Ch04: Post-Acquisition; Goodwill Impairment Loss

Question 1

Goodwill

Answer 1

An indefinite life intangible; it can’t be amortized
Impairment losses appear in the operating section of the IS; if the loss is material, reported as a separate line item
It represents intangible benefits connected to a business beyond the business’ NIdA

Question 2

Reporting Unit

ASC 280

Answer 2

A component of an enterprise that earns revenue and incurs expenses; its operations are reviewed by a chief decision maker and financial information is available for that unit
Impairment testing is based on the fair value of goodwill assigned to the reporting unit

Question 3

Assigning Goodwill to Reporting Units

Answer 3

Goodwill is assigned to both existing and acquired reporting units
Assigning Goodwill to existing units:
1. method used is (with - without)
2. (Fv Goodwill WITH combination) - (Fv Goodwill WITHOUT combination) = Goodwill assigned

Question 4

If assigned Goodwill to the reporting units is higher than Goodwill via the acquisition…

Answer 4

The buyer must adjust the assigned Goodwill down to the acquisition Goodwill by a rational method

Question 5

Goodwill Impairment

Answer 5

Testing Goodwill at least annually is required unless the likelihood of impairment is remote

Frequent testing is needed because:
a downturn in the business climate
adverse legal or regulatory outcomes
new competition
loss of personnel
a reporting unit may be sold

Each reporting unit is individually tested for impairment

Question 6

Goodwill Impairment

Step 0.

Answer 6

Optional, qualitative assessment; is there more than a 50% chance that the unit is impaired?

Question 7

Goodwill Impairment

Step 1.

Answer 7

Is the fv of the unit less than its BV?

If yes, it may be impaired

Question 8

Goodwill Impairment

Step 2.

Answer 8

Estimate the implied fv of the reporting unit’s Goodwill
Is the implied fv of Goodwill lower than its BV?
If yes, there is impairment and a write-off is required