Goodwill Impairment

Goodwill Impairment Under U.S. GAAP

When we need to determine the goodwill impairment under U.S. GAAP, this requires companies to test when it is likely that the fair value of a reporting unit is less than it is carrying amount. If we find that there was an impairment, the amount by which the carrying amount of goodwill is more than its implied fair value. This creates the loss recognized for the impairment. Under U.S. GAAP, the goodwill amount may be written down, however, in no case where it is allowed to be written up. You must remember that.

Accounting for Impairment Loss for Intangible Assets

When the time comes to account for impairment loss for intangible assets, it is a bit more straight-forward. In a normal case, the intangible assets are evaluated for impairment at least on a yearly basis. The first step to determine impairment for an intangible asset, it is to look at the qualitative factors that might impair the asset. This is very similar to the first step for tangible assets. If management believes that there is the possibility of impairment, then they should elect to move to quantitative testing. The quantitative test for intangibles is much easier than it is for tangible assets. For intangible assets, we simply evaluate the asset’s book value versus its fair value. When the book value is higher than the fair value, then the asset is impaired. The fair value then becomes the new book value and the difference is recorded as a loss.

Long-Lived Assets

When we work with long-lived assets, it comes in two main categories. There are tangible assets such as land, plants, and equipment. Then there are intangible assets such as copyrights, patents, and trademarks. However, no matter which type of long-lived asset you have, you may have to account for the impairment of the long-lived asset. Impairment happens whenever the carrying value of an asset is greater than the expected future economic benefit. Continue reading and we will discuss this phenomenon in a variety of ways.

Impairment Loss on Long-Lived Assets Under U.S. GAAP

Under U.S. GAAP, ASC 360-10, when we account for impairment loss for tangible assets, this method provides us with stages to identify and correct impairment wherever it may be present. The first stage we must determine if recent events or changes have given us a credible reason to believe that certain assets may be impaired. If we have the reason to believe an asset is impaired, we can move on to the next stage which involves estimating the future undiscounted net cash flow we can expect from the asset. If the undiscounted net cash flows are lower than the carrying amount of the asset. Then the asset is impaired, and we have to record it. The recognized loss would be calculated by subtracting the fair value of the asset and the carrying amount of the asset.

To learn more about Accounting for Troubled Debts Under U.S. GAAP, click here.