Auslösung von negativen Unterschiedsbeträgen

English translation: recognition of gains on bargain purchases

GLOSSARY ENTRY (DERIVED FROM QUESTION BELOW)
German term or phrase:Auflösung von negativen Unterschiedsbeträgen
English translation:recognition of gains on bargain purchases
Entered by: Douglas Arnott

17:03 Mar 10, 2009
German to English translations [PRO]
Bus/Financial - Accounting
German term or phrase: Auslösung von negativen Unterschiedsbeträgen
Die SONSTIGEN BETRIEBLICHEN ERTRÄGE erhöhten sich auf XX Millionen Euro gegenüber XX Millionen Euro im Vorjahr (+XX %). Sie beinhalten unter anderem Erträge aus der Auslösung von negativen Unterschiedsbeträgen („Bargain Purchase“) in Höhe von XX Millionen Euro aus der Akquisition der XX.

Can I take it we are talking about negative goodwill here? The company acquired was consolidated for the first time in the reporting year.
Douglas Arnott
Local time: 10:20
reversal of excess of the acquirer's interest in identifiable net assets over cost
Explanation:
I'd normally expect to see "Auflösung" there, so either that's a typo or some sort of Alpendeutsch.

As you're probably aware, "negativer Unterschiedsbetrag" was the original IAS term for negative goodwill, though both terms have now been dropped in IFRSs. Paras. 56 and 57 of the current version of IFRS 3 as adopted by the EU read as follows:

"Excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost

56 If the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised in accordance with paragraph 36 exceeds the cost of the business combination, the acquirer shall:
(a) reassess the identification and measurement of the acquiree's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and
(b) recognise immediately in profit or loss any excess remaining after that reassessment.

57 A gain recognised in accordance with paragraph 56 could comprise one or more of the following components:
(a) errors in measuring the fair value of either the cost of the combination or the acquiree's identifiable assets, liabilities or contingent liabilities. Possible future costs arising in respect of the acquiree that have not been reflected correctly in the fair value of the acquiree's identifiable assets, liabilities or contingent liabilities are a potential cause of such errors;
(b) a requirement in an accounting standard to measure identifiable net assets acquired at an amount that is not fair value, but is treated as though it is fair value for the purpose of allocating the cost of the combination. For example, the guidance in Appendix B on determining the fair values of the acquiree's identifiable assets and
liabilities requires the amount assigned to tax assets and liabilities to be undiscounted;
(c) a bargain purchase."

I think that in practice, we'd normally shorten the English term to the "excess of the acquirer's interest in identifiable net assets over cost" or the "excess of the fair value of identifiable net assets over cost"

For the record, this contrasts significantly with the current version of IFRS 3, which has eliminated entirely the concept of the "excess of the acquirer's interest in identifiable net assets over cost". This is how the current IFRS 3.32-36 reads (the version in the Bound Volume published and made available online today):

"Bargain purchases

34 Occasionally, an acquirer will make a bargain purchase, which is a business combination in which the amount in paragraph 32(b) exceeds the aggregate of the amounts specified in paragraph 32(a). If that excess remains after applying the requirements in paragraph 36, the acquirer shall recognise the resulting gain in profit or loss on the acquisition date. The gain shall be attributed to the acquirer.

35 A bargain purchase might happen, for example, in a business combination that is a forced sale in which the seller is acting under compulsion. However, the recognition or measurement exceptions for particular items discussed in paragraphs 22–31 may also result in recognising a gain (or change the amount of a recognised gain) on a bargain purchase.

36 Before recognising a gain on a bargain purchase, the acquirer shall reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and shall recognise any additional assets or liabilities that are identified in that review. The acquirer shall then review the procedures used to measure the amounts this IFRS requires to be recognised at the acquisition date for all of the following:
(a) the identifiable assets acquired and liabilities assumed;
(b) the non-controlling interest in the acquiree, if any;
(c) for a business combination achieved in stages, the acquirer’s previously held equity interest in the acquiree; and
(d) the consideration transferred.

The objective of the review is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date."

So, if the very latest version of IFRS 3 were being applied, I think I'd use something simple like "recognition of gains on bargain purchases" and not bother with all that "excess" stuff. But, *only* if the 2009 IFRS 3 were being applied.

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Note added at 5 hrs (2009-03-10 22:28:37 GMT)
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Aber von mir aus, if you want to say "negative goodwill", why not.... Will they notice? Do they *ever* notice?

--------------------------------------------------
Note added at 16 hrs (2009-03-11 09:06:01 GMT)
--------------------------------------------------

And a note to "Tom Thumb": A., under IFRSs (and the asker did point out that IFRSs are involved here), what used to be called "negative goodwill" is recognised immediately in profit or loss (generally other operating income) when it is identified during a business combination. It is not taken directly to equity, either in full or in part (that was the old German GAAP accounting treatment, which also no longer applies).
Selected response from:

RobinB
United States
Local time: 04:20
Grading comment
Thanks for the help Robin. It'll teach me to reply to questions late on, the company is not AT but DE (contrary to most of my work) and therefore the Auf/Aus is most probably a typo.
4 KudoZ points were awarded for this answer



Summary of answers provided
3 +1triggered negative differences
Heike Schwarz
4reversal of excess of the acquirer's interest in identifiable net assets over cost
RobinB
4writing off (or writing down if partial) negative goodwill
Yasdnil1


Discussion entries: 2





  

Answers


4 hrs   confidence: Answerer confidence 3/5Answerer confidence 3/5 peer agreement (net): +1
triggered negative differences


Explanation:
I understand that the negative differences amounting to xxx were (or rather: the negative balance amounting to xxx was) triggered because of the acquisition, and this amount - amongst others - is also contained in the operating income. (pls refer to my first link, which is the annual report of METRO AG, you may switch the language by clicking at the top of the target page)

I'm not sure about negative goodwill because it refers to the socalled "imaginärer Firmenwert". (see my second link)

So here goes:
Inter alia, it (the operating income) contains earnings from triggered negative differences amounting to xxx mln Euro from the acquisition of xxx.

PS: These reports are usually technical and formulated in an uneven language (my excuse for the below average sentence structure).


    Reference: http://www.metrogroup.de/servlet/PB/menu/1152640_l2_ePRJ-MET...
    Reference: http://www.dict.cc/englisch-deutsch/goodwill.html
Heike Schwarz
Germany
Local time: 10:20
Native speaker of: Native in EnglishEnglish, Native in GermanGerman

Peer comments on this answer (and responses from the answerer)
agree  Adrian MM. (X): Lingustically, negative goodwill doesn't pluralise. Financially, there would be a problem if it did: allocation or appropriation of which part to a reserve and then to a P&L a/c - SBE, as once recommended by the UK Accounting Standards Committee.
3 hrs
  -> Thanks Mr. Thumb
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5 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5
reversal of excess of the acquirer's interest in identifiable net assets over cost


Explanation:
I'd normally expect to see "Auflösung" there, so either that's a typo or some sort of Alpendeutsch.

As you're probably aware, "negativer Unterschiedsbetrag" was the original IAS term for negative goodwill, though both terms have now been dropped in IFRSs. Paras. 56 and 57 of the current version of IFRS 3 as adopted by the EU read as follows:

"Excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost

56 If the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised in accordance with paragraph 36 exceeds the cost of the business combination, the acquirer shall:
(a) reassess the identification and measurement of the acquiree's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and
(b) recognise immediately in profit or loss any excess remaining after that reassessment.

57 A gain recognised in accordance with paragraph 56 could comprise one or more of the following components:
(a) errors in measuring the fair value of either the cost of the combination or the acquiree's identifiable assets, liabilities or contingent liabilities. Possible future costs arising in respect of the acquiree that have not been reflected correctly in the fair value of the acquiree's identifiable assets, liabilities or contingent liabilities are a potential cause of such errors;
(b) a requirement in an accounting standard to measure identifiable net assets acquired at an amount that is not fair value, but is treated as though it is fair value for the purpose of allocating the cost of the combination. For example, the guidance in Appendix B on determining the fair values of the acquiree's identifiable assets and
liabilities requires the amount assigned to tax assets and liabilities to be undiscounted;
(c) a bargain purchase."

I think that in practice, we'd normally shorten the English term to the "excess of the acquirer's interest in identifiable net assets over cost" or the "excess of the fair value of identifiable net assets over cost"

For the record, this contrasts significantly with the current version of IFRS 3, which has eliminated entirely the concept of the "excess of the acquirer's interest in identifiable net assets over cost". This is how the current IFRS 3.32-36 reads (the version in the Bound Volume published and made available online today):

"Bargain purchases

34 Occasionally, an acquirer will make a bargain purchase, which is a business combination in which the amount in paragraph 32(b) exceeds the aggregate of the amounts specified in paragraph 32(a). If that excess remains after applying the requirements in paragraph 36, the acquirer shall recognise the resulting gain in profit or loss on the acquisition date. The gain shall be attributed to the acquirer.

35 A bargain purchase might happen, for example, in a business combination that is a forced sale in which the seller is acting under compulsion. However, the recognition or measurement exceptions for particular items discussed in paragraphs 22–31 may also result in recognising a gain (or change the amount of a recognised gain) on a bargain purchase.

36 Before recognising a gain on a bargain purchase, the acquirer shall reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and shall recognise any additional assets or liabilities that are identified in that review. The acquirer shall then review the procedures used to measure the amounts this IFRS requires to be recognised at the acquisition date for all of the following:
(a) the identifiable assets acquired and liabilities assumed;
(b) the non-controlling interest in the acquiree, if any;
(c) for a business combination achieved in stages, the acquirer’s previously held equity interest in the acquiree; and
(d) the consideration transferred.

The objective of the review is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date."

So, if the very latest version of IFRS 3 were being applied, I think I'd use something simple like "recognition of gains on bargain purchases" and not bother with all that "excess" stuff. But, *only* if the 2009 IFRS 3 were being applied.

--------------------------------------------------
Note added at 5 hrs (2009-03-10 22:28:37 GMT)
--------------------------------------------------

Aber von mir aus, if you want to say "negative goodwill", why not.... Will they notice? Do they *ever* notice?

--------------------------------------------------
Note added at 16 hrs (2009-03-11 09:06:01 GMT)
--------------------------------------------------

And a note to "Tom Thumb": A., under IFRSs (and the asker did point out that IFRSs are involved here), what used to be called "negative goodwill" is recognised immediately in profit or loss (generally other operating income) when it is identified during a business combination. It is not taken directly to equity, either in full or in part (that was the old German GAAP accounting treatment, which also no longer applies).

RobinB
United States
Local time: 04:20
Specializes in field
Native speaker of: Native in EnglishEnglish
PRO pts in category: 993
Grading comment
Thanks for the help Robin. It'll teach me to reply to questions late on, the company is not AT but DE (contrary to most of my work) and therefore the Auf/Aus is most probably a typo.
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17 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5
writing off (or writing down if partial) negative goodwill


Explanation:
just working the debits and credits:
- purchase company
- credit bank amount paid
- debit assets company value
- credit goodwill with difference (assets > bank payment)

- debit goodwill with write-down or write-off
- credit P&L as extraordinary income

Yep, that works!

Yasdnil1
Dominican Republic
Local time: 05:20
Specializes in field
Native speaker of: English
PRO pts in category: 12

Peer comments on this answer (and responses from the answerer)
neutral  RobinB: I suggest you check out the relevant paragraphs of IFRS 3 (current EU core standard), where all is explained. You can't "write off" or "write down" negative goodwill, because it's not an asset in the first place.
3 mins
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