Goodwill

Question 1

Define Goodwill:

Answer 1

Goodwill is difference between what you paid and the fair market value of the entity.

Question 2

Tool:

Answer 2

Decomposition Tool

Question 3

What is a bargain purchase? How is accounted for?

Answer 3

There is no such thing as badwill! Income statement gain.. ordinary gain.

Question 4

Is goodwill amortized?

Answer 4

No.

Question 5

What are the steps to determine if goodwill is impaired?

Answer 5

1) Qualitative Assessment (pre-step)- Whether it is more likely than not that the fair value of the reporting unit is less than the carrying value.

Factors: General deterioration of the economy, decline in the industry, increase cost of raw materials, decline in cash flows, changes in management, loss of key personnel, consideration of bankruptcy.

2) Quantitative Test:
- Measure the FV of the reporting unit and compare it to the CV Unit.
- If the CV is greater than the FV then you go to the second step

3) Do another decomposition tool and evaluate if goodwill needs to be impaired.

Question 6

When is goodwill tested for impairment?

Answer 6

Annually or when an event occurs!