Question

Sometimes liabilities are intangible. Research the scandal with the Weinstein Co. that came to light in 2017. After the scandal the company filed for bankruptcy and an attempt to sell it to outside investors was made. What liabilities both tangible and intangible did bidding companies have to consider when attempting to purchase the company? Why?

Answer 1

Just like a company may have goodwill as their value adding profit over and above the normal profit a company can also have negative goodwill.A basis for goodwill is the future maintainable profit which is based on the past position and profits of the company and the current factors affecting the position of the company.

In the given case The Weinstein Co.(TWC) was founded by Bob and Harvey Weinstein in 2005 and in 2017 the case of sexual assault and rape charges were filed against Mr. Weinstein. In an era where there is more and more demand and respect for the women in all he areas of the work environment when such charges come against the founder of a company it is bound to affect the financial position in an intangible way.

The same will be seen in the drop of values of the market value and goodwill which will result in increased liabilities position as there is no change in the liabilities in financial terms but as per the negative goodwill the reputation of the company is already gone down.

The following liabilities shall be considered:

Share Capital and Reserves, Payable to Government and Tax authorities, Internal Reconstruction possible if any and the most important among all these are Provisions and Contingent Liabilities because no company would want to invest or buy a company which is neither financially stable nor has any goodwill.Moreover the public are bound to boycott the products of such company.