An example of when this may occur is a forced sale: when the seller is acting under compulsion. How Does Negative Goodwill Work? Why would this happen? IFRS 3 requires the acquirer to recognise any negative goodwill in the profit or loss on the acquisition date (para 34). In simple terms: X acquired 90% of Y for £10m. of the subsidiary. Goodwill is an intangible asset for a company, such as a brand name or intellectual property. The purchase of B by A is eliminated on consolidation. I am working on my first consolidation for a client. It is also called negative goodwill. Nevertheless, goodwill is an intangible asset that can neither be seen nor be felt, although it exists in reality and can be purchased and sold. Goodwill can exist for many reasons. The assets are actually worth $35,000,000, but Company XYZ gets a deal because Company ABC needs cash immediately and Company XYZ was the only buyer willing to pay cash. Bargain Purchase (aka Negative Goodwill) If the FV of assets is more than value of business, recognise gain in P&L. on Consolidation, 1)Remove £10m investment in sub, 2)Remove share capital and net assets of sub £2m. 3) Insert goodwill - £8m (balancing figure between the two) There are two ways to calculate its value, a need … Your goodwill is then the difference between the investment made by C and the net assets of A + B. The principles are … Sometimes you might find an acquirer will pay less to acquire an entity that the fair value of its net assets. For example, let's assume Company XYZ purchases the assets of Company ABC for $20,000,000. Nowhere in the above does “negative goodwill” come into any equation. 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. Under these circumstance s, ‘negative goodwill’ or a ‘bargain purchase gain’ will be recognised (para 34). Even though we only own 80% of the share capital, the full goodwill method brings 100% of the goodwill on to the consolidated statement of financial position. This is consistent with the treatment of other assets and the concept of control. This is why we need to include the fair value of the non-controlling interest in our goodwill calculation. The difference between the purchase price and the fair market value is $15,000,000. (I've assumed that all subsids are 100% owned and that each acquisition was done all in one go. 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