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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.
Any negative goodwill in excess of the fair values of the non-monetary assets acquired should be recognised in the profit and loss account in the periods expected to be benefited.
I would like to know when it is treated under assets in balance sheet and when is it written off against reserves in equity?
ITO IFRS 3 . 34- 35 a gain from burgain purchase should be recognised in the SOP&L in full, likewise goodwill armotisation has been disallowed. This means that it becomes part of the distributable reserves in the SOFP. ITO IFRS1 there is no such thing as negative goodwill to be presented on the face of the SOFP. I am not sure what other jurisdictions prescribe but if you writting the INT version then the above is the required treatment. I hope that helps
Can i confirm with u? Is the negative goodwill added to capital reserve or revenue reserve?
Treatment of negative goodwill
1. first check the calculation
2 credited to profit or loss, so it will reduce reserves balance..
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