From the course: Accounting Foundations: Asset Impairment
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The old and costly goodwill impairment rule
From the course: Accounting Foundations: Asset Impairment
The old and costly goodwill impairment rule
- The new goodwill impairment rule is simple. Estimate the market value of the reporting unit to which the goodwill is assigned, compute the net book value assets minus liabilities of this reporting unit and if the market value is greater than the book value, stop. This is taken as evidence that the reporting unit has not declined in value and that the goodwill is intact. If the market value is less than the book value the deficit is assumed to reflect goodwill impairment. A goodwill impairment loss is recorded in the amount of the deficit of the recording unit's market value below it's net book value. Okay, so how is the old goodwill impairment rule different? In just one little change in assumptions. With a new rule all of the market value deficit is assumed to stem from a reduction in the value of goodwill. With the old rule, no such simplified assumption was allowed. Instead the company basically had to re-compute the…
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