what is the correct treatment of negative goodwill arising from a merger under US GAAP? Describe the process for treating negative goodwill and where it appears in the merged financial statements. A. place the good will on the balance sheet and check for impairment each year. B. Expense the full amount of neg. goodwill in the year of the merger. C. write down proportionately FMV of identifiable assets, not including current assets, and expense any remaining negative goodwill in the year of the merger. D. Write down proportionately FMV of identifiable assets, not including current assets. any remaining neg. goodwill is carried on the balance sheet and checked for impairment each year.
Isn’t impairment always a downward adjustment?
wow cant remember seeing this anywhere it cant be A and D I’ll guess C if you have positive goodwill you write up assets… so I’m assuming negative goodwill can be attributable to something
mwvt9 … exactly this would be a liablity… or better said correcting asset so i don’t think we can talk about impairment
speaking of having it together. you’r right, it’s C florinpop.
I didn’t have the guts to pick it. lol
… and I like a bozo picked the wrong one.
i’m still not certain what negative goodwill is.
Think Bear Sterns. JPMC took them for a crap price. So the purchase price paid was less than the fair market value of the target. Hence we have a negative goodwill. Just to give an insight of what a blowout deal it was- the BS headquaters (in NYC) itself is worth $1.4 bn
for positive goodwill you have a building where you sell hot dogs. the building itself it’s worth 100 k but it is situated in an area where a lotof people look for a place to eat around 12… so for you it’s worth to pay 150k because it favors your activity. for negative goodwill suppose you buy a company that invented a very good medicine but in one ocasion they screwed up and instead of the medicine they’ve put rat poison creating distress for some clients. now the company is viewed negatively although it’s value might be high this is all i could come up with at this hour LOL
got it. normal goodwill, i get. negative goodwill just SOUNDS odd. thanks for the clarification.
I am still not convinced y its C, but not D. Doesn’t goodwill always subject to impairment under GAAP? I am getting confused about amortize, expense, or impair goodwill. Under what circomstance for each treatment, and what’s the accounting adjustment accordingly? Thanks
negative goodwill sounds like the buyer got a good bargain.
thats exactly what it is…Since positive goodwill is marked down I would assume negative goodwill marks up assets.
We have this reversed. If the hot dog building has a fair value of 100K and you paid 150K for it, that is standard issue positive goodwill. That 50K represents an asset because presumably you paid 50K for something that is intangible but worth $ (normally this woudn’t be the location of the hot dog building as that is part of fair market value - it would be something like the right to use the name “Coney Island Wieners - Donald Trump’s second favorite Wiener”). Negative goodwill would arise when you bought something for less than its book value. This would be an odd event, as normally we think that bv ought to be less than fair market value whch ought to be less than the total value of some endeavor. The whole concept is a little weird because if you went in with some low-ball bid for a company and they took it to your surprise, you would have just created a liability and whacked your own equity.