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
See it move
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
Variables
- Bargain purchase gain (€)
- Fair value of net identifiable assets acquired (€)
- 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
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?