Acquisition Costs In Balance Sheet

[cbjroms]

The Balance Sheet which my Accountant has prepared for my submission to the
Bank shows the costs associated with my acquisition of the business (eg
legal, accountancy and arrangement fees) as 'Professional Fees' within the
Fixed Assets.

How can professional fees be considered as a fixed asset; surely they are an
expense?

Thanks in anticipation.

Chris

 

[Ronald Raygun]

The Balance Sheet which my Accountant has prepared for my submission to
the Bank shows the costs associated with my acquisition of the business
(eg legal, accountancy and arrangement fees) as 'Professional Fees' within
the Fixed Assets.

How can professional fees be considered as a fixed asset;

Not all assets are tangible. It may seem odd to you because you can't
"re-sell" the spent fees and raise money by so doing. Well, not in
the simple sense, but consider that if and when in the dim and distant
future you sell the business again, you can set them against the sale
proceeds (together with the purchase costs and the expenses associated
with the sale) in order to reduce your paper profit and hence any taxable
capital gains.

surely they are an expense?

Not to worry. Assets and expenses are similar. They're both debits.
The difference is that expenses are revenue whereas assets are capital.
Generally costs associated with capital expenditure must also go on
the capital, not revenue, side of the accounts.

 

[cbjroms]

Thanks for this.

How would I refelct this situation onto my Sage Line 50? Should I create a
new nominal code (within Fixed Assets) for Acquisition Costs? Or should I
just call the category intangible assets?

Chris

 

[Ronald Raygun]

How would I refelct this situation onto my Sage Line 50? Should I create a
new nominal code (within Fixed Assets) for Acquisition Costs? Or should I
just call the category intangible assets?

The former, I guess. Just do whatever most closely matches in the
sage world what your accountant has already done for you in real life.

 

[Jonathan Bryce]

The Balance Sheet which my Accountant has prepared for my submission to
the Bank shows the costs associated with my acquisition of the business
(eg legal, accountancy and arrangement fees) as 'Professional Fees' within
the Fixed Assets.

How can professional fees be considered as a fixed asset; surely they are
an expense?

They form part of the cost of acquiring the asset.

 

[FJ]

What your accountant has done is because of 'FRS 15 Tangible fixed assets' -
the initial measurement of the cost of the asset should include 'directly
attributable costs', which of course the professional fees are. However, in
the real world I think that most accountants would simply include them as
part of your professional fee in the profit & loss account, at least then
you could obtain the tax benefit in the year of acquisition rather than
through capital allowances being drip-fed.

IMHO of course.