When a company buys a business’s trade and assets, the assets, the liabilities it takes on and any goodwill go straight onto the buyer’s own balance sheet at fair value under FRS 102 Section 19. When it buys the shares instead, its own balance sheet shows a single investment in a subsidiary, the target’s own accounts carry on unchanged, and the fair values and goodwill appear only in consolidated accounts.

Why does the deal structure change the accounts?

FRS 102 defines a business combination as the bringing together of separate entities or businesses into one reporting entity (paragraph 19.3), and paragraph 19.4 recognises that a combination may be structured as a purchase of another entity’s equity, a purchase of its net assets, or a purchase of some net assets that together form a business. Economically the buyer may be getting the same business either way. What changes is which reporting entity the business sits in.

In a trade and assets deal, the buyer company itself becomes the owner of the business, so its individual accounts are the reporting entity in which the combination is recognised. In a share deal, the target company continues to own the business, and the buyer owns the target. The combination is then only visible when the two are combined in group accounts. The tax consequences of each route are covered in selling a company: share sale or asset sale; this page is about the accounts.

What does the buyer record on a trade and assets purchase?

The buyer applies the purchase method in its own individual accounts:

  • Cost. Paragraph 19.11 measures the cost of the combination as the fair value of the consideration given plus costs directly attributable to the combination. Contingent consideration is included if probable and reliably measurable (paragraph 19.12).
  • Assets and liabilities. Paragraph 19.14 recognises the identifiable assets acquired and liabilities and contingent liabilities assumed at fair value at the acquisition date. Only liabilities the buyer actually takes over are recognised; the seller keeps the rest.
  • Deferred tax. Paragraph 19.15A applies Section 29, and paragraph 29.11 requires deferred tax where the tax base of an acquired asset (other than goodwill) differs from the value at which it is recognised, with goodwill adjusted for the deferred tax.
  • Goodwill. Paragraph 19.22 recognises goodwill as the excess of cost over the net amount of identifiable assets and liabilities. Paragraph 19.23 then requires amortisation over its useful life, capped at 10 years where no reliable estimate can be made.
  • Results. Paragraph 19.16 brings the acquired business’s income and expenses into the buyer’s profit and loss account from the acquisition date, with depreciation based on the acquisition fair values.

The buyer also gives the paragraph 19.25 disclosures in its own accounts, including the cost and its components, the amounts recognised for each class of assets and liabilities, and the useful life of goodwill. A purchase of assets that do not amount to a business is outside Section 19 altogether (paragraph 19.2(b)), so no goodwill arises.

What does the buyer record on a share purchase?

In its individual accounts the buyer records one asset: an investment in a subsidiary. Paragraph 9.26 allows a parent to carry that investment at cost less impairment, or at fair value through other comprehensive income or profit or loss, applying the same policy to every investment in the class. No goodwill and no individual assets of the target appear in the buyer’s own balance sheet; see investments in subsidiaries in the parent’s accounts.

The target’s own accounts are unaffected. It keeps its assets at their existing carrying amounts, keeps all its liabilities and history, and does not record any fair value uplift or goodwill because it has simply changed owner.

The purchase method still applies, but in the group accounts. Section 399(2) requires a company that is a parent at the year end to prepare group accounts unless it is exempt, for example under the small companies exemption in section 399(2A). In those group accounts the target’s net assets are brought in at fair value and goodwill is recognised, exactly as in an asset deal, and paragraph 29.11 deferred tax is recognised on the fair value adjustments. If the buyer is exempt and does not consolidate, the fair values and goodwill never appear anywhere. The mechanics are covered in FRS 102 Section 19: business combinations and goodwill.

How do the two routes compare in numbers?

Illustration only. A buyer pays £900,000 for a business. The business’s identifiable net assets have a book value of £500,000 and a fair value of £600,000. To keep it simple, ignore transaction costs and deferred tax, and assume goodwill is amortised over 10 years.

Item Trade and assets Shares
Buyer’s own balance sheet Net assets £600,000 and goodwill £300,000 Investment in subsidiary £900,000
Target’s own balance sheet Seller company holds £900,000 cash in place of the business Net assets still £500,000, no goodwill
Group balance sheet Not needed for this deal Net assets £600,000 and goodwill £300,000
Goodwill amortisation £30,000 a year in the buyer’s own profit and loss account £30,000 a year in the consolidated profit and loss account only
Extra depreciation on the £100,000 uplift In the buyer’s own accounts Consolidation adjustment only

The group picture is the same under both routes. The difference is where the numbers live, and therefore whose reported profit carries the amortisation and fair value depreciation.

What happens to goodwill and impairment after the deal?

After an asset deal the buyer tests the goodwill itself for impairment under Section 27 when there are indicators. After a share deal the buyer’s own accounts test the investment instead, comparing its carrying amount with its recoverable amount, while the group accounts test the goodwill. A fall in the target’s value can therefore produce an impairment in the parent’s own accounts, in the group accounts, or both.

Dividends add a share deal wrinkle. ICAEW’s helpsheet on dividends from subsidiaries says that where a dividend is a return of the investment rather than a return on it, for example a material dividend paid shortly after acquisition, the parent can either credit it to profit and loss and separately impair the investment, or credit it against the cost of investment. ICAEW considers the second approach appears more faithfully to reflect the substance. No equivalent question arises after an asset deal, because there is no subsidiary paying dividends.

Does the tax treatment follow the accounts?

For goodwill it largely does. HMRC’s Corporate Intangibles Research and Development Manual at CIRD11070 explains that where a company takes over a business by acquiring shares, the excess of the price over the fair value of the target’s net assets is goodwill in the consolidated accounts only, does not appear in any company level balance sheet, and is outside the scope of Part 8 of the Corporation Tax Act 2009. Goodwill bought in a trade and assets deal sits in the buyer’s own balance sheet and so starts within that regime, although relief for it is restricted; the conditions are explained in the business combinations page linked above. A trade and assets deal also raises VAT questions that a share deal does not; see transfer of a going concern where relevant.

What mistakes come up most often?

  • Putting goodwill in the parent’s own balance sheet after a share purchase. ICAEW’s hive up helpsheet notes that when a company acquires shares, separate recognition of goodwill in the parent’s own accounts is not usually appropriate. That changes only if the business is later moved into the parent, covered in accounting for a hive up.
  • Carrying the seller’s book values across in an asset deal. Paragraph 19.14 requires fair values, and the purchase price allocation should be documented.
  • Treating a bundle of assets as a business, or the reverse. Only a business gives rise to goodwill.
  • Forgetting deferred tax on fair value adjustments, which changes the goodwill figure.
  • Assuming liabilities follow the business. In an asset deal only liabilities expressly assumed are recognised by the buyer; in a share deal every liability of the target, known or not, stays in the company the buyer now owns.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.