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videos thank you for joining us on our educational series today's topic covers negative goodwill and
i'm sage for kalkine media what do you mean by negative goodwill well negative goodwill or ngw
also known as the bargain purchase amount is the money paid by a company when it purchases another
company or its assets at a significantly lower price compared to its actual fair market values
and typically the bargain purchase amount is the gap between the price at which an asset is bought
and its actual fair market value usually negative goodwill symbolizes at the party or company being
sold as either distressed or has become bankrupt and hence the only option available before it
is to discharge its assets for a portion of its worth it is to be noted that negative goodwill is
not always beneficial for the buyer and negative goodwill is contrary to goodwill a situation where
one firm pays a premium for the assets of another firm and besides the buying parties must declare
negative goodwill in their financial statement noticeably both goodwill and negative goodwill
come under generally accepted accounting standards or gaap explain negative goodwill in detail
in accounting the concepts of goodwill and negative goodwill are created
to recognize the challenges involved in measuring the value of non-monetary assets
like the company's reputation licenses patents and consumer base these intangible assets of a company
vary from the tangible assets such as equipment building machinery or inventory and mainly when
a company acquires another company or its assets the transactions include goodwill where the amount
paid by the purchaser exceeds the value of the selling party's tangible assets
however negative goodwill occurs very rarely where the value of non-monetary or intangible assets
should be recorded as a profit on the buyer's financial statement the gaap make it mandatory
for the companies to report their goodwill and negative goodwill under the financial accounting
standards board or fasb statement number 141 in addition when the value of all the acquired
assets of a company is more than the company's purchase price it is said to be a bargain purchase
and when the buyer reports gains for financial accounting purposes in a bargain purchase this
profit leads to an immediate increase in the net income furthermore tracking negative goodwill
is important because it provides an investor a more comprehensive picture of his company's value
and any business deal that includes negative goodwill increases recorded assets net income
potentially misrepresenting performance metrics such as return on assets and return on equity
which would seem lower because of this and if you'd like this information please like
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to the website it's kalkinemedia.com and my name is sage for kalkine media