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Negative goodwill arising from transfer of a company ?


Hope you all are doing well.

Here is my question :

Context: We are closing on 31/12/N-1, and at that date, Mother holds 100% of Child A which holds 100% of child B.

Mother => 100% child A = > 100% CHild B

Mother is us, and we, as a group, consolidate on our own.

Our group belongs to a larger group (Grandma) which makes their consolidation on their own, which is totally independent of ours.

During N, those events happened :

- The capital increase from cash injection in Child B by Child A
- Grandma gave Mother, 75% of child C against 49,9% of child B.

Some numbers :

at 31/12/N-1, the book value of the shares of child B in child A was 3K€ (just to say that child B was near zero)
During N, Child A injected 8M€ into child B, at some point, the equity of child B became 8M€
The net equity of child C at the moment of the transfer was 20M€, for a book value of the shares of 4M€ in Grandma.

After all those operations, here are the schemes :

Mother = >; 100% child A = >; 50,1% CHild B = >; 75%€ CHild C

Just focusing on statutory accounting at the moment :

In Child A, when CHild A gave 49,9% of the shares to Grandma, Child A should book the following :

Dt : Loss (PL from the selling of shares) 4M€
Cr : Shares Child B (Balance sheet assets) 4M€

In CHild B, when CHild B received Child C, CHild B should book the following (Book value of CHild A in Grandma was 4M€):

Dt : Shares child C (Balance sheet assets) 3M€
Cr : Gain (PL) 3M€

From a consolidation standpoint :

Mother gave 49,9% of Child B to Grandma, the equity value of child B after capital increase, was 8M€. 49,9% makes it 4M€.

CHild B received 75%€ of CHild C. The total equity value of Child C was 20M€. Mother received 50,1% * 75%€ of Child C which was 37,6% of 20M€. Which was 7,52M€.

For me, I think that without looking at what was booked in the statutory accounts, just on the consolidation level, this operation will lead to recognizing negative goodwill of 7,52€ - 4M€ = 3,52M€ in the PL.

Now, if I take into account what happened in statutory accounts of CHild A and CHild B, as those entities are consolidated in full, their PL will be also integrated in Mother in full. So, the consolidated PL impact of those operations before my consolidation adjustment entry would be a loss of 1M€.

I should book a consolidation entry at the top level in Mother (because is Mother who'll benefit from it) :

In Mother :
Dt : Equity 4,52M€
Cr : Negative goodwill (Profit) 4,52M€

The negative goodwill should appear in our PL in Non-recurring operational income.

Thus, If I look at my consolidated PL, I'll finally have a positive impact on 3,52M€.

What do you think of my analysis, please give me your inputs!

Thank you very much !!!

Just to clarify,

I assume your question concerns statutory accounts that are not IFRS.  Is that correct?

If this is correct, unfortunately you picked the wrong forum as we do not discuss statutory standards here.  We only discuss IFRS.

From an IFRS perspective, only the ultimate parent entity (the grandma in your example), would publish a consolidated report.  In it, it would consolidate all the other sub-entities in this report.

Perhaps the other sub-entities may also publish their own individual reports, but that would be in addition to the ultimate consolidated report.

In any event, goodwill (negative or otherwise) can only arise if the transaction is between unrelated parties.  For example, if entity A purchased B from its owners (who are not, directly of indirectly also owners of entity A) for 1,000,000 in cash while the fair value of entity B’s net assets was 1,100,000, entity A would recognize negative goodwill (actually a bargain purchase gain, since this amount would be taken to the P&L in its entirety in the period of the acquisition) of 100,000.

This is very rare in practice and is generally considered an indication that entity A did not perform adequate due diligence (in other words, it assumed some of entity B’s unrecognized liabilities which it did not know about).

But I must emphasize, this only occurs unrelated parties.  Having goodwill, negative or positive (or any kind of income or expense for that matter), arise during transactions between related parties (corporate parent, grandparents, sons, daughters, grandsons granddaughters, whatever) would not be consistent with IFRS guidance.


Hi, Thank you so much for your prompt reply.

My question is the impact on the consolidation of Mother in IFRS.

As I said, Grandma consolidated on their own,. But we, as Mother, produce our own consolidation as well. We just consider ourselves as an independent group, even though, in reality, we are a sub group of Grandma.


Just in addition to what I wrote, our group was once an independent group that produces our own consolidated statements. Grand Ma bought us a few years ago. But we kept producing our own consolidated statements in our own.

Grandma, at her side, consolidates all the entities regardless of what we did in our consolidated statements.

So, my question is in this specific context.

Sure I know that IFRS3 only applies to no common control, and all the impacts are eliminated from operations within one group. But our case is different.

For example, just imagine that if Tesla produced its own consolidated financial statements, GE bought Tesla, and Tesla continues to consolidate on their own, and GE produce also their consolidated statements including Tesla. So, an operation that I've described earlier should enter into the scope of IFRS3 and Goodwill should have be recognised in the consolidated statements of Tesla or not?


Since the transaction is not arm's length (is between various entities controlled, directly or indirectly, by the ultimate parent entity), it cannot have any impact on the IFRS financial report of that ultimate parent.

Any intercompany balances, gains and losses must be eliminated during consolidation. 

Unless one of the subsidiaries publishes an individual report that is labeled as being consistent with IFRS, it can pretty much do whatever it wants in that report as long as any intercompany balances, gains and losses are eliminated from the ultimate, consolidated report.

In your first post you wrote “Our group belongs to a larger group (Grandma) which makes their consolidation on their own, which is totally independent of ours.”

That is not possible.  IFRS 10.4 requires Grandma to publish consolidated statements which must include you.

You, on the other hand, are not under any obligation to publish consolidated statements (IFRS 10.4.a.i) unless a minority owner requires this.  

Also, IFRS 3 only applies to the acquisition where the parties are independent (IFRS 3.2.c).

It does not pally to entities in a holding.

From what I can tell, what you described is not even acquisition:

- The capital increase from cash injection in Child B by Child A

- Grandma gave Mother, 75% of child C against 49,9% of child B.

It’s just one subsidiary sending cash or so some other in exchange for equity in a third, or something like that.

But, none of that really matters because none of these transactions are arm’s length.

However, assuming “Grandma, at her side, consolidates all the entities regardless of what we did in our consolidated statements” you can do whatever you want in your consolidated statements because IFRS does not apply to you (unless you have minority investors that require an IFRS report).

Perhaps you will need to follow accounting procedures specified in some statutory accounting system, that is what it sounds like to me anyway, but as far as IFRS is concerned, this is a non-issue.

Thank you very much for your help!

So, I understand that we still can apply IFRS3 for this operation in our own consolidated statements.

By the way, our consolidated statements are in IFRS as well.

I said earlier that Grandma produces its own consolidated statements independently, what I meant was that Grandma produces its own consolidated statements including us of course, but it doesn't care about whether we booked a top conso provision or not in our own consolidated statements.

Thank you!

As long as the ultimate parent (or grandparent) publishes a consolidated financial report that is consistent with IFRS guidance (all intercompany balances, income and expense are eliminated), I do not think there is anything in the guidance that would prevent your entity from also creating an individual IFRS report as long as the footnotes included the necessary disclosures.

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