Goodwill Impairment

AAA

DEFINITION of 'Goodwill Impairment'

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Goodwill

    An account that can be found in the assets portion of a company's ...
  2. Goodwill To Assets Ratio

    A ratio that measures how much goodwill a company is recording ...
  3. Badwill

    The negative effect felt by a company when shareholders and the ...
  4. Intangible Asset

    An asset that is not physical in nature. Corporate intellectual ...
  5. Nonfinancial Asset

    An asset with a physical value such as real estate, equipment, ...
  6. Negative Goodwill

    A gain occurring when the price paid for an acquisition is less ...
RELATED FAQS
  1. How is a goodwill impairment recorded on a company's financial statements?

    Goodwill impairment is recorded on a company's financial statements by reducing the goodwill asset account on the company's ... Read Full Answer >>
  2. What are pro forma earnings?

    Great question, but it is not easily answered, because pro forma earnings figures are inherently different for different ... Read Full Answer >>
  3. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  4. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  5. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
  6. What does an unfavorable variance indicate to management?

    In managerial accounting, an unfavorable variance is discovered when a company's management performs a comparison between ... Read Full Answer >>
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. Personal Finance

    Can You Count On Goodwill?

    Carefully examine goodwill and its sources before considering the value of your investment.
  3. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  4. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  5. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  6. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  7. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  8. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  9. Fundamental Analysis

    What is Year-to-Date?

    Year-to-date (YTD) is a term that describes financial results from the beginning of the current year up to the day the financial number is reported.
  10. Investing Basics

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!