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Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

2. What would be the impact on Blockbuster's 1988 earnings per share if 5 amortization were applied to this goodwill?

Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.For the purposes of impairment testing, goodwill is allocated to each of the Group 's cash-generating units (CGUs), or groups of CGUs, expected to benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.If the recoverable amount of the CGU (or groups of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups

Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.

Where explain the concept of Intangible asset, which represents assets that absence of physical substance. Moreover, Goodwill represents an asset from which is expected future economic benefits, emerge from the acquisition of other assets or business combination. Another important point would be the impartments testing as refers ASC 350-20-35-28 where indicates that Goodwill of reporting unit must be tested for impairment annually. The test can be accomplished at any time in the fiscal year. In the case of different reporting unit, the impairment test could be at different times. This citation in the memorandum was provided incorrect (ASC 305-20-35-1 and 28) this encoding does not exist in FASB.

As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than

Based on ASC 320-10-35-34 I mentioned above, the other-than-temporary impairment should be recoded as $28 ($100-$72) as of December 31, 20X1. On January 31, 20X2, when the price of the stock went up to $75, the other-than-temporary impairment should be recoded as $25 ($100-$75). If the share price was $95 instead of $75 on January 31, 20X2, I think no other-than-temporary impairment needs to be recorded, because there is no material decrease occurred.

In the event that the carrying amount of the reporting unit is greater than zero, then the second test of goodwill impairment is unnecessary according to FASB codification 350-20-35.6. This is because impairment of goodwill has been found to not be a condition in this result.

An impairment loss is equal to the excess of the carrying amount over the fair value of the asset. Thus, once it is determined that carrying value will not be recovered, an impairment loss must be recognized”. For purposes of testing for recoverability and measuring an impairment loss, individual long-lived assets should be grouped with other assets forming the lowest level for which identifiable cash flows are largely independent of those of the entity's other assets. Note, though, that, if an impairment loss is recognized, it should be applied only to the long-lived assets in the group that are covered by FASB ASC 360-10 ; thus, other assets in the group are not affected but should, if necessary, be adjusted for impairment in accordance with other applicable GAAP. As defined in FASB ASC 350-10: “Goodwill should be part of an asset group to be tested for impairment only if the group is itself a “reporting unit” or includes such a unit”. Note that when we want to evaluate or compute the implied goodwill or test goodwill impairment, we should include the combined net assets of Plant 3 which includes property, plant and equipment. 8A-Impairment or Disposal of Long-Lived Assets (WG&L) provided relevant parts that: “impairment occurs when the carrying amount of asset is not recoverable and a write-off is needed”. The section also mentioned about various events and changes in circumstances might lead to an impairment

However, this impairment test is only required if the fair value of the reporting unit is less then the carrying amount of the unit. Therefore, if after computing the fair value of the reporting unit, the firm discovers that it is less than the unit’s carrying value, the firm must complete the two-step goodwill impairment test (“ASC 2011-08 Topic 350” 1-2). Additionally, a firm may evaluate qualitative aspects to determine whether there is a more than a 50 percent chance that the fair value of a reporting unit, including goodwill, is less than the unit’s carrying amount. These qualitative factors include macroeconomic conditions, industry and market conditions, and overall financial performance. However, a firm can reject conducting the qualitative analysis and initiate the two-step goodwill impairment test if it so

The objective of this project is to reduce the cost and complexity of the subsequent accounting for goodwill for public business entities and NFP entities. This project will determine if certain intangible assets, such as customer relationships and non-compete agreements, should be included in goodwill. Research will be done to identify the most appropriate useful life of goodwill if it were to be amortized and on simplifying the impairment test (Hillenmeyer & McMillen, 2013).

However, in practise the immediate write-off to reserves is not altogether straightforward. As the goodwill has already been allocated an economic value for the purposes of the company sale it is difficult to argue that purchased goodwill is not an asset. The immediate writing off the amount to reserves ignores the existence of purchased goodwill. As outlined by Robins, it is also "inconsistent to charge expenses incurred for building up inherent goodwill to the profit and loss account and to write off purchased goodwill against the reserves" By amortising the intangible fixed asset through the profit and loss account either over its "economic useful life" or over a specific number of years, the goodwill can

In today’s businesses, there has been an increase in the demand for financial reporting and also, the need to have reliable measurements of fair value and its disclosures. The need for reliable information has caused continuous change to accounting policies which has posed a challenge not only to management of companies, but also to auditors. The frequent changes in accounting principles pose a challenge for managers in measuring accounting estimates accurately and are an exceedingly difficult task. Fair value accounting is a financial reporting approach in which companies are required to measure and report on an ongoing basis certain assets and liabilities at estimates of the prices they would receive if they were to sell the assets or would pay if they were to settle their liabilities. Under fair value accounting, companies report losses when the fair values of their assets decrease or liabilities increase. Those losses reduce companies’ reported equity and may also reduce companies’ reported net income.

The impairment test method comes under criticism from Forbes (2007) in regard to the ‘headroom’ allowed to it due to the fact that even though goodwill should be annually tested for impairment, it does not have to be revalued. This reduces the risk of having to amortise goodwill through impairment charges.

The financial statements are limited to providing information obtained from the registry of the company's operations under personal judgments and accounting principles, even though it is generally different from the actual situation of the company's value. In speaking of value we think of an estimate subject to multiple economic factors that are not governed by accounting principles.