When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if:

a. The fair value of the net identifiable assets held by a reporting unit decreases.

b. The fair value of the reporting unit decreases.

c. The carrying value of the reporting unit is less than the fair value of the reporting unit.

d. The fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill.

Question

Business

Natalie Duran

29 February, 18:14

When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if:

a. The fair value of the net identifiable assets held by a reporting unit decreases.

b. The fair value of the reporting unit decreases.

c. The carrying value of the reporting unit is less than the fair value of the reporting unit.

d. The fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill.

+3

Answers (1)

Know the Answer?

Everett Barker · Answer 1

D) The fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill.

Explanation:

According to the Financial Accounting Standards Board (FASB) rule 350-20-35-73: The company must recognize a goodwill impairment loss if the carrying amount of the entity (recently acquired company or business unit) exceeds its fair value. The impairment loss should be equal to the amount by which the carrying value exceeds the fair value of the entity. The impairment loss cannot be higher than goodwill's value. Also, the tax effects of the impairment loss must be included in its calculation.