400Q Guide Error
Normally Goodwill remains constant on the Balance Sheet – why would it be impaired and what does Goodwill Impairment mean?
Usually this happens when a company has been acquired and the acquirer re-assesses its intangible assets (such as customers, brand, and intellectual property) and finds that they are worth significantly less than they originally thought.
Is that true? Thats the 400Q awnser - I think its wrong, because it mixes Purchase prica allocation with goodwill impairment or am I missing something?
From what I understand, it is correct. The way I think of it:
Here's an example. If a firm was bought out for $500mm, and it's market value of assets at the time of acquisition was $400mm, then goodwill = 500-400=$100 mm. If in 1 year, a goodwill impairment check occurs and its updated value is $50mm, then you recognize a $50mm impairment loss. If the market/updated value is >$100mm, you won't do anything bc of the conservatism principle in acct (only recognize losses, not gains).
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