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9.8 The quantitative goodwill impairment test
Publication date: 31 May 2024
us Business combinations guide
As described in BCG 9.5, the quantitative goodwill impairment test is performed by calculating the fair value of the reporting unit and comparing it to its carrying amount (book value). The book value is the reporting unit’s carrying amount after all of the reporting unit’s other assets (excluding goodwill) have been adjusted for impairment, if necessary, under other applicable GAAP. This assumes the reporting unit is not a disposal group or part of a disposal group under ASC 360, Property, Plant, and Equipment. See BCG 9.10.1 for further information.
- If the fair value of the reporting unit is greater than its carrying amount, the reporting unit’s goodwill is not impaired.
- If the carrying amount of the reporting unit is greater than its fair value, the reporting unit’s goodwill is impaired. The goodwill impairment loss is the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of the goodwill. Once a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill will be its new accounting basis. In accordance with ASC 350-20-35-13, once a goodwill impairment loss is recognized it cannot be subsequently reversed.
9.8.1 Foreign currency translation adjustments
When the quantitative goodwill impairment test is performed, a reporting entity needs to consider the impact of foreign currency translation adjustments.
Question BCG 9-24
How should foreign currency translation adjustments be treated when determining the carrying value of a reporting unit?
How should foreign currency translation adjustments be treated when determining the carrying value of a reporting unit?
PwC response
In accordance with ASC 350-20-35-39A, the carrying amount of a reporting unit should include the currently translated balances of the assets and liabilities within that reporting unit. However, foreign currency translation adjustments should not be allocated to the reporting unit from the reporting entity’s accumulated other comprehensive income.
9.8.2 Zero or negative carrying amounts
The quantitative goodwill impairment test is applied to all reporting units, including those with zero or negative carrying amounts. Goodwill attributed to reporting units with zero or negative carrying amounts generally will not be impaired as the fair value of a reporting unit is rarely negative.
To perform the quantitative goodwill impairment test, a reporting entity needs to determine the fair value of the reporting unit and compare it to its carrying amount. The FASB did not to prescribe how to determine the fair value of a reporting unit (see BCG 9.7.1). The FASB has indicated that it might be appropriate to change from the equity premise to the enterprise premise for a reporting unit with a negative carrying amount if it results in a more representative impairment evaluation under the quantitative goodwill impairment test.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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