Negative Goodwill: Issues of Financial Reporting and Analysis Under Current and Proposed Guidelines

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Please use this identifier to cite or link to this item: http://hdl.handle.net/1853/19231

Title: Negative Goodwill: Issues of Financial Reporting and Analysis Under Current and Proposed Guidelines
Author: Mulford, Charles W. ; Comiskey, Eugene E.
Abstract: Under current GAAP, initial bargain-purchase amounts, also known as negative goodwill (NGW) or the excess of the fair value of acquired net assets over the cost of an acquisition, are typically reduced or eliminated altogether by being allocated against the fair values of certain acquired assets such as property, plant and equipment and intangible assets. Any negative goodwill that is not offset against these assets is reported in the income statement as an extraordinary gain. However, in a joint effort with the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) has developed a replacement for current GAAP, which, among other things, requires that all NGW, without offset, is to be immediately recognized as a gain. This report outlines the current and proposed accounting treatment of negative goodwill and their impact upon financial statements as well as their implications for financial analysis. For a sample of companies, we find material increases in assets, shareholders’ equity and net income under the proposed new treatment.
Type: Technical Report
URI: http://hdl.handle.net/1853/19231
Date: 2007-10
Contributor: Georgia Institute of Technology. College of Management
Georgia Institute of Technology. Financial Analysis Lab
Publisher: Georgia Institute of Technology
Subject: Negative goodwill

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