Impairment Loss Calculation. If Step 1 indicates impairment, the impairment loss must be estimated. The impairment loss for goodwill is the excess of the implied fair value of the reporting unit over...

Impairment Loss Calculation.

If Step 1 indicates impairment, the impairment loss must be estimated. The impairment loss for goodwill is the excess of the implied fair value of the reporting unit over the fair value of the reporting unit’s identifiable net assets (excluding goodwill) on the impairment date. These are the values that would be assigned to those accounts if the reporting unit were purchased on the date of impairment measurement.

For our example, the following calculation was made for the impairment loss:

The impairment loss will be shown as a separate line item within the operating section unless it is identified with a discontinued operation, in which case, it is part of the gain or loss on disposal. Once goodwill is written down, it cannot be adjusted to a higher amount. Two important issues must be understood at this point.