When does a company perform a goodwill impairment test?
Under U.S. GAAP, a public company must test goodwill for impairment at least once annually. The company must use discretion to determine when the test is performed (i.e., what month?). The important thing to remember is that U.S. GAAP does indicate that the goodwill impairment test should be performed at the same time each year. For example, if the impairment test was performed on April 15, Year 1, then in Year 2, it should be performed on April 15.
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What is the formula for testing goodwill impairment under IFRS?
Under IFRS for assessing whether goodwill is impaired, the test is performed on the cash-generating unit. 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.
What is the journal entry to record an acquisition?
When a company acquires more than 50% of another company, US GAAP requires the acquirer to consolidate the acquired company under the consolidation method. The visual below illustrates the 6-step process that can be used to record a journal entry on the acquisition date: For example, let’s say that Universal acquired 70% of Mustang Education […]