Research On The Accounting Recognition And Measurement Of Negative Goodwill For Reverse Merger

The procedures of IPO in China are still complicated, time-consuming and restrict, more and more companies focus on reverse merger to achieve indirect listing. Now in China, reverse merger is divided into transactions that constitute a business or transactions that don’t constitute a business, most companies make that the transaction is consistent with criterion of equity transactions in practice. In reverse merger that constitute a business, goodwill or negative goodwill will be recorded as the difference between the costs of merger and the acquiree’s fair value of identifiable net assets. Goodwill(negative goodwill) depends primarily on the costs of acquirer and the acquiree’s fair value of identifiable net assets, while the costs of acquirer is related to the acquirer’s fair value of equity securities on the date of acquisition. Therefore, the use of fair value in reverse merger is particularly critical.Researches on reverse mergers mainly focus on the financial effects of choosing different accounting treatments on reverse mergers. But in the paper, it will focus on the process of negative goodwill in reverse merger and study the deficiencies of negative goodwill recognition combined with case studies. Firstly, it gives a brief introduction of the concepts of reverse mergers and goodwill, including business and equity transaction. Secondly, it makes comparisons of CAS20, SFAS141-142and IFRS3on reverse mergers in order to find their differences and our weakness. Finally, it uses cases about the reconstruction of Shanying zhiye to show the recognition and initial measurement of negative goodwill in reverse merger. Then this paper studies the shortcomings when using equity transaction on a transaction that don’t constitute a business by the reconstruction of Baimao gufen.In lack of the practical guide of "business" in our standards, enterprises have the possibility to choose different accounting treatments. At the same time, the lack of practical guide of "fair value" makes the differences of the value of goodwill(negative goodwill). So this article puts forward some practical guides of "business" based on reducing the use of equity transactions and making the accounting treatment of equity transactions’ clearly. Besides, this article also recommends to provide more specific guidance on the operation of fair value about how to better use fair value on goodwill measurement of reverse mergers. Finally, this paper gives some ideas about the negative goodwill in profit or loss, which "will reflect the nature of negative goodwill more accurately and avoid the huge fluctuations of corporate financial performance.