A Primer on Bargain Purchases and Negative Goodwill

BVResearch Pro
American Society of Appraisers Business Valuation Review™
Spring 2017 Volume 36, Issue 1 pp. 9-14
Dan Daitchman, ASA
valuation method
business combinations, goodwill, purchase price allocation, fair value, discounted cash flow analysis, inventory, customer relationships


When a change of company control occurs, such as an acquisition, a valuation of the assets acquired must be performed to be compliant with generally accepted accounting principles, as mandated by the Financial Accounting Standards Board (FASB) and addressed in Accounting Standards Codification (ASC) 805: Business Combinations. This type of exercise is commonly referred to as a purchase price allocation, since the purchase price of the subject company is allocated across all tangible and intangible assets and liabilities acquired. Generally, the value of the subject company is greater than the value of the acquired assets, or in other words, “the whole is greater than the sum of the parts.” However, what if the sum of the parts is greater than the whole? This paper looks at transactions involving fair value and bargain purchases, the differences between the two, and how bargain purchases should be addressed.
A Primer on Bargain Purchases and Negative Goodwill
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