what is negative goodwill 
in business negative goodwill ngw is a term that refers to the bargain purchase amount of money paid when a company acquires another company or its assets for significantly less their fair market values negative goodwill also know as badwill generally indicates that the selling party is distressed or has declared bankruptcy and faces no other option but to unload its assets for a fraction of their worth consequently negative goodwill nearly always favors the buyer negative goodwill is the opposite of goodwill where one company pays a premium for another company s assets investopedia jake shiunderstanding negative goodwillnegative goodwill along with goodwill are accounting concepts created to acknowledge the challenge of quantifying the value of intangible assets such as a company s reputation patents customer base and licenses these intangible assets differ from tangible items such as equipment or inventory in most acquisition cases transactions involve goodwill where buyers pay a greater sum than the value of the selling company s tangible assets but in rarer cases negative goodwill occurs where the value of the intangible assets must be recorded as a gain on the buyer s income statement this goodwill negative goodwill reporting mandate falls under generally accepted accounting standards gaap specifically under the financial accounting standards board fasb statement no 141 regarding business combinations if the value of all the acquired company s assets exceeds the purchase price of the company a bargain purchase is said to have occurred fasb defines a bargain purchase as a business combination where the acquisition date amounts of identifiable net assets acquired excluding goodwill exceed the sum of the value of consideration transferred 1 in the event of a bargain purchase the purchaser is required under gaap to recognize a gain for financial accounting purposes the effect of this gain is an immediate increase in net income negative goodwill is especially important to track because it gives investors a more holistic snapshot of a company s value an acquisition that involves negative goodwill increases reported assets income and shareholder equity potentially distorting performance metrics like return on assets roa and return on equity roe which would appear lower as a result examples of negative goodwillas a fictitious example of negative goodwill let s assume company abc buys the assets of company xyz for 40 million but those assets are actually worth 70 million this deal only occurs because xyz is in dire need of cash and abc is the only entity willing to pay that amount in this case abc must record the 30 million difference between the purchase price and the fair market as negative goodwill on its income statement consider this real life example of negative goodwill in 2009 british retail and commercial bank lloyds banking group formerly lloyds tsb acquired banking and insurance company hbos plc for a purchase price that was substantially lower than the value of hbos plc s net assets consequently this transaction produced negative goodwill of approximately gbp 11 billion which lloyds banking group added to its net income that year 2 