Negative Goodwill in Cons Accounts

jewels.p

I dont understand why Negative Goodwill is added to Retained Earnings in Consolidated Accounts. Can anyone explain this to me clearly?

Thanks

anniem

Goodwill was added into the value of the business at time of buying into the business.

If the value of goodwill has decreased during the year, then the amount paid for the business is now overstated in the account, therefore the reduction in value owing to reduced goodwill needs to be shown.

This is only my understanding, not a definitive definition!

Anna

Steve Collings

Under IFRS 3, negative goodwill is recognised as income in the statement of comprehensive income. If you consider what 'retained earnings' are - they are accumulated profits over the years which have 'built up'. If you were preparing both the statement of financial position and the statement of comprehensive income, the credit would go to income, which would then uplift profits which then get transferred to retained earnings in the equity section of the statement of financial position. By sending the credit directly to retained earnings you are essentially doing the same thing.

Hope that helps.

Regards

Steve

jewels.p

anniem wrote: »

Goodwill was added into the value of the business at time of buying into the business.

If the value of goodwill has decreased during the year, then the amount paid for the business is now overstated in the account, therefore the reduction in value owing to reduced goodwill needs to be shown.

This is only my understanding, not a definitive definition!

Anna

Thanks Anna

jewels.p

Steve Collings wrote: »

Under IFRS 3, negative goodwill is recognised as income in the statement of comprehensive income. If you consider what 'retained earnings' are - they are accumulated profits over the years which have 'built up'. If you were preparing both the statement of financial position and the statement of comprehensive income, the credit would go to income, which would then uplift profits which then get transferred to retained earnings in the equity section of the statement of financial position. By sending the credit directly to retained earnings you are essentially doing the same thing.

Hope that helps.

Regards

Steve

Yes it does thanks again Steve now I get it (I think). There is so much to learn for DFS I am glad we have an expert like you to explain it so it sounds easy! Can you come and sit beside me in my Exam please?......................No I didn't think so! :laugh: