Negative goodwill

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    Leong
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    How does having negative goodwill affect NCA in the consolidated SOFP? I understand the rational of recognising it as a gain in the SOPL.
    For example, i have a negative goodwill of 10000, so i will add 10000 to the retained earnings. Now that there is an increase in equity, so what is the correspounding entry for this 10000?
    I have read some topics here about negative goodwill but i dont seem to understand the meaning of a negative asset which negative goodwill belong to.
    please enlighten me!


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    MikeLittle
    Keymaster
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    On the acquisition of a subsidiary, we are going to increase the group’s assets by the value of the subsidiary’s assets – so Dr Various Asset accounts and Cr Cost of Control account

    At the same time we are going to be decreasing the group’s assets (paying to buy the subsidiary) – so Dr Cost of Control account and Cr (say) Cash account

    But the amount paid is less than the value of the assets received, hence the balance on the Cost of Control account being a credit balance ie the negative goodwill

    Now, Dr the Cost of Control account and Cr Statement of Comprehensive Income with that negative goodwill amount

    OK?


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    Leong
    Participant
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    Thanks sir. One more question, for positive goodwill, we will include it in the NCA. What happens for negative goodwill? Where do we account for it in the consolidated SOFP?


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    Leong
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    Hey sir I worked through an example and used your double entry as reference. I perfectly understand it now. Thanks sir.


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    MikeLittle
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    Good news – well done.

    And you’re welcome


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    nari
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    Where exactly should negative goodwill go in the sopl? I’m doing a preparation question from the BPP kit and they have decreased the admin expense by the negative goodwill amount of 200, is this correct?


    Profile photo of MikeLittle
    MikeLittle
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    Could be! It’s not a likely candidate for cost of sales. Nor is it particularly fitting as a distribution cost. Finance charge? I don’t think so.

    The examiner could well tell you but, failing that, I think I would be inclined to show it separately as a sundry income


    Profile photo of nari
    nari
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    ok, thanks mike


    Profile photo of MikeLittle
    MikeLittle
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    You’re welcome

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