Ifrs 3

Hi Guys,

I'm a bit confused about how you treat negative goodwill in the Consolidated Financial Statements.

If the fair value of the net assets acquired exceed the cost of the investment by say $12,000 and therefore the negative goodwill is $12,000

Is it correct that the negative goodwill is reduced to zero in the consolidated statement of financial position and in the consolidated Statement of comprehensive income you ADD this negative goodwill element under the heading gain from bargain purchase?

Back when I did previous examinations under UK accounting standards - FRS 10 - I am almost positive that this negative goodwill element was recorded at its negative amount in the balance sheet, and any negative goodwill was deducted in the income statement.

If I was to assume that we were accounting in accordance with IFRS/ IAS - would the former be the correct treatment?

I did a search on google and a lot of people seem to think that negative goodwill is a good thing?

Any help here would be really, really appreciated!!

Many thanks!!


  • omega man
    omega man Registered Posts: 283
    I believe negative goodwill is written off in the income statement immediately, see page 240 limited company accounts Osborne books. If you have positive goodwill it may be decided that some of this is impaired and write this off in the income statement and deducted from retained earnings. Goodwill is also tested for impairment annually.
  • The Magician
    The Magician Registered Posts: 96 ? ? ?
    Many, many thanks for your reply Omega man.

    From my L4 FNST studies I would absolutely agree with you and done the same thing.

    I'm taking CIMA now which comprises similar consolidation questions to FNST, but a little bit more in-depth.

    They have written the goodwill arising on acquisition to zero, literally $0.00 in the consolidated SOFP and added the amount by which fair value of assets exceeding the cost of investment to the Working 5 retained earnings calculation section.

    Massively confused......

    Has anyone heard of this?
  • Nps
    Nps Registered Posts: 782
    Yes, that sounds correct. I'm just doing ACCA F7 which is Financial Accounting and my understanding is that negative goodwill is shown as zero in the consolidated statements and is immediately recognised in profit/loss. The negative goodwill is almost like a revaluation of assets, you've only paid X but you know it's worth X+? so the excess is a gain.

    Negative goodwill is a good thing - you've paid less than the fair value for the assets you are purchasing (though of course this may be an indication of other not so desirable issues but that's not an accounting issue), hence why it is also known as a Bargain Purchase.
  • The Magician
    The Magician Registered Posts: 96 ? ? ?
    This is a brilliant - many thanks for taking the time to clear this issue up for me.
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