Hi Alan,

Could you please help me with one. I have enquired about a business that is for sale and they have kindly emailed me the fiancials.
But the broker has given me a breakdown of the valuation.
$10,000 stock
$100,000 Goodwill
$185,000 Plant and machinery.

Totals $295,000 asking price for business.

After looking at the Plant and machinery depriciation sheet; the cost to buy brand new including GST totals nearly $185,000. It now is only woth $81,600 with GST after depriciation.

I may be stupid, but can the business brokers include the plant and machinery at start up costs (New). In my mind as these items are used, surely they can only value them at the depriciation price.

This would then make the business worth
$191,600. Would this be correct?

Thanks

Chantal

Your reasoning sounds correct to me ... do you want a local accountant to "go into bat" for you? I can advise a name and telephone number if you'd like to send me an email ...

Best regards.

The taxation value of plant may not reflect its true value. However, as you state, the vendor appears to be asking an inflated price.

This may however be to your benefit as you will be able to claim depreciation on the amount paid for the plant.

Certainly ask the question as to why the plant is overpriced, but in my experience the vendor will simply "commute" any downward plant valuation into goodwill. Goodwill is capital and will remain in the balance sheet until such time that you dispose of the business.

One last point - you state that all fiqures are GST inclusive. Ask the vendor to include a clause stating the business is being sold as a going concern - you will then not have to pay GST and therefore reduced oncosts (if any).

Feel free to contact me if you require any assistance.