Please distinguish between market cap vs book value. When calculating goodwill, it is purchase price less book value. Market cap is not a concern. So, assuming you meant book value: Our understanding is that negative goodwill cannot exist on the balance sheet and as such, one has to report as in... Please distinguish between market cap vs book value. When calculating goodwill, it is purchase price less book value. Market cap is not a concern. So, assuming you meant book value:

Our understanding is that negative goodwill cannot exist on the balance sheet and as such, one has to report as income on the P&L as you noted. Thus, there wouldn't be a net impact on the BS because the allocation of purchase price would offset book equity. The difference between allocations and book value (a negative number) is recognized asap as income on IS and as such, everything balances.

In our model, stick a max(0, ) around the goodwill calculation. Take any difference (negative number) and put that as Retained Earnings on Pro Forma Balance Sheet adjustment. It should flow through IS but we don't show the PF IS so that increase in profit would be reflected through Retained Earnings. There shouldn't be any tax implications. Read More

I am modeling a private company LBO asset purchase. We are paying $5 for a company with fmv appraised value of $11. Do I understand correctly that I would adj the PP&E up by the $11 and add $6 to the equity account (i.e., 11-5=6) instead of adding negative GW of $(6)? Am I further correct that I... I am modeling a private company LBO asset purchase. We are paying $5 for a company with fmv appraised value of $11. Do I understand correctly that I would adj the PP&E up by the $11 and add $6 to the equity account (i.e., 11-5=6) instead of adding negative GW of $(6)? Am I further correct that I would then have to add a one-time P&L item showing an extraord gain of $6? Read More

To be clear on my earlier post, this is a bargain-priced deal. As such, there no "future losses" to be accounted for with the negative goodwill. Thanks.

We apologize for the delay in response. It seems as if your post didn't come through to our control panel until now. We are looking into this to see if this is a technical issue on our end.

To respond to your question, what is the book value of the company?

Thanks for the fast reply. You are correct on your first remark. I ment book value. To be quite honest, once i have sent your email i tried to work it through your model with a trial and error method until i could balance it. Just for your info, until 31/12/2004 under IFRS 22 negative goodwill ... Thanks for the fast reply. You are correct on your first remark. I ment book value.

To be quite honest, once i have sent your email i tried to work it through your model with a trial and error method until i could balance it.
Just for your info, until 31/12/2004 under IFRS 22 negative goodwill would be reported on the BS and amortized accordingly. But under IFRS 3, for transactions taking place after that date, no negative goodwill on the BS and the "gain" would go directly on the P&L. Thsi is what got me a bit confused.

To make long story short, your suggestion is what i did exactly on the model! The only difference is that i made an "Adjustments column" on the P&L as well, in order to be able to show directly on a line the effect of the negative goodwill instead of modeling it directly on the adjustment column of the BS (on the retained earnings as you suggested). I thought for presentational issues it might be better.

Thanks again for everything! Read More

Correct - however if you do a trx adj on IS you need a tax schedule to be completely accurate. We didn't cover this in the videos since it was beyond the scope and relatively immaterial but you have the right idea.