When should a parent consider recognizing the impairment of loss fro goodwill associated with a subsidiarity?...

When should a parent consider recognizing the impairment of loss fro goodwill associated with a subsidiarity? How should the loss be reported in the Financial Statements?

Expert Solution

When a company acquire other company by paying consideration over and above fair value of asset of target company its reported as goodwill. GAAP require that goodwill should be tested for impairment as and when circumstances required like change in business environment, rules regulation affecting business of target. In such situation Goodwill will be tested for impairment. Under this test future cash flow of long lived asset (subsidiary) is computed and compared with carrying value of asset. If carrying value is higher than future cash flow then impairment will be recognized.

Reporting of loss in financial statement :

Once loss is computed for impairment it will be recognized as a loss under operating statement. Disclosure is required under notes on account –

for the reason of booking goodwill and
reason for why company has tested it for impairment under notes of account.
Change in goodwill over the year.

ekkarill92 answered 2 years ago

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