Wednesday, June 2, 2010

What is Negative Goodwill?

Negative Goodwill Example

Negative goodwill  occurs when the net assets acquired by a purchaser at the date of acquisition, at fair market value (FMV), exceed the cost of the acquisition. This purchase reflected on the balance sheet net of other intangible assets. Negative goodwill is recognized as accounting income in the following special situations:

  • To the extent that negative goodwill relates to expected future losses and expenses, it is recognized in the company's income statement when the future losses and expenses are recognized.
  • Amount of negative goodwill that is related to monetary assets is recognized as income immediately by an accountant. 
  • Amount of negative goodwill in excess of the FMV of the acquired identifiable non-monetary assets is recognized as income immediately as well.
  • Amount of negative goodwill relating to identifiable non-monetary assets is recognized as income on a systematic basis over the remaining useful lives of the identifiable acquired depreciable assets with a maximum period of 20 years.

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