In January 2017, FASB issued accounting Standards update (ASU) 2017-04, Intangibles—Goodwill and Other (Topic 350): simple the Test because that Goodwill Impairment, which eliminated the calculation of implied goodwill same value. Instead, companies will document an disability charge based upon the overfill of a report unit’s delivering amount that goodwill end its fair value. This indict simplifies the accountancy as contrasted to former GAAP. This post provides an introduction of the goodwill special needs assessment under the brand-new guidance and some certain income tax considerations about the financial effects of goodwill impairment.

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Accounting requirements Codification (ASC) object 350, Intangibles–Goodwill and Other, defines goodwill together “an asset representing the future economic benefits occurring from other assets gained in a business mix that space not personally identified and also separately recognized.” In various other words, goodwill is the excess amount the an acquirer is ready to pay over the fair worth of the obtained reporting unit (acquiree) from the view of an proper market participant—that is, the price that would certainly be got if the report unit were offered in an orderly transaction between market participants. Succeeding to recording goodwill as part of a organization combination, entities check goodwill, at the very least annually, at a report unit level for any impairment.

Current Guidance

Under the existing guidance, carriers can first choose to assess any impairment based on qualitative factors (Step 0). This option allows entities to an initial assess these determinants in stimulate to recognize whether a report unit’s fair worth is an ext likely live Intangibles,” The CPA Journal, June 2014.) If a agency fails this check or decides to bypass this step, it should proceed through the adhering to two-step quantitative evaluate of goodwill impairment.

First, the agency compares the fair worth of the report unit come its delivering amount (Step 1). If the fair value is lower, the company must climate calculate any type of goodwill disability charge by comparing the implied fair value of goodwill to its transferring amount (Step 2). Goodwill impairment may an outcome if and only if the calculated include fair value of goodwill is lower than its transferring amount. An special needs loss to reduce the recorded goodwill and also is irreversible.

New Guidance

FASB authorize ASU 2017-04 in an answer to feedback it got from ingredient in 2014, when it authorize an accountancy alternative that allowed private companies to amortize goodwill and use a much easier one-step special needs test (ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): bookkeeping for Goodwill). ASU 2017-04 has tiered effective dates for its implementation:

For public company entities that room SEC filers, budget years start after December 15, 2019For public company entities that room not SEC filers, budget years start after December 15, 2020For all various other entities, consisting of not-for-profits, fiscal years beginning after December 15, 2021.

Early fostering is permitted for interim or annual goodwill special needs tests perform on testing days after January 1, 2017. Countless companies may well take into consideration early fostering of the brand-new guidance as result of the complexity of the current guidance.

Impairment Assessment

Goodwill impairment charges under the new guidance may differ indigenous the existing guidance since the unit distinction (carrying worth of unit much less fair worth of unit) constantly overrides the goodwill difference (goodwill transporting value less goodwill fair value). Therefore, if the unit distinction under the new guidance is greater or reduced than the goodwill difference, the will change the goodwill difference, which may produce a higher or reduced goodwill disability charge. Furthermore, while some companies may not recognize any type of impairment under the existing guidance as soon as they fail step 1, under the new guidance, if the transporting value that the report unit above its fair value, there will constantly be some amount of goodwill impairment. Exhibit 1 reflects goodwill impairment alternatives under various scenarios.


Entities need to consider the deferred tax effect only once goodwill assigned to the report unit is taxation deductible and the report unit’s delivering value above its same value. Exhibit 5 reflects the handicap of goodwill when goodwill assigned to the report unit is no taxable. The journal entry because that goodwill disability is together follows:

Going Forward

Many companies may decide to embrace the new goodwill handicap guidance in ASU 2017-04 before its effective date due to the fact that it simplifies the goodwill impairment testing process. However it is precious noting that the accuse complicates the tax implications of goodwill audit in details jurisdictions wherein goodwill amortization is deductible for taxes purposes. Companies need to examine the particular details of your goodwill framework to determine the impact of the new guidance for financial reporting purposes.

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Josef Rashty, CPA is an adjunct professor of accountancy at gold Gate college in san Francisco, Calif. He deserve to be got to at .