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T
tt24
February 23, 2021
Question

Negative goodwill

  • February 23, 2021
  • 1 reply
  • 1 view

My company purchased assets (AR), Cash associated with liabilities (Deferred Revenue related) from another business and it seems like it was a small bargain purchase (which shows up as a negative goodwill on the balance sheet).

 

I think this is treated as income (Gain from bargain purchase) by IRS. I was wondering how this should be recorded in the books (esp P&L).

1 reply

john-pero
john-pero
Level 12
February 23, 2021

Goodwill is an intangible asset that cannot be expensed nor depreciated. It sits on books until you sell out. I doubt what you bought should have coded as Goodwill and especially not negative.

 

The liabilities associated go on your books as liabilities, reducing the basis of the purchase, the deferred revenue is an asset and increases basis. When the df is realized it will then be income, if you are cash basis, but is income now if accrual.  You can record it as an Invoice. If payment never materializes then you write it off as bad debt expense

T
tt24Author
February 24, 2021

Ok, there are a few links about Negative Goodwill (esp in the context of a bargain purchase): https://smallbusiness.chron.com/negative-goodwill-accounting-52567.html or https://pakaccountants.com/what-is-negative-goodwill-and-its-accounting-treatment/

 

"the resulting gain should be recognized in the profit and loss at the acquisition date in the books of acquirer i.e. it will be taken as a gain in the consolidated income statement of the acquirer.". But, I don't know how to record this gain in QBO (so the negative goodwill in the balance sheet is linked to Gain from Bargain Purchase in P&L)

A
AileneAModerator
Moderator
February 24, 2021

Hello, tt24.  

 

Thank you for reaching us here in the Community. The only way to transfer the balance from one account to the other is to create a journal entry.  

 

Here's how to do it: 

 

 

  1. Click + New icon, then select Journal entry. 
  2. Enter all the information needed.
  3. Check the amounts make sure your debits equal your credits.
  4. Enter information in the memo section so you know why you made the journal entry.
  5. Press Save and close.

 

To learn more the whole process of creating journal entry, please refer to this article: Create a journal entry in QuickBooks Online.

 

Though, I still recommend consult an accountant to help you identify the affected accounts to make sure your book is accurate. 

 

Let me know if you have other questions. I'm right here to help. Stay safe and be well.

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