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Goodwill Impairment Testing - ASC 350

As per accounting standard codification subtopic ASC 350-20-35-1, goodwill is not amortized but rather shall be periodically tested for impairment. Companies need to perform impairment testing on an annual basis. Additionally, Companies must also perform impairment testing if any “trigger event” occurs during the financial period. “Trigger Event” may refer to an adverse change in business climate or market resulting in a negative impact on the fair market value of the reporting entity.

The impairment is performed in 2 steps:

 

Step 1: The first step is to compare reporting unit fair value to the book value. If the fair value of reporting unit is higher than its book value, then no impairment is considered. However, if the fair value of reporting unit is lower than its book value, Step 2 (as discussed below) is required.

Step 2: As part of Step 2, if applicable, the company needs to perform a similar analysis as prepared under the initial ASC 805 exercise.

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