F4 M8 Flashcards
How do you calculate goodwill using the equity method?
goodwill is excess of FV of stock purchase price >FV of net assets acquired
How are costs associated with maintaining, developing or restoring goodwill treated in the financials?
Costs associated w/maintaining, developing, or restoring goodwill are not capitalized as goodwill, they are expensed
How do you treat goodwill capitalized internally?
Goodwill generated internally is not capitalized as goodwill
What gives rise to impairment of goodwill?
Impairment of goodwill occurs when Carrying value of the reporting unit (including goodwill) is greater FV of
the reporting unit (including goodwill)
In an equation that has the goodwill inside of the carrying value, do you need to add it to the CV again when calculating goodwill/impairment
If the CV of the operating unit already has goodwill included, I don’t have to add it again
obviously
What is a reporting unit?
Reporting unit is an operating segment
Can goodwill in the same company but different reporting units have one thats impaired and one that isnt?
The goodwill of one reporting unit may be impaired while the goodwill for another unit might not be
When do you test for goodwill impairment?
Goodwill is tested for impairment annually
Can you reverse the losses after you impaired goodwill
When goodwill is impaired, the loss can’t be reversed
How do you test fo4r goodwill impairment?
The qualitative test (step 0 for intangibles w indefinite live) is used first to determine if
goodwill is impaired
Does GAAP allow companies to compare the CV of operating units to certain market standards?
GAAP allows companies to compare the CV of their operating units to a certain market
standard such as macroeconomic conditions or industry and market conditions
What happens if a company realizes its carrying value
If by comparing the CV of the operating segment to one of those standards it is found
that there is a 50% chance or higher that the CV > FV, then the asset is impaired and
must be written down just like above
How do you apply the certain market standards to impairment of goodwill
If it is not more than likely that the CV>FV, then no impairment test is needed (same as
for intangibles w/o finite lives)
what is the limit in quantity that you can impair goodwill
Impairment of goodwill can not surpass the amt of goodwill in the reporting
segment
What is the JE to impair goodwill?
Entry to decrease goodwill: debit loss and credit goodwill (subtract old goodwill by the
loss to get the new goodwill)
