Question

Under CPA Canada Handbook, Part II (ASPE), Section 1590, what is the appropriate accounting treatment if...

Under CPA Canada Handbook, Part II (ASPE), Section 1590, what is the appropriate accounting treatment if the acquisition cost of a business combination is less than the fair value of the identifiable net assets?

Multiple Choice

a. Record an amount for negative goodwill in the liability section of the consolidated balance sheet.

b. Record an amount for negative goodwill in the equity section of the consolidated balance sheet.

c. Reduce the fair value of consolidated non-monetary assets by the amount that would be recognized as negative goodwill.

d. Reduce the amount of goodwill otherwise recognized from the acquisition to zero and recognize any excess as a gain.

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Answer #1

Negative goodwill arises when the acquisition cost of a business combination is less than the fair value of the net assets acquired. If the initial calculation of the goodwill is deemed appropriate, the negative goodwill is written off and a gain is recognized in the income statement. Negative excess is recognized immediately in profit or loss for the period.

So answer is D) Reduce the amount of goodwill otherwise recognized from the acquisition to zero and recognize any excess a gain .

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