Results 1 to 7 of 7

Thread: Do you carry over Accumulated Losses when acquiring an existing business

  1. #1
    New Member
    Join Date
    Mar 2016
    Location
    Gauteng
    Posts
    3
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Do you carry over Accumulated Losses when acquiring an existing business

    Was wondering if anyone could help me with this.
    We are considering acquiring a small business that is currently in operations for 2 years.
    During this period the business has recorded losses.
    I will be taking over all stock, suppliers and debtors accounts.
    Do I also have to take over the accumulated losses onto my company?

    Tx

  2. #2
    Silver Member
    Join Date
    Sep 2012
    Location
    Louis Trichardt
    Posts
    251
    Thanks
    52
    Thanked 38 Times in 34 Posts
    I am not sure about that, but what I can warn you about, is that it might be better to take over the entire business, and not parts of it, for VAT purposes, because then it would be seen as a going concern, and the transaction seen as Zero Rated.

  3. #3
    Gold Member
    Join Date
    Jun 2010
    Location
    Johannesburg
    Posts
    818
    Thanks
    178
    Thanked 175 Times in 144 Posts
    I assume you mean the tax on accumulated (assessed) losses. Normally this would be a good thing to take on as it can be offset against future profits thus reducing tax. However I am pretty sure you need to buy the actual company in order to get this and not just parts of it. The tax loss belong to the actual company and can't really be sold any more then you can sell a VAT number separately for example. In addition I believe SARS has some strict requirements regarding assessed tax losses and changes in the nature of business and in share holdings may affect this. Sorry can't help with specifics here.

    So from your wording in your question, no I don't think you "have to" take on the tax losses, in fact it might be tricky to do so.

    Did I understand your question correctly?

  4. #4
    New Member
    Join Date
    Mar 2016
    Location
    Gauteng
    Posts
    3
    Thanks
    0
    Thanked 0 Times in 0 Posts
    Hi

    We are not too concerned about the Vat.
    We are incorporating the Suppliers,Debtors and Stock into our existing company.

  5. #5
    New Member
    Join Date
    Mar 2016
    Location
    Gauteng
    Posts
    3
    Thanks
    0
    Thanked 0 Times in 0 Posts
    Quote Originally Posted by BusFact View Post
    I assume you mean the tax on accumulated (assessed) losses. Normally this would be a good thing to take on as it can be offset against future profits thus reducing tax. However I am pretty sure you need to buy the actual company in order to get this and not just parts of it. The tax loss belong to the actual company and can't really be sold any more then you can sell a VAT number separately for example. In addition I believe SARS has some strict requirements regarding assessed tax losses and changes in the nature of business and in share holdings may affect this. Sorry can't help with specifics here.

    So from your wording in your question, no I don't think you "have to" take on the tax losses, in fact it might be tricky to do so.

    Did I understand your question correctly?
    Yep... This pretty much sums it up for me. The problem with this company is that the losses are quite high and we are concerned it will have an impact on future funding requirements.

  6. #6
    Gold Member
    Join Date
    Jun 2010
    Location
    Johannesburg
    Posts
    818
    Thanks
    178
    Thanked 175 Times in 144 Posts
    Quote Originally Posted by Keith101 View Post
    Yep... This pretty much sums it up for me. The problem with this company is that the losses are quite high and we are concerned it will have an impact on future funding requirements.
    That is not your problem (if you did no buy the actual company). The losses and track record belong to that company.

    Of course you should remain concerned as to why they made losses and to be sure that you can turn that around, into profits. But from an accounting point of view the losses made by a third party should be irrelevant to your books.

  7. #7
    Diamond Member Justloadit's Avatar
    Join Date
    Nov 2010
    Location
    Johannesburg
    Posts
    2,541
    Thanks
    84
    Thanked 516 Times in 434 Posts
    Blog Entries
    1
    Buying the company over, also buys over the commitments the company has made. This can be a major shock, as creditors may attack you legally to get paid.

    Personally, I would stay away from buying the company, and only take over the debtors and creditors, as from the date you start trading with them, and offer to purchase the current stock at market rate - check out for dead and old stock or slow moving stock, which has little value. There may be some skeletons in the closet, which can cost you a fortune.

    When you take over, you visit each debtor, and get them to acknowledge you as the new supplier, and if you intend giving credit, bad idea of course, unless you can not avoid it, get them to fill in a credit application, and provide them with the new banking details. Use the current debtors receipt list to verify if they are good payers, if not, place them on COD. If they go, no loss as they would take you down due to non payment anyway.

    Also go visit the creditors, and let them know that you are taking over the future business, and that you will not be responsible for any outstanding debts, and that you will manage the account as from the date you trade. They will invariably get you to fill in a credit application, or place you on COD. Hiding behind the previous company details will open you up for litigation, if there are unpaid invoices.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

Similar Threads

  1. [Question] Registering an existing business for tax
    By Jacky in forum Tax Forum
    Replies: 5
    Last Post: 22-Sep-14, 02:29 PM
  2. Replies: 16
    Last Post: 20-Jun-13, 08:17 PM
  3. [Question] CC Accumulated Losses
    By Singhms in forum Accounting Forum
    Replies: 6
    Last Post: 06-Aug-12, 07:10 AM
  4. [Question] Retail business: Accounting for POS losses
    By J7J in forum Accounting Forum
    Replies: 2
    Last Post: 26-May-11, 08:02 AM
  5. [Question] Things to check when purchasing an existing business
    By Singhms in forum General Business Forum
    Replies: 4
    Last Post: 17-Jul-09, 08:05 PM

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •