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Hi Mike,
Bit of a long shot but if we got negative goodwill how do we account for it on consolidation? Do we include it on w2?
Thank you in advance
BronwynHi Mike,
Think you’ve just answered this below, someone else was stuck on it too! Thank you and yes it’s posted to w2 as it affects the post acq profits!
Thank you
Negative goodwill is derived as the balancing figure (the difference between total “worth” of the entity at the date of acquisition and the fair value of the subsidiary’s net assets)
If the net assets exceed the cost of acquisition + the value attributable to the nci, negative goodwill is the result
And negative goodwill is credited to consolidated retained earnings at the first opportunity
OK?
Totally understand this but my working 2 was wrong compared to the answer I’ve got the below:
At acquisition At reporting date
SC. 20000. 20000
RE. 18000. 24000FV Adj.
Pl (2000). (2000)
G 12000. 12000
Inv. 1000. 900
Depr. 500
Depr. (1200)
Gwill. (3000)49000. 51200. Post acqui profit 2200 ans is 3200
Where am I going wrong?
Ahhhhh pennies dropped thank you I totally understand it! No need for net assets working because their is negative goodwill! Marvellous sorry for being daft lol thank you again
Just the “at reporting date” figures is surely enough!
6,000 difference in booked retained earnings
900 investment (?) increase
500 depreciation add back
(1,200) additional depreciation
(3,000) write-off of goodwill3,200 post acquisition retained
HOWEVER!!!! This 3,000 goodwill figure is NOT negative goodwill
If it were negative goodwill, it would have been added to the 6,000 difference in retained earnings
It would effectively be treated as an extra profit (though I mustn’t use that word “profit” because it isn’t a profit (but between you and me and no-one else, it’s exactly like a profit!))
The difference between your $2,200 and the correct $3,200 is that $1,000 fair value adjustment to the investments(?) at acquisition date
I believe that you’ve made two errors
1) that’s not negative goodwill
2) you have included the $1,000 adjustment in your calculation of today’s retained earnings
OK?
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