Quantitative Impairment Test. Goodwill is considered to be impaired if the implied fair value of the reporting unit is less than the carrying value of the reporting unit’s net assets (including...

Quantitative Impairment Test.

Goodwill is considered to be impaired if the implied fair value of the reporting unit is less than the carrying value of the reporting unit’s net assets (including goodwill). Remember, since the acquired net assets were recorded at their fair values as of the acquisition date, it is the subsequent carrying (book) value based on those amounts that is used for later periods of impairment testing.

 Let us revisit the Lakeland Company example. Assume that the following new estimates were made at the end of the first year:

Since the recorded net book value of the reporting unit exceeds its implied fair value, goodwill is considered to be impaired. If the estimated fair value exceeds the existing book value, there is no impairment, and there is no need to proceed to Step 2 to calculate a goodwill impairment loss.