How do you assess impairment of intangible assets?
The impairment test compares the carrying amount to the recoverable amount (defined above). If the carrying amount exceeds the recoverable amount, then an impairment loss is recorded. Tangible and finite-lived intangible assets are tested at the asset group level.
How do you assess goodwill impairment?
As the new single-step approach for assessing goodwill impairment compares the fair value and carrying value of the entire reporting unit, the goodwill impairment charge (if any) may capture fair value declines, below their carrying values, for non-goodwill assets.
Which of the following is the impairment test for indefinite life intangibles?
fair value test
The impairment loss for an indefinite-life intangible asset is determined by the fair value test, which indicates the amount by which the carrying value of the asset exceeds the fair value of the asset.
How often are indefinite life intangibles tested for impairment?
annual tests
No. An indefinite-lived intangible asset should be tested for impairment between annual tests (“interim tests”) if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If such events or changes have occurred, a quantitative assessment is required. Refer to BCG 8.3.
How do you assess impairment?
To check an asset for impairment, the total profit, cash flow, or other benefit expected to be generated by the asset is compared with its current book value. If it is determined that the book value of the asset is greater than the future cash flow or benefit of the asset, an impairment is recorded.
How is goodwill evaluated to determine whether this specific asset is impaired?
An impairment is recognized as a loss on the income statement and as a reduction in the goodwill account. The amount that should be recorded as a loss is the difference between the asset’s current fair market value and its carrying value or amount (i.e., the amount equal to the asset’s recorded cost).
What is goodwill impairment example?
If the fair value of Company ABC is less than the book value (that is, if Company XYZ were to sell Company ABC today, it wouldn’t get a price equal to or greater than its recorded value), Company XYZ must make a goodwill impairment.
Why does the FASB allow a firm the option to assess qualitative factors to determine whether further testing is required for detecting goodwill impairment?
Why does FASB allow a firm the option to assess qualitative factors to determine whether further testing is required for detecting goodwill impairment? The determination of fair values for a reporting unit’s assets and liabilities is a costly periodic exercise.
How often is goodwill tested for impairment?
annually
Annual Test for Goodwill Impairment U.S. generally accepted accounting principles (GAAP) require companies to review their goodwill for impairment at least annually at a reporting unit level.
What is difference between goodwill and goodwill impairment?
Goodwill impairment occurs when a company decides to pay more than book value for the acquisition of an asset, and then the value of that asset declines. The difference between the amount that the company paid for the asset and the book value of the asset is known as goodwill.
What causes goodwill impairment?
How do you conduct goodwill and indefinite-lived intangible asset impairment testing?
Evaluate all options to reduce costs and complexity. Historically, many organizations have conducted goodwill and indefinite-lived intangible asset impairment testing by collaborating with valuation professionals and other advisers to measure fair value of their reporting units and indefinite-lived intangible assets.
What is the difference between qualitative and quantitative goodwill impairment testing?
Quantitative goodwill impairment testing at the reporting unit level can accommodate shifts in the composition of the business’s tangible and intangible assets whereas a focus on a single asset cannot. This demonstrates a situation where the quantitative test can be less volatile than the qualitative assessment.
What are the potential differences between intangibles—goodwill and other valuations?
Potential differences between a valuation conducted for the aforementioned purposes and for purposes of ASC Topic 350, Intangibles—Goodwill and Other, may result from: Dissimilar units of measurement (i.e., reporting unit vs. overall business level).
What is an indefinite-lived intangible asset impairment?
An indefinite-lived intangible asset is considered to be impaired when the asset’s carrying amount is greater than its fair value. There are various approaches to determine whether an impairment should be recognized and, if so, how to measure and record such impairment in the financial statements.