A company reports $11.2 million in goodwill and decides to quantitatively test it for impairment at the end of 2020. The following information is collected:
$$\begin{array} { | l | r | r | r | }
\hline & { \text { Division 1 } } & { \text { Division 2 } } & { \text { Division 3 } } \
\hline \text { Book value of goodwill } & \$ 7,000,000 & \$ 200,000 & \$ 4,000,000 \
\hline \text { Fair value of division } & 40,000,000 & 6,000,000 & 20,000,000 \
\hline \text { Book value of division } & 45,000,000 & 6,500,000 & 21,000,000 \
\hline
\end{array}$$ What is the amount of goodwill impairment loss for 2020, following U.S. GAAP?

Question

A company reports $11.2 million in goodwill and decides to quantitatively test it for impairment at the end of 2020. The following information is collected:
$$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Division 1 } } &  { \text { Division 2 } } & { \text { Division 3 } } \
\hline \text { Book value of goodwill } & \$ 7,000,000 & \$ 200,000 & \$ 4,000,000 \
\hline \text { Fair value of division } & 40,000,000 & 6,000,000 & 20,000,000 \
\hline \text { Book value of division } & 45,000,000 & 6,500,000 & 21,000,000 \
\hline
\end{array}$$ What is the amount of goodwill impairment loss for 2020, following U.S. GAAP?

Quizplus · Accepted Answer

The impairment loss is calculated as the difference between the book value and the fair value of each division. Division 1 has a book value of $45,000,000 and a fair value of $40,000,000, resulting in an impairment of $5,000,000. Division 2 has a book value of $6,500,000 and a fair value of $6,000,000, resulting in an impairment of $500,000. Division 3 has no impairment as its fair value is greater than its book value. The total impairment loss is $5,000,000 + $500,000 = $5,500,000, but since the goodwill cannot exceed the book value of goodwill, the impairment is limited to the goodwill amount, which is $6,200,000.

A Company Reports $11 What Is the Amount of Goodwill Impairment Loss for 2020