Negative goodwill

Negative goodwill, or a bargain purchase gain, arises when an acquirer pays less than the fair value of the net assets it buys; under IFRS 3 the excess is recognised immediately in profit after the figures are rechecked.

FrameworkIFRS 3

What it is

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Company A pays €2.0 million cash to acquire Company B, whose identifiable net assets are worth €2.3 million at fair value. The €0.3 million excess is a bargain purchase gain of €300,000, recognised immediately in profit or loss once the €2.3 million figure has been reassessed and confirmed accurate.

The formula

LaTeX

G = FV_{NA} - P

Variables

$G$: Bargain purchase gain (€)
$F V_{N A}$: Fair value of net identifiable assets acquired (€)
$P$: Purchase consideration (€)

The immediate profit-or-loss gain recognised when an acquirer pays less than the fair value of the net assets it acquires.

Check yourself

PracticeCORE

Company X acquires Company Y, paying cash consideration of €4.2 million. At the acquisition date, the fair value of Y's identifiable assets is €6.5 million and the fair value of the liabilities assumed is €1.3 million. After reassessing the valuations, what is the bargain purchase gain recognised in profit or loss?

Select an answer to check your understanding.