Merger surplus and deficit (boni and mali)

The merger surplus and merger deficit, known in French practice as boni and mali de fusion, are the accounting gaps recorded when a company absorbs another in which it already held part of the capital. On the merger, the absorbing company cancels the shares it held in the absorbed company and receives in exchange the corresponding portion of net assets. The difference between the value of those net assets received and the carrying value of the cancelled shares forms a surplus when positive, a deficit when negative.

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The treatment of the deficit distinguishes two components. The technical deficit corresponds to the unrealised gains and Goodwill not recognised in the absorbed company: it is booked as an asset and allocated to the underlying assets. The true deficit reflects a genuine economic loss and is charged to expense. The surplus, symmetrically, is recorded as financial income within the limit of the share of undistributed results.

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For example, a company holds a subsidiary for 2 MCHF in its accounts and absorbs it when the net assets received are worth 2.6 MCHF: the 0.6 MCHF gap forms a surplus. Conversely, net assets of 1.7 MCHF would reveal a deficit of 0.3 MCHF, split between technical deficit and true deficit.

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These entries are not neutral: they affect net book assets and, indirectly, the reading of a Merger by third parties. Their analysis calls for attentive financial due diligence, notably to distinguish a value-bearing technical deficit from a true deficit revealing a poorly justified past goodwill.