Week 19 - Incorporation (Acquisitions) & VAT

Question 1

Goodwill def. & how to calculate it

Answer 1

Difference between the purchase consideration (price paid) and the net assets of the acquired company

Goodwill = purchase consideration - Value of net assets to be taken over

Question 2

What happens when purchase consideration is lower than net assets of the firm to be acquired

Answer 2

This difference is essentially negative goodwill, and is known as Capital Reserves

Question 3

Accounting for VAT

Answer 3

VAT must be paid by the firm and thus a separate VAT account must be made

VAT accounts record the input tax (vat on purchase of goods) and output tax (VAT on sales)

They can be used to offset eachother, so if output tax is higher than input tax then the difference is payable to HMRC.
But if output tax is greater then the remaining balance is deductible from HMRC

Question 4

VAT Payable Formula

Answer 4

VAT output tax - VAT input tax

Question 5

VAT Rate and who qualifies

Answer 5

VAT = 20%

If the value of taxable supplies exceeds £85,000, which is the statutory limit, the trader must be registered for VAT.

You can deregulated from VAT if taxable suppliers are below £83,000