Are impairments for goodwill, inventory, and other assets deductable for tax purposes?
I know they are non-cash carges, but do they create a tax-shield similar to depreciation?
Hope you guys can help.
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the impairment is taken on the gains/(loss)line of the income statement... as this preceedes the Pre-tax income line, yes it does provide a tax deduction/shield...
So, should I add-back the whole amount to FCF as a non-cash expense?
Or, should I add-back the after-tax amount to FCF and assume that the expense is non-operating?
Good question. You should add back the after-tax amount because you don't want to double count the positive effect of taxes on FCF (i.e. adding back too much)
If you're adding it into the Cash Flow statement and not a DCF, then you add the pre-tax number as the whole thing is a non-cash charge... The tax shield is baked in the net income which is exactly the effect you want...
The expense is operating, clearly the impairment is as a result of deteriorrating operating / performance...
If this is in regards to a DCF and you're trying to reconcile it up from Net Income rather than down from EBITDA (unusual way), then yes you would do as Monkeykingdom says and add the post-tax amount...
Specify what FCF you refer too, there is a huge difference between the FCF in a DCF and the FCF before debt service seen on the computed cash flow statement.. good effort with the questions, shit effort on what you're looking for...
what are you doing, are you sitting and reading through a 2009 accounting text book and trying to figure out how this stuff can be modeled or jsut getting people on this board to do your accounting homework... most of the stuff you post on this board is crap no one ever bakes into a model...
I have never seen a model that bakes in goodwill impairment, inventory impairment etc., mainly because when this stuff is modeled, no-one figures the company goes defunct, defeats the point of investment... also, thats what accountants are for, to test for the impairment, not an MDs job to figure that out...
Pick up a damn 10-k/Q and read the nice little footnotes that tell you where goodwill impairment is baked in then analyse it and see how it flows... these days tons of companies are taking impairment charges, shouldnt be hard to find.. do your own Hw dude...
Thanks for the help. This is not for homework. I'm just trying to get a complete handle of this stuff and make sure that I do not leave anything important out of my valuation.
I realize this thread died a few years ago but think it is important to clarify that, no, goodwill impairment (nor any other impairment, for that matter) is not deductible for tax purposes in the US.
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