Sign up  |  Log in

Bargain Purchase and Negative Goodwill

In the acquisition method, when we acquire a firm less than the fair value of its net assets, we have a negative goodwill and this is recorded as a gain in the income statement. But why would this be a gain?

Master the Level II curriculum by creating custom quizzes in the SchweserPro™ QBank. Question difficulty automatically adapts to your ability level on a given topic, measuring your knowledge and keeping you motivated. Included in every Schweser Study Package.

What would you expect it to be?

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Because, lets say, you acquired a net asset of 100 for only 80. the difference is your gain

It was a long shot, glad i made it.

because in mind, i was thinking negative goodwill cannot be anything good,so thats why I couldnt understand why it was a gain.

Now i think i get it. Its because you are gaining on the fact that you are getting a “good price” on something that is worth more.

Onda wrote:
because in mind, i was thinking negative goodwill cannot be anything good,so thats why I couldnt understand why it was a gain.

Now i think i get it. Its because you are gaining on the fact that you are getting a “good price” on something that is worth more.

That’s the right way to look at it.

Goodwill is not good; it’s the amount that overpaid and now have to explain to your shareholders why anyone in their right mind would pay that much.  Not good at all.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

ok so i wasnt totally off track