Goodwill Impairment

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What is 'Goodwill Impairment'

Goodwill impairment is goodwill that has become or is considered to be of lower value than at the time or purchase. From an accounting perspective, when the carrying value of the goodwill exceeds the fair value, then it is considered to be impaired. Negative publicity about a firm can create goodwill impairment, as can the reduction of brand-name recognition.

BREAKING DOWN 'Goodwill Impairment'

Goodwill impairment became a public issue during the accounting scandals in 2002. Many firms have artificially inflated their balance sheets by reported excessive goodwill value. This tactic can work during strong bull markets, but the accounting scandals led to legislation that required corporations to report their goodwill assets at realistic levels. Goodwill impairment tests must be conducted annually based on proper methodologies specified by accounting standards.

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RELATED FAQS
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    Understand what the goodwill of an asset is and how it's created. Learn how the goodwill of an asset can be impaired and ... Read Answer >>
  2. How is a goodwill impairment recorded on a company's financial statements?

    Learn about goodwill, how it's created and how it becomes impaired. Understand how goodwill impairment is recorded on a company's ... Read Answer >>
  3. What are the primary goodwill accounting rules to be aware of?

    Learn the basics of how goodwill is acquired and tested for impairment, as well as the FASB rule change allowing for the ... Read Answer >>
  4. How does goodwill amortize?

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  5. Is goodwill considered a form of capital asset?

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  6. How do businesses determine if an asset may be impaired?

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