Can You Have Negative Goodwill?

Can You Have Negative Goodwill?

1 Answer

  1. Yes Janny, you sure can have negative goodwill. This type of goodwill do exist and negative goodwill is the opposite of goodwill, where one company pays a premium for another company’s assets. It generally indicates that the selling party is distressed or has declared bankruptcy, and faces no other option but to unload its assets for a fraction of their worth. It can occur when a firm is acquired at a bargain price which implies that it is purchased for less than its fair market value. Its not good to have negative goodwill if the negative goodwill value is equal to or less than the value of allocated assets, the allocated asset value is reduced by the complete amount of the negative goodwill. The transaction is recorded as first as a debit to fair value of assets acquired for the value of net assets acquired plus the negative goodwill value, a credit to total consideration paid for the cost of acquiring the company, and a credit to initial negative goodwill for the value of the negative goodwill.

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