A company is about to buy another company,but this would result in "negative goodwill".For example,Company A pays £2m for Company S which has net assets of £3m.However,the fair value of the net assets of S is actually only £2.1m Which of the following is the correct treatment of this situation?
A) Revalue the assets of S to reflect the "fair value" of them prior to purchase
B) Show negative goodwill £1m on the consolidated Statement of Financial Position
C) Show the loss on purchase £1m on the Income Statement of A
D) Write off the loss of £1m in company A prior to purchase

Question

Quizplus · Accepted Answer

"Negative Goodwill" should not occur. Restating assets at "fair value" should remove "negative goodwill". There may still be a small "profit" on purchase. This is shown on the Income Statement.

A Company Is About to Buy Another Company,but This Would