Home For AAT student members AQ 2013 AAT Level 4 (Level 8 in Scotland)
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚


Negative Goodwill in Cons Accounts

jewels.pjewels.p Font Of All KnowledgeRegistered Posts: 1,774
I dont understand why Negative Goodwill is added to Retained Earnings in Consolidated Accounts. Can anyone explain this to me clearly?

Thanks

Comments

  • anniemanniem Experienced Mentor Pewsey, WiltshireRegistered Posts: 1,326
    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
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    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.pjewels.p Font Of All Knowledge Registered Posts: 1,774
    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.pjewels.p Font Of All Knowledge Registered Posts: 1,774
    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:
Sign In or Register to comment.