How is the goodwill impairment process simplified for private companies?

Question

What will be an ideal response?

Answer 1

The goodwill impairment process is simplified in two ways for private companies. First, if there is a triggering event, the unamortized balance of goodwill is required to be assessed for impairment. A triggering event is defined as any event or change in circumstances that may cause the fair value of the acquired entity, or reporting unit, to decline to an amount less than its carrying amount. However, there are no requirements to re-measure each of the entity's (or reporting unit's) separate assets and liabilities at current fair values in order to calculate a residual implied value for goodwill. This rule was adopted in order to save costs and streamline the process. Goodwill impairment loss is calculated as the amount of the excess (if any) of the fair value of the acquired entity over its total carrying amount. Impairment loss is limited to the remaining unamortized balance in the goodwill account.


Second, private companies may choose to designate and test goodwill for impairment at either the entity level, or the reporting unit level. This election must be made at the time the alternative goodwill method is adopted by the entity.