A U.S. company reports $11,600 in goodwill and decides to quantitatively test it for impairment at the end of the year. The following information is collected:
$$\begin{array} { | l | r | r | r | }
\hline & \text { Division 1 } & \text { Division 2 } & { \text { Division 3 } } \
\hline \text { Book value of goodwill } & \$ 5,000 & \$ 400 & \$ 6,200 \
\hline \text { Fair value of division } & 60,000 & 10,000 & 25,000 \
\hline \text { Book value of division } & 62,000 & 9,500 & 24,000 \
\hline
\end{array}$$ What is the amount of goodwill impairment loss for the year, following U.S. GAAP?

Question

A U.S. company reports $11,600 in goodwill and decides to quantitatively test it for impairment at the end of the year. The following information is collected:
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Division 1 } & \text { Division 2 } & { \text { Division 3 } } \
\hline \text { Book value of goodwill } & \$ 5,000 & \$ 400 & \$ 6,200 \
\hline \text { Fair value of division } & 60,000 & 10,000 & 25,000 \
\hline \text { Book value of division } & 62,000 & 9,500 & 24,000 \
\hline
\end{array}$$ What is the amount of goodwill impairment loss for the year, following U.S. GAAP?

Quizplus · Accepted Answer

The goodwill impairment loss is calculated by comparing the fair value of a division to its book value, including the goodwill. If the fair value is less than the book value, the difference is the impairment loss, but not exceeding the book value of goodwill. For Division 1, the fair value ($60,000) is less than the book value ($62,000), indicating a potential impairment. The impairment loss is the difference of $2,000, which is less than the goodwill amount of $5,000, so the impairment loss is $2,000. Division 2 and 3 have fair values greater than their book values, so there's no impairment. Total impairment loss is $2,000.

A US Company Reports $11,600 in Goodwill and Decides to Quantitatively