USA Can fair value be less than book value?

[Sue9378]

I am new to this forum and currently studying for my BA in accounting.

I was wondering in calculating fair value of the net assets of a company, can the number come out to less than book value for the company?

Would that show as negative goodwill (if that even exists)?

 

[Fidget]

Yes, the fair value of assets can turn out to be lower than the book value. The finer detail on how you account for it depends upon the accounting standards you're using.

It is not negative goodwill though. Negative goodwill arises when the consideration paid to acquire a business is lower than the fair value of its net assets.

 

[victoredwards]

If you bought assets at 100K 5 years ago, depreciated sl for 10 years.
Now Book Value = 100K - 50K = 50K
That is the book value.
Now if you tried to sell that in the market - and you say got 60K for it, the 60K is the Fair Value of that equipment. If the Fair Value was only say 40K - you get into a situation of deciding whether that loss of 10K. And it shows negative goodwill.

 

[Counterofbeans]

If you bought assets at 100K 5 years ago, depreciated sl for 10 years.
Now Book Value = 100K - 50K = 50K
That is the book value.
Now if you tried to sell that in the market - and you say got 60K for it, the 60K is the Fair Value of that equipment. If the Fair Value was only say 40K - you get into a situation of deciding whether that loss of 10K. And it shows negative goodwill.

Huh? What are you talking about?

To the OP...

The answer is absolutely. These situations would often be considered as potential takeover targets.