1. What is Goodwill Impairment?

Goodwill impairment occurs when the carrying value of goodwill exceeds its recoverable amount. It represents a decline in the value of acquired assets and is recognized as an expense in financial statements.

2. How is Goodwill Impairment Calculated?

The calculator uses the following formula:

Where:

• Carrying Value — The book value of goodwill on the balance sheet
• Recoverable Amount — The higher of fair value less costs to sell and value in use

Explanation: If the carrying amount exceeds the recoverable amount, the difference is recognized as impairment loss.

3. Importance of Impairment Testing

Details: Regular impairment testing ensures accurate financial reporting and prevents overstatement of asset values. It's required by accounting standards (IFRS and GAAP) at least annually.

4. Using the Calculator

Tips: Enter both carrying value and recoverable amount in the same currency. Values must be positive numbers. The result shows the impairment amount (if any).

5. Frequently Asked Questions (FAQ)

Q1: When should goodwill impairment testing be performed?
A: Annually or whenever there are indicators of impairment (e.g., market decline, adverse legal changes, poor cash flows).

Q2: What's the difference between impairment and amortization?
A: Amortization is systematic reduction, while impairment is unexpected loss in value. Goodwill isn't amortized but tested for impairment.

Q3: Can impairment be reversed?
A: Under IFRS, reversal is prohibited. Under US GAAP, reversal is generally not permitted for goodwill.

Q4: How is recoverable amount determined?
A: It's the higher of fair value less costs to sell and value in use (present value of future cash flows).

Q5: What are the financial statement impacts?
A: Impairment reduces net income on the income statement and reduces goodwill on the balance sheet.