Question

(1)  Tammy’s sole proprietorship (Schedule C) business, Tammy’s Florals, has been quite successful over its 10-year life. But now Tammy is ready to retire, so she negotiates a sale of the business for $5 millionto Timmy. The purchase agreement does not allocate the purchase price among the various assets, but the following demonstrably are the stand-alone FMVs of the various categories of assets:

• Land $500,000

• Building & fixtures $850,000

• PP&E $600,000

• Inventory $150,000

• Receivables and other current assets $50,000

State (i) Timmy’s total cost basis in depreciableproperty and (ii) the dollar-amount of goodwill Timmy has purchased.

Answer 1

I) Total Cost in Depreciable Property
Descreption Of Assets		(Amt in $)
Land		5,00,000
Building & Fixtures		850000
Property, Plant & Equipement		600000
Inventory		150000
Receivable		50000
Total		21,50,000
II)Calculation Of Goodwill
Total Amount of Consideration for sale of Business		5000000
Less: value for Depreciable Assets		-21,50,000
Value of Goodwill		28,50,000

If the consideration paid is more than the amount of the assets takenover then the difference between consideraton and valuye of assets at FMV shall be treated as Goodwill.