The purpose of impairment testing is to measure the Fair Value of an item on the balance sheet and compare to its Book Value or Carrying Value. The test for goodwill impairment involves determining the Fair Value and then comparing the market value of the reporting unit to its carrying value.

Under the current guidance in Accounting Standards Codification 350, adopted by the Financial Accounting Standards Board (FASB), goodwill is defined as “an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.” The purpose of impairment testing is to measure the Fair Value of an item on the balance sheet and compare to its Book Value or Carrying Value.  If the Fair Value is less than Book Value, the item may be impaired and require a full re-allocation of the assets of the business.  The test for goodwill impairment involves determining the Fair Value and then comparing the market value of the reporting unit to its carrying value.

Similarly, there are other long-lived (non-amortizable) intangible and tangible assets that may require impairment testing. Businesses must test for impairment if there is a change in its business model or profitability. The test for impairment also requires determining the cash flows attributable to the subject asset and comparing to its Book Value.

Next Up

INDUSTRIES WE SERVE

INDUSTRIES WE SERVE