Negative goodwill arises when the fair value of the net assets a buyer acquires in a business combination is more than the cost of the combination. Under FRS 102 paragraph 19.24 the buyer must first recheck its fair values and cost, then show the excess as a negative figure immediately below goodwill on the balance sheet, and release it to profit or loss as the non monetary assets acquired are recovered. Unlike under IFRS, it is not taken to profit as an immediate gain.

What is negative goodwill?

When a business is acquired, FRS 102 Section 19 requires the buyer to allocate the cost of the combination to the identifiable assets, liabilities and contingent liabilities acquired at their fair values (paragraph 19.14). Normally the price is higher than that net figure, and the difference is goodwill (paragraph 19.22). Paragraph 19.24 deals with the reverse: where the acquirer’s interest in the net amount of the identifiable assets, liabilities and provisions for contingent liabilities exceeds the cost of the business combination. FRS 102 describes this excess as negative goodwill.

It can arise in group accounts when a parent buys shares in a subsidiary, and in a company’s own accounts when it buys a trade and assets directly, because paragraph 19.4 treats the purchase of net assets that form a business as a business combination. Company law uses its own label: paragraph 9(5) of Schedule 6 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 says that where the consolidation difference is negative it is a negative consolidation difference. The positive case is covered in goodwill: useful life and amortisation.

Why would anyone sell a business for less than its assets are worth?

HMRC’s own description in CIRD13080 calls it the rarer case, arising for example where a business is acquired at a bargain price. In practice the common causes are:

  • A forced or distressed sale. A seller in financial difficulty, a lender enforcing security or an administrator may accept a low price for a quick exit.
  • Expected future losses or costs. The buyer pays less because it expects losses or reorganisation costs after the deal. Paragraph 19.15D(b) prohibits recognising liabilities for future losses or other costs expected as a result of the combination, and paragraph 19.15D(a) only allows restructuring provisions the acquiree already had at the acquisition date. The price discount therefore has nothing to offset in the fair value exercise, and the gap shows up as negative goodwill.
  • Measurement errors. Overstated asset values, such as optimistic stock or property valuations, or missed liabilities, create an excess that is not real.
  • Step acquisitions. Appendix III to FRS 102 (paragraph A3.20) notes that when an associate later becomes a subsidiary, applying the company law method can reclassify the group’s share of the associate’s post acquisition profits as goodwill, usually negative goodwill.

What must the buyer check before recognising it?

Paragraph 19.24(a) requires the acquirer to reassess the identification and measurement of the acquiree’s assets, liabilities and provisions for contingent liabilities, and the measurement of the cost of the combination. This is not a formality. Typical questions are whether all liabilities have been identified, including contingent liabilities that paragraph 19.15F requires to be recognised where their fair value can be measured reliably even if an outflow is not probable; whether deferred tax has been recognised on fair value adjustments as paragraph 19.15A requires; whether any contingent consideration that is probable has been included in cost under paragraph 19.12; and whether asset values are supportable.

Paragraph 19.19 gives a 12 month window from the acquisition date to finalise provisional amounts retrospectively, with any adjustment changing the negative goodwill. After 12 months, changes are made prospectively except to correct a material error.

Where does negative goodwill appear on the balance sheet?

Paragraph 19.24(b) requires the excess to be recognised and separately disclosed on the face of the statement of financial position, immediately below goodwill, followed by a subtotal of the net amount of goodwill and the excess. It is therefore presented within fixed assets as a negative amount, not as a liability or a reserve. A group with positive goodwill from one acquisition and negative goodwill from another shows both, with a net subtotal.

How is negative goodwill released to profit or loss?

Paragraph 19.24(c) sets out two tiers:

  1. The excess up to the fair value of the non monetary assets acquired is recognised in profit or loss in the periods in which those non monetary assets are recovered, through depreciation or sale.
  2. Any excess above the fair value of the non monetary assets acquired is recognised in profit or loss in the periods expected to be benefited.

Non monetary assets include plant, property, stock and intangible assets. Monetary assets such as cash and trade debtors are excluded from the cap. In most real cases the negative goodwill is smaller than the non monetary assets, so the first tier applies and the credit follows the depreciation of fixed assets and the sale of stock. Schedule 6 paragraph 9(6) of the regulations permits negative goodwill to be transferred to the consolidated profit and loss account where that is in accordance with the principles in Part 2 of Schedule 1.

How does the release work in numbers?

Illustration only. A company buys a trade and assets for £300,000. Fair values are plant £250,000 with a remaining life of five years, stock £60,000, trade debtors £40,000 and liabilities of £20,000. Net assets are £330,000, so negative goodwill is £30,000. The non monetary assets total £310,000, so all £30,000 falls in the first tier.

One reasonable approach is to split the credit in proportion to the non monetary assets:

Asset Share of negative goodwill When released
Stock (£60,000) £5,806 As the stock is sold, here within year one
Plant (£250,000) £24,194 Over five years with depreciation, £4,839 a year

The year one credit is about £10,645, and £4,839 a year follows for the next four years. Before booking any of this, the company should have revisited the plant valuation and searched for unrecorded liabilities, as paragraph 19.24(a) requires.

How is this different from IFRS?

HMRC’s manual at CIRD13080 summarises the difference. Under UK GAAP, negative goodwill is shown as a negative figure after positive goodwill and credited to profit over the periods the non monetary assets are recovered. Under IFRS 3, once the values have been double checked, the excess is recognised immediately in profit or loss at the acquisition date as a gain on a bargain purchase. A group converting between the frameworks, or a UK subsidiary of an IFRS group, will see different numbers for the same deal.

What must be disclosed?

For each combination in the period, paragraph 19.25(h) requires disclosure of the periods in which the excess will be recognised in profit or loss. Paragraph 19.26A requires a reconciliation of the carrying amount of the excess from the start to the end of the period, showing new combinations, amounts released under paragraph 19.24(c), disposals of previously acquired businesses and other changes. Comparatives are not required for that reconciliation. Common mistakes include crediting the whole amount to profit on day one, netting it against liabilities, and skipping the reassessment step.

Is negative goodwill taxable?

Usually not as such. HMRC’s CIRD11070 explains that negative goodwill is not itself within the intangible fixed assets regime in Part 8 of the Corporation Tax Act 2009, and goodwill arising only on consolidation is outside Part 8 altogether. CIRD13080 explains that section 724 makes a profit and loss credit for negative goodwill taxable only so far as it is attributable to intangible fixed assets within Part 8, determined by a just and reasonable apportionment. The concern is that relief would otherwise be given on a fair value for an intangible asset that the buyer never actually paid for. For the wider group picture, see FRS 102 consolidated accounts, and for associates see FRS 102 associates, where paragraph 14.8(c) applies the same goodwill rules to the difference on acquiring an associate. Group reorganisations accounted for by merger accounting do not produce goodwill of either sign.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.