Question

Parent Company recently acquired a business appropriately recognizing goodwill in the acquisition at the reporting unit level. The goodwill was allocated to the reporting units: Rexy Inc. Parent provides the following information in performing the 2019 annual review for impairment:

Rexy Reporting Unit:

• Carrying value of net assets including $130,000 of Goodwill equals $540,000;
• Fair Value of net assets excluding Goodwill equals $400,000;
• Valuation of Reporting Unit (including Goodwill $525,000).

Using the two-step Goodwill Impairment test, compute the amount of goodwill impairment, if any, Parent would recognize from the reporting units, Rexy, Inc.

Answer 1

answer

two step goodwill impairment test

step 1. identify the potential impairment

(carrying value of the asset without goodwill - fair value of the asset)

if the balance is positive, then the goodwill is potentially impaired and if it is negative then the goodwill is not impaired

in the above case,

carrying value of asset without goodwill = $540,000 - 130,000 = $410,000

fair value of asset = 400,000

step 2 if goodwill is impaired, measure and analyse the potential loss

thus goodwill impairment is 410,000 - 400,000 = $10,000

thus the parent would recognize the goodwill impairment loss of $10,000