A situation that occurs when an entity acquires another or its assets (business combinations) for a price lower than its value in the market (or its fair value). In other words, it is a goodwill gain for the acquiring entity (and a reduction in the overall value of the acquired, corresponding exactly to the amount of “negative goodwill”).

In fact, a negative goodwill (NGW) is a theoretical creature in accounting. No entry is made involving a so-called item. Instead, the absolute value of the goodwill is taken and recorded as an extraordinary gain on the statement of income.

In accounting treatment, the gain is reversed on the cash flow statement, and the acquiring entity also reverses the extra taxes paid on the “goodwill” gain. On the statement of financial position, the items that will be affected by such treatment are cash, retained earnings, and the deferred tax liabilities (DTL) or deferred tax assets (DTA).