How does goodwill impairment work under ASC 350?

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AcadiFi · Accepted Answer

Under ASC 350 (as amended by ASU 2017-04), goodwill is tested at the reporting unit level at least annually. The process: (1) optionally perform qualitative step-zero; (2) if needed, compare reporting unit carrying amount (including goodwill) to its fair value; (3) if carrying exceeds fair value, recognize impairment equal to the excess, capped at the goodwill balance.

Example: Meridian Foods has a Bakery reporting unit with carrying amount $840M (including $260M goodwill). Fair value is $720M. Impairment = $840M - $720M = $120M, which is less than $260M goodwill, so full $120M is recognized. Goodwill drops to $140M.

The old Step 2 (hypothetical purchase price allocation) was eliminated, simplifying the process. Impairment losses are never reversed, even if fair value recovers. Under IFRS (IAS 36), the test is performed at the cash-generating unit level and uses recoverable amount (higher of fair value less costs and value in use) — a one-step approach.

How does goodwill impairment work under ASC 350?

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