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What is the difference between US GAAP and IFRS for goodwill impairment?

Remind me, what is goodwill again?

Goodwill is value that is created when a company purchases assets from another company for more than the fair value of the company’s net identifiable assets. As you can see in the visual below, the FMV of the net identifiable assets was only $4 million, but Vesla paid $5 million, which created goodwill of $1 million.

Remember, goodwill cannot be internally generated! Goodwill can only be created when a company purchases or acquires assets from another company.

So what is goodwill impairment and what level is goodwill tested at under US GAAP and IFRS?

Goodwill impairment would occur if the carrying value of the goodwill is greater than the fair-market value of the goodwill. Determining the fair value is performed by Management and can be a bit subjective.

It is important to understand that impairment is tested at the reporting unit level for US GAAP and as the cash-generating unit (CGU) for IFRS.

So how do I calculate goodwill impairment under US GAAP and IFRS, and is there really any differences?

The good news is that there is really no difference in how goodwill impairment is calculated under US GAAP and IFRS. Again, the main difference is that we would test for goodwill impairment at the reporting unity under US GAAP and the cash-generating unit under IFRS.

Below is the calculation of goodwill impairment for US GAAP and IFRS. As you can see, and impairment loss only occurs if the NBV or carrying value of a reporting unit exceeds the FMV. The key thing to note is that the goodwill impairment loss cannot exceed NBV or carrying value of good will (i.e. goodwill cannot be negative).

Can goodwill impairment losses be reversed under US GAAP or IFRS?

So in general, impairment losses under US GAAP for goodwill or other intangible assets cannot be reversed. Under IFRS, impairment losses on goodwill also cannot be reversed, but impairment losses on intangible assets other than goodwill can be reversed.


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You might also be interested in...

  • 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 million, then goodwill would be $1 million.

  • 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).

  • Is Goodwill Capitalized or Expensed?

    Goodwill is generally recognized as a capitalized unidentifiable intangible asset on a company’s balance sheet from the acquisition of another companies net identifiable assets. However, after the purchase of a company’s net identifiable intangible assets, they may expend resources to continuously maintain it. The CPA Exam will refer to this situation as “internally developed” goodwill. So How do We Calculate Goodwill? Upon acquiring another company’s net identifiable assets, goodwill is calculated as the difference between the purchase price of the company and the fair market value of its net identifiable assets.