Question

Explain what is meant by Goodwill Impairment Test, and identify the main five events upon which goodwill undergoes a test for its impairment. Provide your answer in light of your study of the course subjects and your readings through the Internet and/or the university e-library.

Answer 1

Goodwill will be tested for impairment when its likely the carrying value of the asset exceeds its fair value. This testing is done atleast once in every accounting period.

Events where goodwill may be tested for impairment include:

1. If the economic conditions of the country or even at global have adversely hit.
2. If there is increase in the competition in markets.
3. Change in ownership or even the top management.
4. Changes in actions of the government and other regulators negatively impacting the company or to the industry, the company belongs to.
5. If it is probable that future economic benefits flowing to the company from the acqusiiton under which the goodwill was recognised is under jeopardy.
6. If any impairment of goodwill occured in the asset held by the close affiliate viz subsidiary, parent, etc.