Negative Goodwill

Jimmyboy1888
Jimmyboy1888 Registered Posts: 32 ๐Ÿ’ซ ๐Ÿฏ ๐Ÿ’ซ
Hi,

Am I right in thinking negative goodwill is not shown in non current assets but, added to retained earnings, on the statement of financial position ?

Thanks

Jim

Comments

  • Rachey
    Rachey Registered Posts: 589
    Hi,

    Am I right in thinking negative goodwill is not shown in non current assets but, added to retained earnings, on the statement of financial position ?

    Thanks

    Jim

    On this subject, out tutor mentioned this would not be examined in June. Can anybody shed any light on this?

    Cheers
  • exam panic
    exam panic Registered Posts: 157 ๐ŸŽ† ๐Ÿ˜ ๐ŸŽ†
    negative goodwill

    will be as profit in income statement
  • A-Vic
    A-Vic Registered Posts: 6,970
  • A-Vic
    A-Vic Registered Posts: 6,970
    Negative goodwill

    Negative goodwill arises when the fair value of acquired assets exceeds the consideration given. Such a situation can arise, for example, when a company which is making heavy losses is taken over.

    If an acquisition appears to give rise to negative goodwill, the fair values of the acquired assets should be tested for impairment and the fair values of the acquired liabilities checked carefully to ensure that none has been omitted or understated. Negative goodwill remaining after the fair values of the assets and liabilities have been checked should be recognised and separately disclosed on the face of the balance sheet, immediately below the goodwill heading and followed by a subtotal showing the net amount of the positive and negative goodwill.

    Negative goodwill up to the fair values of the non-monetary assets acquired should be recognised in the profit and loss account in the periods in which the non-monetary assets are recovered, whether through depreciation or sale.
  • sdv
    sdv Registered Posts: 585
    Rachey wrote: ยป
    On this subject, out tutor mentioned this would not be examined in June. Can anybody shed any light on this?



    Negative goodwill is unlikely to be tested at this level. However, knowledger of it's teratment will have advantages.


    will be as profit in income statement

    Concur!

    IFRS 3 Business Combinations

    Negative goodwill

    Negative goodwill is to be recognised in the profit and loss account
    immediately but requires that the assets and liabilities be reassessed prior
    to recognising negative goodwill

    IFRS 3 recognises that negative goodwill can arise in three circumstances:

    1) Errors in calculation
    2)The requirement of an accounting standard to measure an asset at other then fair value (for example undiscounted tax assets); or
    3)A bargain purchase.
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 ๐Ÿ’ซ ๐Ÿฏ ๐Ÿ’ซ
    Thanks guys but, I'm wondering what the accounting entry is on the consolidated statement of financial position. Not the income staement.

    Cheers

    Jim
  • sdv
    sdv Registered Posts: 585
    Thanks guys but, I'm wondering what the accounting entry is on the consolidated statement of financial position. Not the income staement.

    Cheers

    Jim

    Normally when you have a positive goodwill, you will debit Goodwill account (Non Current Asset) and add the group's assets together.

    When you have a negative goodwill, you will continue to add the group's asset together and credit the the retained earnings account with the negative goodwill, under the equity section.

    The balance added to the retained earnings will have come from Income Statement, where the gain (negative goodwill) on the bargain purchase would have been recognised.
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 ๐Ÿ’ซ ๐Ÿฏ ๐Ÿ’ซ
    Nice one - thanks !
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