What is the formula for testing goodwill impairment under U.S. GAAP?
Under U.S. GAAP for assessing whether goodwill is impaired, the test is performed on the reporting unit level. The company would compare the fair-market-value of the reporting unit to the net-book-value of the reporting unit.
If FMV exceeds the NBV, then there is no impairment. However, if FMV is less than the NBV, then goodwill is impaired.
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Can goodwill be internally generated by a company?
Absolutely not. Goodwill can only be generated through an acquisition or purchase of assets from a 3rd party.
For goodwill impairment testing, what is the testing level under U.S. GAAP and IFRS?
Under U.S. GAAP, goodwill is tested for impairment at the “reporting unit” level, while under IFRS, the testing is performed at the cash-generating unit (CGU).
How is goodwill created?
When a company purchases a company, the buyer acquires the fair market value of the net identifiable assets. Goodwill is considered the excess over fair market value of the purchased assets. For example, if a Vesla (electric car company) pays $5 million for a company with fair market value of net identifiable assets of $4 […]