GAAP Goodwill, Treatment if less than $0
the text states:
if GAAP Goodwill < 0 → immediately recognize this amount as operating income gain,
where would this operating income gain show up on the income statement? And more generally, how should we think about this operating income gain conceptually? Is the idea here that the purchasing company got "a good deal" on the purchased company and we are attempting to recognize that gain through operating income gain?
Comments
The operating income gain from recognizing negative goodwill (GAAP goodwill < 0) will typically appear as a "bargain purchase gain" under other income on the income statement, rather than as regular operating income. This is a non-recurring event and represents the excess of the fair value of the acquired net assets over the purchase price.
Conceptually, the idea behind this gain is that the purchasing company has acquired the target for less than the fair value of its net assets, indicating it got a "good deal." By recognizing this gain, the company acknowledges that it acquired assets at a bargain, which is realized through the immediate recognition of a gain on the income statement.
Great, this is super helpful. Thank you!