Goodwill Impairment
Goodwill impairment occurs when the carrying amount of a reporting unit exceeds its fair value, requiring a write-down of goodwill to the extent of the excess, not below zero.
Explanation
Under the simplified one-step approach (ASU 2017-04), an entity compares the fair value of the reporting unit to its carrying amount. If carrying amount exceeds fair value, goodwill is impaired by the difference, limited to the carrying amount of goodwill. There is no longer a requirement to calculate implied goodwill. The optional qualitative assessment allows entities to first evaluate whether it is more likely than not that goodwill is impaired before performing the quantitative test.
Goodwill is tested for impairment at least annually or whenever triggering events occur (significant decline in market value, adverse business changes, loss of key customers). Goodwill impairment losses are recognized in the income statement and cannot be reversed in subsequent periods under U.S. GAAP.
Key Points
- •One-step test: compare reporting unit fair value to carrying amount
- •Impairment = excess of carrying amount over fair value, limited to goodwill balance
- •Tested annually and upon triggering events
- •Impairment losses cannot be reversed under U.S. GAAP
Exam Tip
Remember the simplified approach — no more Step 2 implied goodwill calculation. Just compare fair value of reporting unit to carrying amount.
Frequently Asked Questions
Related Topics
Business Combinations (ASC 805)
A business combination occurs when an acquirer obtains control of one or more businesses, accounted for using the acquisition method under ASC 805.
Intangible Assets
Intangible assets are identifiable non-monetary assets without physical substance, such as patents, trademarks, copyrights, and customer lists, recognized at cost and amortized over their useful lives if finite.
Fair Value Measurement (ASC 820)
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
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