Audit Lowe Down – Costs incurred in acquiring / forming a business

Lowe Lippmann Chartered Accountants

Costs incurred in acquiring / forming a business.


Further to the recent blog about capitalisation of costs when acquiring an asset, we have received a number of questions in relation to costs incurred in setting up / purchasing a business.


Formation costs on establishing a business:

These costs would include:

  • Incorporation fees
  • ASIC registration fees
  • Legal fees
  • Business name registration
  • Pre-operating costs
  • Pre-opening costs.


The relevant standard for these costs is AASB 138 Intangible Assets and paragraph 69a confirms that these start-up costs are expensed when incurred. There is no identifiable asset controlled by the entity when the costs are incurred as the entity does not exist.


Business acquisition costs

These costs would include:

  • Legal and accounting fees
  • Due diligence and valuation costs
  • Stamp duty
  • Advisory or brokerage fees
  • Project management costs related to the acquisition
  • Internal costs allocated to the transaction


In contrast to the asset acquisition discussed previously, AASB 3 Business Combinations requires all acquisition costs to be expensed as incurred. This means that they are not included as part of the consideration paid and therefore do not affect calculated goodwill.


Entities purchasing businesses should be aware that these costs are not able to be capitalised as they can often be substantial, and purchasers often do not expect the costs to be taken directly to the income statement


Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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