Goodwill Impairment

Loading the player...

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.

RELATED TERMS
  1. Goodwill To Assets Ratio

    A ratio that measures how much goodwill a company is recording ...
  2. Negative Goodwill

    A gain occurring when the price paid for an acquisition is less ...
  3. Goodwill

    An account that can be found in the assets portion of a company's ...
  4. Impaired Asset

    A company's asset that is worth less on the market than the value ...
  5. Impairment

    1. A reduction in a company's stated capital. 2. The total capital ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
Related Articles
  1. Economics

    Explaining Goodwill Impairment

    Goodwill impairment results when the fair market value of a company’s goodwill asset is less than its historical cost.
  2. Professionals

    Goodwill Impairment Test: When You Overpay in M&A

    Overpaying for acquisitions can result in goodwill impairment charges and loss in stock value. How do companies test whether they have paid too much?
  3. Investing Basics

    How Does Goodwill Affect Stock Prices?

    “If a business does well, the stock eventually follows.” - Warren Buffett
  4. Economics

    Impairment Charges: The Good, The Bad And The Ugly

    Impairment charge is the term for writing off worthless goodwill.
  5. Personal Finance

    Can You Count On Goodwill?

    Carefully examine goodwill and its sources before considering the value of your investment.
  6. Economics

    What is an Impaired Asset?

    An impaired asset is one where the fair market value of the asset is less than the historical cost (or book value) of the asset.
  7. Economics

    How To Calculate Goodwill

    Despite being intangible, goodwill is quantifiable and an important part of a company’s valuation.
  8. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  9. Fundamental Analysis

    Goodwill

    Goodwill is more than just benevolence - it also refers to an accounting term frequently used in M&A. Learn more about it here.
  10. Options & Futures

    Financial Statements: Long-Lived Assets

    By David Harper (Contact David)In the preceding section, we examined working capital, which refers to the current assets and liabilities of a company. In this section, we take a closer look at ...
RELATED FAQS
  1. When and why does goodwill impairment occur?

    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?

    Learn about the Financial Accounting Standards Board 's (FASB) rules for goodwill amortization, how the rules have changed ... Read Answer >>
  5. Is goodwill considered a form of capital asset?

    Learn more about capital assets of a business, and understand why goodwill is an intangible asset that is classified as a ... Read Answer >>
  6. How does goodwill increase a company's value?

    Learn about the basics of goodwill in the business world, what positive effects it can have on a company's overall value ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center