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?
What would you expect it to be?
Because, lets say, you acquired a net asset of 100 for only 80. the difference is your gain
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.
ok so i wasnt totally off track