Goodwill Impairment Testing

Definition

The mandatory annual assessment (and more frequent assessment when indicators exist) of whether the carrying amount of goodwill exceeds its recoverable amount. Under IAS 36, goodwill is tested at the cash generating unit level by comparing the unit's carrying amount (including allocated goodwill) with its recoverable amount. Under ASC 350, a single-step quantitative test compares the fair value of a reporting unit with its carrying amount, and any excess of carrying amount over fair value is recognised as an impairment loss, limited to the total goodwill allocated to that reporting unit.