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Hi.
I have a doubt regarding Negative goodwill/ bargain purchase. Why do we add it to the Retained Earnings?hi there i would like to solve that questions as well, though i dont have Kaplan kit. if you have pdf version can you please share it . or just type the question and all of us will do it. will benefit you and us !
if you are willing to send pdf my id is batoolhudda@hotmail.com
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Hi as far as I know if goodwill is positive we capitalise as tangible and test for impairment but if negative we credit to income statement
@rajshree said:
Hi as far as I know if goodwill is positive we capitalise as tangible and test for impairment but if negative we credit to income statementThat’s right. But in the answer, they are adding the amount to retained earnings. Im trying to relate this to the ‘cr. in Income statement’, and I think we gotta treat bargain purchase as ‘income’. So that goes on cr side of I/S and I guess that’s why we add it to retained earnings. Not sure about this.
Here’s the link to the question. It’s name is Highmoor. Try solving it.
https://opentuition.com/groups/f7-financial-reporting/documents/First – if it’s positive goodwill, it should be capitalised as an INTANGIBLE asset and tested annually for impairment
Second, if it’s negative goodwill, it should be credited to retained earnings ( after reassessing at the year end the fair values at date of acquisition ) in the next set of financial statements after acquisition. By crediting it to retained earnings, this will INCREASE retained earnings – it’s like a “profit” made on acquisition
‘It’s like a profit made on acquisition’. That’s what I was looking for. Thank you! 🙂
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