under Chapter 4 for disposal in year 4

  • Sale proceeds: £80,000
  • Accounting loss: £60,000 (sale proceeds (£80,000) minus AV (£140,000)
  • Trading debit: £60,000 (D x AM); where D is calculated using notional TWDV
  • S849C(4): £15,000
  • Non trading debit: £165,000 (D - TD); where D is calculated using actual TWDV
  • S849C(5): £150,000

Example 2

Loss on disposal with adjusted tax cost

  • Accounting cost of goodwill (CE): £400,000
  • Tax adjusted cost of goodwill (E/CEA): £200,000
  • Third party acquisition value (RAVTPA): £50,000
  • AM = RAVTPA/CEA: 0.25
Year Accounting debit Unrestricted debit S849C(2) debit Year end accounting value Year end notional TWDV Year end actual TWDV
Year 1 £80,000 £40,000 £10,000 £320,000 £160,000 £190,000
Year 2 £80,000 £40,000 £10,000 £240,000 £120,000 £180,000
Year 3 £80,000 £40,000 £10,000 £160,000 £80,000 £170,000

Relief under Chapter 4 for disposal in year 4

  • Sale proceeds: £60,000
  • Accounting loss: £100,000 (sale proceeds (£60,000) minus AV (£160,000)
  • Trading debit: £20,000 (D x AM); where D is calculated using notional TWDV
  • S849C(4): £5,000
  • Non trading debit: £110,000 (D - TD); where D is calculated using actual TWDV
  • S849C(5): £105,000