Negative goodwill (badwill or bargain purchase gain) arises when the price paid for an acquisition is below the fair value of the net identifiable assets acquired. Under IFRS 3, it is recognised immediately as a gain in the income statement after verifying that all assets and liabilities have been correctly identified and valued at fair value. It typically reflects a distressed acquisition, a forced sale, or an undervaluation of acquired assets. In PPA engagements, rigorous asset identification is required before concluding negative goodwill exists.

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Example: in a Distressed M&A acquisition, an industrial buyer acquires a company in judicial rescue for CHF 2.5 million. The PPA determines that the fair value of net identifiable assets is CHF 3.8 million. After verification that all assets have been correctly measured, the CHF 1.3 million negative goodwill is recognised immediately as an exceptional gain in the acquirer's income statement — a non-cash accounting profit.

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Hectelion secures the recognition of negative goodwill through rigorous PPA to prevent subsequent auditor restatements.