Ch 7 Case 1

The following are the required steps to identify, recognize and measure the impairment of a long-lived asset (group) to be held and used:

Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

vi) Goodwill- The beginning balance for Goodwill was determined by finding the difference between Total Assets and Total Liabilities at the beginning . Goodwill accounts for all the intangible assets that were transferred from the old company to the new company, including brand name, as well as a premium paid for the company. Goodwill was not amortized in this model.

Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.For the purposes of impairment testing, goodwill is allocated to each of the Group 's cash-generating units (CGUs), or groups of CGUs, expected to benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.If the recoverable amount of the CGU (or groups of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups

According to ASC 410-20-25-10, instances may occur in which insufficient information to estimate the fair value of an asset retirement obligation is available. For example, if an asset has an indeterminate useful life, sufficient information to estimate a range of potential settlement dates for the obligation might not be available. In such cases, the liability would be initially recognized in the period in which sufficient information exists to estimate a range of

Where explain the concept of Intangible asset, which represents assets that absence of physical substance. Moreover, Goodwill represents an asset from which is expected future economic benefits, emerge from the acquisition of other assets or business combination. Another important point would be the impartments testing as refers ASC 350-20-35-28 where indicates that Goodwill of reporting unit must be tested for impairment annually. The test can be accomplished at any time in the fiscal year. In the case of different reporting unit, the impairment test could be at different times. This citation in the memorandum was provided incorrect (ASC 305-20-35-1 and 28) this encoding does not exist in FASB.

We will discuss whether the Company’s approach for testing goodwill for impairment after recognizing an impairment charge related to a long-lived asset group classified as held-and-used is appropriate. This issue pertains to whether it is feasible to have a long-lived asset impairment without goodwill impairment.

* Test for recoverability — If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question to their carrying amounts (as a reminder, entities cannot record an impairment for a held and used asset unless the asset first fails this recoverability test).

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The following are the required steps to identify, recognize and measure the impairment of a long-lived asset (group) to be held and used:

According to Section 360-10-35-21, examples of events that would cause an asset to be tested for impairment include a significant decrease in the market price of a long-lived asset, or a asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, or asset group, and a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.

The authoritative guidance for asset impairment is to ensure that impairment is recorded and dealt with as depreciation. The scope of the standard is writing off of assets and depreciation. According to the guidance of 360-10-35, it address how long-lived assets that are intended to be held and used in an entity’s business shall be reviewed for impairment. The impairment loss can only be recognized if the carrying amount of a long-lived assets is not recoverable and

Understand the classes of intangibles (internally-generated and purchased) and how to account for them Understand a special case of intangible – research and development, and how to account for them Understand a special case of intangible – goodwill, and how to account for them

Goodwill Impairment is a charge that record companies when goodwill carrying value on financial statements exceeds its fair value. Goodwill impairment happens when there is deteriorating capabilities in acquired assets that generate cash flows, and when the fair value of the goodwill falls below its book value. It’s an earnings charge that companies record on their income statement after they recognize that there is a good amount of evidence that an asset connected with goodwill can no longer show financial results that were expected from the asset at the time of the purchase. Change in accounting standards for Goodwill started because of the accounting standards of 2000-2001. Firms artificially inflated their balance sheets by reporting exaggerated values of goodwill, which was allowed at that time for its rules saying they may be amortized over its estimated useful life. There is an annual test required by all companies to review their goodwill impairment in the “Events that may trigger goodwill impairment include deterioration in economic conditions, increased competition, loss of key personnel and regulatory action. The definition of a reporting unit plays a crucial role during the test; it is defined as the business unit that a company's management reviews and evaluates as a separate segment.” (Investopedia) It’s identified in two steps. “First, a company must compare the fair value of a reporting unit to its carrying value on the balance

Goodwill and impairment is very well related in accounting concept, impairment is a concept in accounting that explains stable reduction in value of asset (Dauang-ploy,O.,Shelton,M.,&Omer,K.,2005). To calculate impairment loss it is essential to de-cide the amount of value in use, and this involve the calculation of the cash flows which are supposed to be produced from the use of assets. Goodwill can only be recognised when it is obtain in business combination.