A proposed model for allocating the negative fair value of assets at the initial recognition of a business combination under Polish accounting regulations

Abstract

Purpose: This study develops allocation models of business combination for recognizing the initial value of stand-alone business assets when that business generates negative income and, as a consequence, should be evaluated at a negative fair value. Methodology/approach: This deductive study presents a methodological approach to allocation models constructed under Polish accounting regulations, i.e., the Accounting Act and National Accounting Standards, based on normative accounting theory. Findings: Three allocation models were developed to measure the initial value of business assets if any cash-generating units are measured at a negative fair value: the overall adjusting factor model, the decreasing adjusting factor model, and the sum-of-the-years digits model. The limitations of the models are also considered, and finally, a con-ceptual example is presented. Research limitation/implications: The models can be applied and verified on cases of business combination in Poland to assess the usefulness of particular models. Originality/value: The study consists of original propositions of allocation models at negative fair value for Polish accounting regulations, filling a research gap: the lack of proper allocation method of value under such a transaction under this regulation.