What is negative goodwill in SAP EC-CS - Consolidation?

SAP Term: negative goodwill

• Component: EC-CS

• Component Name: Consolidation

• Description: A liability-side differential incurred during the consolidation of investments. Negative goodwill is incurred when the acquisition cost of an investment in a consolidation unit is less than the proportionate share of the fair market value or book value of the unit's net assets. Possible causes of negative goodwill are one of the following: A lower purchase price due to the poor prospects of the acquired consolidation unit An annual net income that was incurred between the date the shares were acquired and the date of the first consolidation, but was not distributed to the stockholders. In statutory consolidations, negative goodwill is recorded as a separate item on the liabilities-side of the balance sheet.

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• Key Concepts: 
  Negative goodwill is a term used in the EC-CS Consolidation component of SAP. It occurs when the fair value of a company's net assets is greater than the purchase price paid for the company. This means that the buyer has overpaid for the company and has received a discount on the purchase price. 
  
  How to use it: 
  In SAP, negative goodwill is recorded as a debit to the goodwill account and a credit to the income statement. This allows the buyer to recognize the discount on the purchase price as income. The amount of negative goodwill is then amortized over a period of time, usually five years, and is recognized as an expense on the income statement. 
  
  Tips & Tricks: 
  When recording negative goodwill in SAP, it is important to ensure that all relevant information is included in the transaction. This includes the purchase price, fair value of net assets, and amortization period. Additionally, it is important to ensure that all relevant accounts are updated correctly. 
  
  Related Information: 
  Negative goodwill can also be referred to as a bargain purchase or bargain acquisition. It is important to note that negative goodwill does not always occur when a company is purchased; it only occurs when the fair value of net assets exceeds the purchase price. Additionally, negative goodwill can be used as an indicator of potential problems with a company's financial statements.