Affordable Access

Changes in Accounting for Negative Goodwill: New Insights into Bargain Purchase Transactions

  • Comiskey, Eugene E.
  • Mulford, Charles W.
Publication Date
April 2011
Scholarly Materials And Research @ Georgia Tech
External links


SFAS 141(R), Business Combinations, includes significant changes to the accounting and disclosure requirements for acquisitions made at less than fair value. Under new rules, acquisition-related gains, asset valuations and shareholders’ equity will be higher in transactions yielding negative goodwill, a financial statement element referred to henceforth as a bargain purchase amount. In years after the acquisition, operating earnings will be reduced as increased asset valuations are amortized or depreciated. Disclosure requirements contained in the revised standard provide financial statement readers with new insights into why firms are able to effect acquisitions at less than fair value. In reviewing 71 acquisitions, we find several reasons for the existence of such bargain purchase gains, ranging from financial distress of the target, to special characteristics of the acquiring firm, to flaws in the bidding process. These findings have implications for investors, who must analyze bargain purchase transactions, for CFOs and other corporate managers, who must implement the new standard’s provisions, and for regulators, who must determine whether the new standard is being properly applied.

Report this publication


Seen <100 times