Understanding Merger Surplus and Merger Deficit
Read the article: https://www.compta-online.com/boni-et... Merger surplus or deficit arises when the acquiring company already owned shares in the acquired company before the merger. The equity interests it held are cancelled and replaced by the assets and liabilities of the dissolved company.
A merger surplus exists when there is a positive difference between the net assets received by the acquiring entity and the book value of the equity interests.
A merger deficit exists when there is a negative difference between these two amounts.
Technical deficit is the portion of the merger deficit that corresponds to unrealized gains after deducting unrecorded liabilities, if any. This technical deficit may be higher or lower than the sum of the unrealized gains on identified assets excluding goodwill.
When the technical goodwill is greater than the sum of these capital gains, the allocation of the technical goodwill is made first to the contributed assets, with the remainder allocated to the goodwill. When the technical goodwill is less than the sum of these capital gains, the allocation to the contributed assets is made in proportion to the unrealized capital gains.
Any difference between the merger goodwill and the technical goodwill is an impairment loss, called the true goodwill.