ILLMAS Posted August 2, 2022 Report Share Posted August 2, 2022 Scenario TP bought an established business for $10K, bill of sale states the following: Widgets $25K estimated retail value of inventory Furniture & Equipment $10K Total sales price $10K So the TP paid $10K for a business that is worth $35K, how does one account for the $25K? Thanks Quote Link to comment Share on other sites More sharing options...
jklcpa Posted August 2, 2022 Report Share Posted August 2, 2022 48 minutes ago, ILLMAS said: how does one account for the $25K Purchaser doesn't. His concern is only that he paid $10K and how to allocate that for the assets acquired. Does the bill of sale break down the sales price between the inventory and F&F? Was a form 8594 prepared? That allocation is what you need to know. Seller also needs to know that allocation for reporting his side of the transaction too. 6 Quote Link to comment Share on other sites More sharing options...
Elrod Posted August 2, 2022 Report Share Posted August 2, 2022 Here is my calculation, for what its worth... Debit....Inventory..$7,100.00 Debit....Furniture & Equipment..$2,900.00 Credit....Capital......................................$10,000.00 25k is 71% of 35k 10k is 29% of 35k Thus my above calculation. Hope this might help, Illmas 5 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted August 2, 2022 Author Report Share Posted August 2, 2022 18 minutes ago, jklcpa said: Purchaser doesn't. His concern is only that he paid $10K and how to allocate that for the assets acquired. Does the bill of sale break down the sales price between the inventory and F&F? Was a form 8594 prepared? That allocation is what you need to know. Seller also needs to know that allocation for reporting his side of the transaction too. How I listed in the scenario is exactly as it appears on the bill of sale, the widgets just has that note. I am representing the buyer and the prior preparer did not prepare the form, I am redoing the books for the prior tax year since the client records needs major cleanup. 3 Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted August 4, 2022 Report Share Posted August 4, 2022 The business probably wasn't worth $35K to the buyer. Buyers of business don't usually pay retail for the existing inventory. 7 Quote Link to comment Share on other sites More sharing options...
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