How does impairment testing work for intangible assets and goodwill?

Full Explanation

Impairment testing ensures that intangible assets are not carried on the balance sheet above their recoverable amount. Under IAS 36, there are two regimes. For finite-life intangible assets (customer relationships, technology, patents), impairment testing is triggered by indicators such as declining revenue, loss of key customers, technological obsolescence, or adverse market changes. The test compares the asset's carrying amount to its recoverable amount — the higher of fair value less costs of disposal and value-in-use (discounted future cash flows). For goodwill and indefinite-life intangible assets, annual testing is mandatory regardless of indicators. Goodwill cannot be tested individually — it must be allocated to cash-generating units (CGUs) that benefit from the synergies of the acquisition. The CGU's carrying amount (including allocated goodwill) is compared to its recoverable amount. Under US GAAP (post-ASU 2017-04), goodwill impairment is simplified: if the CGU's carrying amount exceeds fair value, the excess is recognised as impairment, capped at the goodwill amount. Impairment losses on goodwill are never reversed under either IFRS or US GAAP. For other intangibles, IFRS allows reversal if conditions improve; US GAAP does not.

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